Page 165 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes

Task Prepare the proforma of standard cost sheet.

8.7 Summary

z z Standard costing is a tool, which replaces the bottleneck of the historical costing.
z z Historical costing facilitates to ascertain the cost of a product which is connected with
yester operations or with past.

z z Standards are classified into two categories, viz. Revenue standards and Cost standards.
z z 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.
z z Standard costing is a very useful managerial tool for cost control and cost reduction.
z z When all the standard costs have been determined, a Standard Cost Sheet is prepared for
each product or service.
z z The process of setting standards for materials, labour and overheads results in the
establishment of the standard cost for the product.

8.8 Keywords

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.

8.9 Review Questions

1. Standard costing is a tool, which replaces the bottleneck of the historical costing. Give some
suggestions to support the above statement.
2. The organisations can increase their profit either by increasing the selling price of their
products or by reducing the cost of the product. Which strategy is more beneficial for the
organisation?

3. Standard is nothing but an expected or anticipated performance in normal situations.
Do you think the process of setting the revenue standards is same as the cost standards?
4. The budgetary control and standard costing systems are said to be inter-related but they
are not inter-dependent. Discuss.
5. How standard costing is a useful managerial tool for cost control and cost reduction?
6. Prepare a standard cost sheet for any product or service and discuss the key elements.

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