Standard Costing: Accounting Tools
Introduction
* Meaning of Standard Costing: Standard costing is simply the name given to a technique whereby standard costs are computed and subsequently compared with the actual costs to find out the differences between the two. These differences are then analyzed to know the causes thereof so as to provide a basis of control.
* Standard Costing:
According to BROWN and HOWARD “Standard costing is a technique of cost accounting which compares the standard cost of each product or service with the actual costs, to determine the efficiency of the operations so that any remedial action may be taken immediately”. * Standard Cost:
A standard cost is a planned cost for a unit of product or service rendered. Standard costs represent excellent target costs that should be obtained. The institute of Cost and Management Accountants (UK) defines standard cost as “a predetermined cost, which is calculated from the management’s standard of efficient operation and the relevant necessary expenditure. It may be used as a basis for price fixing and for cost control through variance analysis.”
* Advantages of Standard Costing:
The advantages to be derived from a system costing will vary from one business to another. Much depends upon the degree of sophistication achieved and the acceptance by the management of utility of the system. Some of the advantages are as follows:- 1. Effective cost control: The most important advantage of standard costing is that it facilities the control of costs. Control is exercised by comparing actual performance with standards and taking action on the basis of variances so revealed. 2. Help in planning: Establishing standards is a very useful exercise in business planning with instills in the managements a habit of thinking in advance. 3. Provides incentives: The standards provide incentives and motivate to work with greater effort. Schemes may be formulated to reward those who achieve or surpass the standard. This
* Meaning of Standard Costing: Standard costing is simply the name given to a technique whereby standard costs are computed and subsequently compared with the actual costs to find out the differences between the two. These differences are then analyzed to know the causes thereof so as to provide a basis of control.
* Standard Costing:
According to BROWN and HOWARD “Standard costing is a technique of cost accounting which compares the standard cost of each product or service with the actual costs, to determine the efficiency of the operations so that any remedial action may be taken immediately”. * Standard Cost:
A standard cost is a planned cost for a unit of product or service rendered. Standard costs represent excellent target costs that should be obtained. The institute of Cost and Management Accountants (UK) defines standard cost as “a predetermined cost, which is calculated from the management’s standard of efficient operation and the relevant necessary expenditure. It may be used as a basis for price fixing and for cost control through variance analysis.”
* Advantages of Standard Costing:
The advantages to be derived from a system costing will vary from one business to another. Much depends upon the degree of sophistication achieved and the acceptance by the management of utility of the system. Some of the advantages are as follows:- 1. Effective cost control: The most important advantage of standard costing is that it facilities the control of costs. Control is exercised by comparing actual performance with standards and taking action on the basis of variances so revealed. 2. Help in planning: Establishing standards is a very useful exercise in business planning with instills in the managements a habit of thinking in advance. 3. Provides incentives: The standards provide incentives and motivate to work with greater effort. Schemes may be formulated to reward those who achieve or surpass the standard. This