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H&P CH:10
CIMA Official Terminology
A standard cost is a 'planned UNIT COST of a
product, component or service'.
A standard cost card shows full details of the standard cost of each product.
iPhone 7 COST SUMMARY
1.Quantities
2.Prices
3.Rates
It is therefore determined by management's estimates
of the following.
The expected Prices of materials, labour and expenses
Efficiency levels in the use of materials and labour
Budgeted overhead(OH) costs and budgeted volumes
(VOL) of activity
Example 1
BB Company makes one product, the Jex.
Two types of labour are involved in the preparation of a Jex, skilled and semi-skilled. Skilled labour is
paid $10 per hour and semi-skilled $5 per hour. Twice as many skilled labour hours as semi-skilled
labour hours are needed to produce a Jex, four semi-skilled labour hours being needed.
A Jex is made up of three different direct materials. Seven kilograms of direct material A, four litres
of direct material B and three metres of direct material C are needed. Direct material A costs $1
per kilogram, direct material B $2 per litre and direct material C $3 per metre.
Variable production overheads are incurred at BB Company at the rate of $2.50 per direct labour
(skilled) hour.
Administration, selling and distribution overheads are added to products at the rate of $10 per
unit.