Page 223 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes 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.
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.

10.9 Keywords

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.

10.10Self Assessment

Fill in the blanks:

1. ....................................... facilitates to ascertain the cost of a product which is connected with
yester operations or with past.
2. Standards are classified into two categories, viz. .................................... and Cost standards.

3. ........................................ is introduced to state in figures an approved plan of action relating
to a particular period.
4. Estimated costs are calculated on the basis of .................................... adjusted in the light of
anticipated changes in the future.
5. Standard costs are used as a regular system of accounts from which ....................................
are found out.
6. Basic standards are more idealistic whereas current standards are more .............................
7. The build-up of the standard cost of each item is recorded in .......................................
Choose the appropriate answer:

8. Standard is ideally prepared for
(a) Fixed cost (b) Variable cost
(c) Sales (d) Variable cost and sales

9. If standard cost of the product is more than the actual cost
(a) Favourable (b) Neither favourable nor unfavourable
(c) Unfavourable (d) Both (a) & (c)
10. Standard is calculated for
(a) Volume (b) Per batch

(c) Per unit (d) Per batch or unit

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