Page 224 - DCOM206_COST_ACCOUNTING_II

Unit 12: Standard Costing

A standard cost card or sheet should be used for each or every product showing total standard Notes
cost of output comprising various elements of costs. A specimen of standard cost card or standard
cost sheet is given below:

Figure 12.3: Specimen of Standard Cost Card
Name of Product : ....................... No. : ...................................
Description : ....................... Date of Setting Standard : ...................................
Quantity or Standard
S.No. Particulars Rate (`)
Hour Cost (`)
(a) Direct materials
Material – M --- --- ---
Material – N --- --- ---
--- ---
Less : Normal loss --- Scrap value ---
Normal Output --- ---
(b) Direct labour --- --- ---
(c) Overheads :
Fixed --- --- ---
Variable --- --- ---
Total Cost ---
Profit ---
Selling Price ---

Important Calculations:
Totalcost
(1) Standard Cost Per Unit =
Output
(2) Standard Selling Price per Unit = Standard Cost per Unit + Profit per Unit

Problems in Setting Standard Costs

The problems involved in setting standard costs, apart from the inevitable problems of forecasting
errors, include the following:
1. The cost of setting up and maintaining a system for establishing standards,
2. Deciding how to incorporate inflation into planned unit costs,
3. Deciding on the quality of materials to be used, because a better quality of material will
cost more, but perhaps reduce material wastage,
4. Estimating materials prices where seasonal price variations or bulk purchase discounts
may be significant,
5. Deciding on the appropriate mix of component materials, where some change in the mix
is possible,

6. Agreeing a labour efficiency standard, and
7. Possible behavioural problems. Managers responsible for the achievement of standards
might resist the use of a standard costing control system for fear of being blamed for any
adverse variances.

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