Standard costing

Cost AccountingSTANDARD COSTING

Ms. Neha YadavAsst. Professor

NEHA YADAV (ASST. PROF) 2

CONTENTS Introduction

Meaning

Definition

Characteristics

Objectives

Advantages

Limitations

Essential conditions for an effective system of standard costing

Methods of standard costing


INTRODUCTION OF STANDARD COSTING

Standard costing is one of the most important techniques of management accounting & control. In this era of competition every manufacturer wants that whereas on the one hand the quality of product should be as per standards specified, on the other hand cost of production should be well within control.


MEANING OF STANDARD COSTING

The term “Standard” refers to a specific measurement or “pre- determined scale”. Standard cost is a pre-determined cost which is determined for the production of goods on the basis of certain specified standards under certain specific conditions

Standard costing is a process & technique of accounting in which actual costs incurred are compared with pre-determined cost. On the basis of comparison efficiency of operation is determined & necessary corrective measures are taken if there are some variances.


Definition of STANDARD COSTING

“Standard costing is a method of ascertaining the cost whereby statistics are prepared to show : (a) the standard costs ;(b) the actual costs ; (c) the difference between these costs; which is termed as variance”. --- H. J. Wheldon


CHARACTERISTICS OF STANDARD COSTING• Determination of standards

•Computation of actual cost

•Comparison of standard & actual costs

•Computation of variances

•Ascertainment of reasons of variances

•Study of options

•Presentation of report to the management


OBJECTIVES OF STANDARD COSTING Increase in efficiency & productivity

Cost control

Determination of responsibility

Supplement to budgetary control

Information to the management

Progressiveness of management


OBJECTIVES OF STANDARD COSTING Increase in efficiency & productivity

Cost control

Determination of responsibility

Supplement to budgetary control

Information to the management

Progressiveness of management


ADVANTAGES OF STANDARD COSTING

I) Advantages from the view of cost accounting

1. Elimination of the weakness of historical costing

2. Simple & economic

3. Cot control

4. Comparability

5. Basis of valuation of stock


II) Motivational Advantages

1. Cost consciousness

2. Measurement of & increase in efficiency

3. Basis of incentive wage system


III) Managerial Effectiveness Advantages

1. Facility in production planning

2. Management by exception

3. Effective delegation of authority

4. Determination of responsibility

5. Basis of price fixation

6. Helpful in budgetary planning

7. Facility of use of information technology


LIMITATIONS OF STANDARD COSTING Unsuitable for concerns dealing in non-standardized products

Difficulties in setting up standards

Not suitable for small firms

Difficulty in fixing responsibility

Changing business conditions

Need of budgetary control

Feeling of dissatisfaction among employees


ESSENTIAL CONDITIONS FOR AN EFFECTIVE SYSTEM OF STANDARD COSTING Proper determination of standards

According to technical process

Simplicity & clarity

Promptness in variance analysis

Variance reports

Proper interest by management

Production of standardized goods

Standards of different elements of cost


TYPES OF STANDARD Basic standards-It is also known as ‘initial’, ‘static’ or ‘fixed’ standards . These standards are based on data of some base year & are determined as abase for long period

Current standards-Current standards are established on the basis of current conditions & are modified according to changing conditions. These standards may be of the following three types:

i. Ideal Standard

ii. Expert standard

iii. Normal standard


Thank You

Education

Standard costing