Estimate the total cost of materials for the upcoming year. To do this, look at the budget for the previous year and add the appropriate percentage of growth anticipated.
Find out the production amounts achieved under idyllic conditions. To perform this calculation, take the mean of the amounts of production for the previous years.
Divide the estimated costs of production by the expected production output. This helps in finding out the cost of standard materials for the process of production.
Go through previous production reports to find out the quantity of materials required to produce a specific finished good. Multiply the standard cost and the quantity of direct materials required for the production of a specific good. This result gives the total average price for the set production process.
Record all the materials used in the production period.
Multiply the standard cost of production and the actual materials used in the production process. This result gives the actual cost involved in production of batch goods.
Subtract the actual production costs from the standard costs of production. The disparity of the two costs is referred to as usage variance.