Content

1. Introduction 4
2. Part Ⅰ--Standard Costing System and Variance Analysis 5
2.1. Definition 5
2.2. Scenarios of Standard Costing System and Variance Analysis 5
2.2.1 Scenario Ⅰ Manufacturing Companies—Auto-making Firms 6
2.2.2 Scenario Ⅱ Service Industries—Banks 7
2.2.3 Scenario Ⅲ Other Industries That Have not Repetitve Processes—AdvertisingFirms 8
2.3. Standard Costing System on Different SIzes 9
2.4. Variance Analysis 9
2.4.1 Total Production Cost Variance 9
2.4.2 Marterials Variances 10
2.4.3 Fixed overhead Variance 11
2.5. Summary 12
3. Part Ⅱ—Relevant and Irrelevant Costs and Incomes 13
3.1. Definition 13
3.2. Scenario Ⅰ—Shutting Down or Keeping Open Part of the Business 13
3.2.1 Relevant and …show more content…

For example, banks prescribe processes of loan applications (at below table). In processes, the labour standard cost (￡1.50) is the most. Companies trained employees and paid salaries to them. In Lloyds TSB online payment, the process is standardized. First, a customer fills in details of payment, such as the name of acceptor and acceptor’s address. Then, TSB calls the customer to confirm the payment. At last, TSB send a message to the customer to notice details of payment. At this process, the cost is very low—labour cost and sending messages cost.

Standard Costs of A Loan Application (￡)
Direct materials 0.6
Direct labour (10 minutes) 1.5
Variable overhead 1.0
Total standard variable cost 3.1

In service industries, managers should pay the most attention to labour costs. Any employee needs time to be familiar to processes and directly attend service’s activities. If a new activity is made, or new employees attend an existing activity, a learning-curve effect will occur (Appendix Ⅰ). At the beginning, the time taken per unit of output is long. With experience increases, employees take less time to do the service. So the learning-curve effect must be taken into account when setting standards (Atrill & McLaney, 2007), especially in service industries. For example, if let a new employee to take care of customers’ loan applications, the time will be longer (20