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In a standard costing accounting system, direct labor has two main variances price and efficiency. Unlike direct materials, direct labor is used at the same time as it is purchased, and therefore the price and efficiency variances occur at the same time on the same production run, and a single journal is needed post the variances together with the standard and actual cost to the accounting system.
The direct labor price variance sometimes referred to as the direct labour rate variance, is one of the main variances used in standard costing and represents the difference between the standard labor rate and the actual labor rate, multiplied by the number of units of labor used.
This tutorial deals with standard costing and variance analysis which is used by management to the monitor business performance against predetermined standard costs using variance reports. Standard costing is also a useful tool for valuing inventory and providing estimated selling prices to customers.
Activity based costing ABC, is an alternative approach to the traditional method of allocating overhead costs to products.
Traditional costing allocates overhead to a product using an arbitrary method such as for example, direct labor hours.
Activity based costing first analyzes the overhead into activities and then allocates the overhead to the product based on how much of that activity the product used.
The high and low method is used in cost accounting as a method of splitting a total cost into fixed and variable costs components.
The high low method takes the two most extreme values of activity, the highest and the lowest, and uses the difference between these two values and associated total costs to estimate the fixed and variable cost elements.
