Standard Costs and Variances


Standard costs are the predetermined value of labor and materialsthat will be used in producing a product if all the conditions ofproduction remain as expected. They are not the real costs that aproduction entity incurs when actually producing the product, butthey aid cost accountants to have a clue of how much it would cost toengage in a particular line of production. Based on historical data,it is possible to derive the standard costs of producing any product.

An example of a product that has both direct materials and labor ispulp and paper. Direct materials are mainly wood or any othermaterial convertible into fiber through chemical processes. In mostcountries, tropical and boreal woods provide the biggest source oftimber, which is converted to fiber for pulp and paper making (Xing,Qi, &amp Huber, 2011).

Direct labor in this industry constitutes both the skilled andunskilled workforce. Skilled workforce is the people operating papermill machinery and those determining the chemical proportion to carryout the wood to fiber conversion process and the field workersinvolved in collecting wood from forests and transporting it to thesite of manufacture.

Increasing concerns about the environment and the changingtechnology will cause a change in the sourcing of direct materialsfor fiber and chemicals. Fiber sources will mainly be grass andother sources of cellulose while enhanced technologies will ensureproper recycling of chemicals. A company should evaluate thisstandard every year.

Direct labor in pulp and paper manufacturing involves two mainfunctions: the operations and maintenance functions. With thechanging technology, the traditional per hour payment will bereplaced with per ton payment of workers. The amount is thenproportioned with the amount of fiber and furnish a factory produces.Similarly, a company should evaluate this standard once a year.


Xing, R., Qi, W., &amp Huber, G. W. (2011).Production of furfuraland carboxylic acids from waste aqueous hemicellulose solutions fromthe pulp and paper and cellulosic ethanol industries.Energy &ampEnvironmental Science, 4(6), 2193-2205.