Standards for Actual Output



Standards for actual output can be seggregated as
Standard Quantity for Actual Output [SQ for AO]
The quantity of material that should have been used for the actual output, had the usage of materials been as per the standard.

Standard Cost for Actual Output [SC for AO]
The material cost that would have been incurred for the actual output, had the materials been used (quantity) and purchased (price) at the rates as per the standard.

Budgeted/Standard [Output : 150 units] 
Actual [Output : 150 units] 

Quantity (kgs) 
Price (Rs/kg)
 Cost (Rs) 
Quantity (kgs) 
Price (Rs/kg) 
Cost (Rs) 
Material Used 
450 
4 
1,800 
440 
5 
2,200 
Where the Standard output and Actual Output are the same i.e. SO = AO, these figures can be obtained straightaway from the available data by building up the working table.
The standard is given for 150 units of output and the actual output achieved is also 150 units.
Where are these figures used?
The standard quantity and cost for actual output are useful in identifying
 The variance in quantity of material used by comparing the actual quantity of materials used (440 kgs) and the standard quantity of materials (450 kgs). This variance valued at the standard rates/prices gives what is called the "Material Usage/Quantity Variance".
 The variance in cost can be identified by comparing the actual cost (Rs. 2,200) and the standard cost (Rs. 1,800). This variance is what is called "Material Cost Variance".
Why Recalculate Standards
Standards may be expressed for any level of activity. We may be required to recalculate the standards for a level of activity other than the one given. This recalculation may be based on (a) the actual output where we obtain the Standard Quantity for Actual Output and Standard Cost for Actual Output or (b) the actual input where we obtain the Standard Quantity for Actual Input and Standard Output for Actual Input.
Where Standard Output (SO) and Actual Output (AO) are not equal i.e. SO ≠ AO, we cannot obtain the variances by comparing the given data. In such a case we will have to recalculate the standards such that the AO and SO would be the same to enable us to derive variances by comparison.

Budgeted/Standard [Output : 1,000 units] 
Actual [Output : 210 units] 

Quantity (kgs) 
Price (Rs/kg)
 Cost (Rs) 
Quantity (kgs) 
Price (Rs/kg) 
Cost (Rs) 
Material Used 
2,250 
2 
4,500 
480 
2 
960 
From this data, is it appropriate to say that the production was achieved at a lesser cost? or that the materials had been used efficiently? Surely not. Why?
Because the materials actually consumed and the cost incurred is for manufacturing 210 units whereas the budget/standard is for manufacturing 1,000 units.
 Comparing the actual material consumed for 210 units of output (480 kgs) with the standard quantity of materials for 1,000 units of output (2,250 kgs) and concluding that the material consumed is very low is inappropriate.
 At the same time, comparing the actual material cost incurred for 210 units of output (Rs. 960) with the standard material cost of 1,000 units of output (Rs. 2,250) and concluding that the cost incurred is very low is also erroneous.
The comparison would be appropriate and meaningful if we compare
 The standard quantity of materials of 210 units which works out to 472.5 kgs {(2,250 ÷ 1,000) × 210} and the actual quantity of materials used.
 The standard material cost of 210 units which works out to Rs. 945 {(4,500 ÷ 1,000) × 210} and the actual cost of 210 units.
Therefore to find
 The variance in the quantity of material used we need the standard quantity for actual output.
 The variance in the cost of materials we need the standard cost for actual output.
Recollect that standards can be built for any production level. Standards may be expressed for either 1 unit of output, 2 units of output, ... to any production level. Recalculating standards implies drawing up the standards for a particular production level based on our calculation needs.

Formula » Standard Quantity for Actual Output



Consider the following data arranged in a working table.

Standard [Production: 9500 units] 
Actual [Production: 22,800 units] 

Quantity (kgs) 
Price Rs/kg 
Value/Cost (Rs) 
Quantity (kgs) 
Price Rs/kg 
Value/Cost (Rs) 
Material A 
900 
15 
13,500 
2,250 
16 
36,000 
Material B 
800 
45 
36,000 
1,950 
42 
81,900 
Material C 
200 
85 
17,000 
550 
90 
49,500 
Total
 1,900 
35 
66,500 
4,750 

1,67,400 
The standard output and the actual output are not the same.
Standard Quantity for Actual Output
The logic behind the calculation and the formula for deriving the required quantity
For Each Material Separately
Logic
If the standard production of 9,500 units, the standard quantity of materials (A) is 900 kgs
If the standard production is 22,800 units, the quantity of materials (A) would be ??
Standard Quantity (A) for an Output of 22,800 units 
= 
22,800 units {Actual Output}  9,500 units {Standard Output} 

