Saturday, 16 November 2019

Unit 8: Standard Costing


                              Unit 8: Standard Costing   

Standard costing is a tool, which replaces the bottleneck of the historical costing.

zz Historical costing facilitates to ascertain the cost of a product which is connected with yester operations or with past.

zz Standards are classified into two categories, viz.

Revenue standards and Cost standards.

The systems of standard costing and budgetary control have the common objectives of controlling business operations by establishment of pre-determined targets, measuring the actual performances and comparing it with the targets, for the purpose of having better efficiency and of reducing costs.

Standard costing is a very useful managerial tool for cost control and cost reduction.

zz When all the standard costs have been determined, a Standard Cost Sheet is prepared for each product or service.

The process of setting standards for materials, labour and overheads results in the establishment of the standard cost for the product.

Basic Standard: This is a ‘standard’ which is established for use, unaltered over a long period of time.

Budget: Budget is a projection of financial accounts.

Ideal Standard: This standard refers to the target that can be attained under most ideal conditions.

Standard Cost: Standard cost is a predetermined cost, which is estimated from management’s standard of efficient operation and the relevant necessary expenditure.

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