Page 240 - DCOM206_COST_ACCOUNTING_II

Unit 12: Standard Costing

what a product should cost, and the reasons for the excess of actual costs over that of what Notes
would have been. In brief, a standard costing helps in minimising costs as far as practicable
to enhance efficiency in performance by setting up standard for expenses and performance
of production.
 Standard is a desired attainable objective, a performance, a good, a model. Usually, standard
denotes a predetermined rate or amount against which actual performance in activity is
compared as a measure to evaluate.

 Standard cost is a predetermined cost and refers to that amount which ought to be incurred.
It is computed in advance of production on the basis of a specification of all the factors,
influencing costs, required for production as inputs.
 Standard costing is the system of cost accounting which makes use of predetermined
standard cost relating to each element of cost-materials, labour and expenses, for each line
of product manufactured of service applied.
 The technique of standard costing can be useful in all types of industries, but it is more
commonly used in industries producing standardised products which are repetitive in
nature.

 Standard costing is basically a tool of control in the hands of management. It helps
management in many ways but it mainly helps in cost control and cost reduction. It also
aids in evaluating the performance, measuring the efficiency and making correct
predications.
 Standard costing provides a stable product cost per unit. The actual cost of a product may
vary from period to period due to much reason. It cannot be used as a basis of price
fixation of a product,

 Attainable standard is a standard which can be attained if a standard unit of work is carried
out efficiently, on a machine properly utilised or material properly used.
 The standard hour is a convenient measure of production. Whatever may be the type of
product or their unit of measurement (e.g., units, tonne, kilogram, gallon, dozen, litres
etc.) the standard hour is capable of measuring them. It is also useful in ascertaining
overhead variances.
 Standard cost is the resultant effect of a number of factors that vary from time to time in
different situations, both internal and external.

 On standard being established for each element of cost for a product, it is recorded in a
card or sheet. This card or sheet is known as standard cost card or standard cost sheet. Thus,
a standard cost card is a record of the standard material, labour, overhead costs.

12.6 Keywords

Basic Standard: The terminology of ICMA defines basic standard as “A standard established for
use over a long period from which a current standard can be developed.”

Current Standard: According to ICMA, it is “A standard which is established for use over a short
period of time and is related to current conditions.”
Ideal Standard: The terminology of ICMA defines ideal standard as, “A standard which can be
attained under most favourable conditions. No provision is made, for example, for shrinkage,
spoilage or machine breakdowns.
Standard Cost Card: It is a record of the standard material, labour, overhead costs.

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