× 900 kgs {Standard Quantity of Material A} 

Using the data given above,
Standard Quantity for Actual Output [SQ for AO] for
Material A 
= 

⇒ SQ_{A} for AO 
= 
2.4 × 900 kgs 
= 
2,160 kgs 
Material B 
= 

⇒ SQ_{B} for AO 
= 
2.4 × 800 kgs 
= 
1,920 kgs 
Material C 
= 

⇒ SQ_{C} for AO 
= 
2.4 × 200 kgs 
= 
480 kgs 

Total 

4,560 kgs 

For All Materials Together
Logic
If the standard production of 9,500 units, the standard quantity of materials is 1,900 kgs
If the standard production is 22,800 units, the quantity of materials would be ??
Standard Quantity for an Output of 22,800 units 
= 
22,800 units {Actual Output}  9,500 units {Standard Output} 

× 1,900 kgs {Standard Quantity (Standard Mix)} 

Using the data given above,
Standard Quantity for Actual Output [SQ for AO] for
Total/All Materials 
= 

⇒ SQ_{Mix} for AO 
= 
2.4 × 1,900 kgs 
= 
4,560 kgs 


Formula » Standard Cost for Actual Output



Consider the following data arranged in a working table.

Standard [Production: 9500 units] 
Actual [Production: 22,800 units] 

Quantity (kgs) 
Price Rs/kg 
Value/Cost (Rs) 
Quantity (kgs) 
Price Rs/kg 
Value/Cost (Rs) 
Material A 
900 
15 
13,500 
2,250 
16 
36,000 
Material B 
800 
45 
36,000 
1,950 
42 
81,900 
Material C 
200 
85 
17,000 
550 
90 
49,500 
Total
 1,900 
35 
66,500 
4,750 

1,67,400 
Standard Cost for Actual Output
The logic behind the calculation and the formula for deriving the required cost
For each Material Separately
Standard Cost for Actual Output = Standard Quantity for Actual Output × Standard Price.
⇒ SC_{Mat} for AO 
= 
SQ_{Mat} for AO × SP 
(Or) 
= 

(Or) 
= 


[Useful where SQ_{Mat} for AO is already calculated] 
[Useful where SQ_{Mat}, SP_{Mat}, SO, AO data is available] 
[Useful where only SC_{Mat}, AO, SO data is available] 
Using the data in the above example,
Standard Cost for Actual Output [SC for AO] for
Material A 
= 

⇒ SC_{A} for AO 
= 
2.4 × Rs. 13,500 
= 
Rs. 32,400 
Material B 
= 

⇒ SC_{B} for AO 
= 
2.4 × Rs. 36,000 
= 
Rs. 86,400 
Material C 
= 

⇒ SC_{C} for AO 
= 
2.4 × Rs. 17,000 
= 
Rs. 40,800 

Total 

Rs. 1,59,600 

For all Materials together
Standard Cost of Standard Mix for Actual Output
= Standard Quantity of Standard Mix for Actual Output × Standard Price of Standard Mix.
⇒ SC_{Mix} for AO 
= 
SQ_{Mix} for AO × SP_{Mix} 
(Or) 
= 

(Or) 
= 


[Useful where SQ_{Mix} for AO is already calculated] 
[Useful where SQ_{Mix}, SP_{Mix}, SO, AO data is available] 
[Useful where only SC_{Mix}, AO, SO data is available] 
Using the data in the above example,
Standard Cost for Actual Output [SC for AO] for
All Materials 
= 

⇒ SC_{Mix} for AO 
= 
2.4 × Rs. 66,500 
= 
Rs. 1,59,600 

Standard Price of Mix 
= 
Standard Cost of Mix  Standard Quantity of Mix 


Using the data in the above example,

The above data (in the working table) with the recalculated standard would be.

Standard [Production: 22,800 units] 
Actual [Production: 22,800 units] 

Quantity (kgs) 
Price Rs/kg 
Value/Cost (Rs) 
Quantity (kgs) 
Price Rs/kg 
Value/Cost (Rs) 
Material A 
2,160 
15 
32,400 
2,250 
16 
36,000 
Material B 
1,920 
45 
86,400 
1,950 
42 
81,900 
Material C 
480 
85 
40,800 
550 
90 
49,500 
Total
 4,560 

1,59,600 
4,750 

1,67,400 
By recalculating the standard for the actual output we would make the standard output and actual output in the recalculated data to be the same.

