STANDARD COSTING

STANDARD COSTING

Definition of STANDARD COSTING

"Standard casting is a method of ascertaining the cost whereby statistics are prepared to show : 

(a) the standard costs

 (b) the actual casts; 

(c) the difference between these costs; which is termed as variance --H. J. Wheldon

OBJECTIVES OF STANDARD COSTING

1) increase in efficency & productivity

2) Determination of responsibility

3) Supplement to budgetary control

4) information to the management

5) Progressiveness of management

Advantages of Standard Costing

(a) Cost Consciousness

(b) Cost Control

(c) Increase in Efficiency

(d) Determination of Price and Policy

(e) Management by Exception

(f)  Provides incentives

 Standard costing is one of the most important tools which helps the management to plan and control cost of business operations.

 A standard which can be attained under the most favorable working conditions is called Ideal standard.

 All the costs are pre- determined

 Difference between pre-determined cost & actual costs are known as variance.

Some types of standard are as follows- 

1) Basic standard- It is a standard which is established for use over a long period of time. It remain constant over a long period of time. Base year is choose for comparison. 

2) Current standard- It is for short period & current condition. 

3) Ideal standard – most favorable conditions, best possible operating conditions.

 4) Normal standard – Achieved under normal operating conditions. This standard is difficult to set as it requires a significant degree of forecasting. 

5) Attainable standard (expected standard) – it shows the potential that a business is attainable to achieve.