Materials Price Standard:
Usually two standards are set for direct materials
costs. These are:
-
A
materials price standard.
-
A
materials quantity (or usage) standard.
Materials
price standard is discussed here. Materials quantity
standard is discussed on materials quantity standard
page.
Direct
materials price standards permit:
-
Checking the performance of the purchasing
department and the influence of various internal and
external factors.
-
Measuring
the effect of price increase or decrease on the
company's profits.
Determining
the price or cost to be used as the standard cost is often
difficult, because the price used are controlled more by
external factors than by a company's management. Prices
selected should reflect current market prices and are
generally used throughout the forthcoming fiscal period. The
standard price for direct materials should reflect the
final, delivered cost of the materials, net of any discounts
taken.
Example:
Following is
an example of the calculation of standard price per unit for
direct materials:
|
Purchase price, top-grade pewter
ingots, in 40-pound ingots |
$3.60 |
|
Freight, by truck, from the
supplier's warehouse |
0.44 |
|
Receiving and handling |
0.05 |
|
Less purchase discount |
(0.09) |
| |
|
|
Standard price per pound |
$4.00 |
| |
|
|
In above
example the standard price reflects a particular grade of
materials (top grade), purchased particular lot size
(40-pond ingots), and delivered by a particular type of
carrier (truck). Allowances have also been made for handling
and discounts. If every thing proceeds according to these
expectations, the net cost of a pound of pewter should
therefore be $4.00. Relevant
Articles:
|
