Standard Costing

Reconciliation Statements

Reconciliation Statements

A reconciliation starts with standard (budgeted) data and reconciles to actual data by listing all variances.

Summary of reconciliation rules

Total cost reconciliation statement (materials + labour combined)

Combines the individual material and labour reconciliations into one statement:

Profit reconciliation statement

Reconciles standard profit to actual profit using all variances (sales + materials + labour).

When actual sales volume = budgeted sales volume:

When actual sales volume ≠ budgeted sales volume (contribution approach)

When production and sales volumes differ from budget, replace the sales volume variance with the change in contribution based on the volume difference:

Budgeted unit contribution = Budgeted selling price − Budgeted unit variable costs (materials + labour)

Change in contribution = Budgeted unit contribution × (Standard sales Q − Actual sales Q)

• If actual sales > budgeted sales → gain in contribution (add)
• If actual sales < budgeted sales → loss in contribution (deduct)

Example (flexed profit reconciliation)

ABC Ltd, August (budgeted 500 units, actual 600 units):

Budgeted profit statement:
  Sales (500 × £125.50)              =  £62 750
  Materials (7 000 kg × £2.50)       = (£17 500)
  Labour (1 400 hrs × £9.50)         = (£13 300)
  Budgeted profit                    =  £31 950

Budgeted unit contribution:
  Unit material cost = £17 500 / 500 = £35
  Unit labour cost   = £13 300 / 500 = £26.60
  Unit contribution  = £125.50 − £35 − £26.60 = £63.90

Gain in contribution = £63.90 × (500 − 600) → sold 100 more → gain = £63.90 × 100 = £6 390