(30).---STANDARD COSTING.

Standard Costing.

The Uses Of Standard Costing.

A standard cost is a carefully predeternined estimated unit cost.

Standard costing is "a control technique which compares standard costs & revenues with actual results to obtain variances which are used to stimulate improved performance".

Standard costing is the preparation of standard costs to be used in the following circumstances.

(a)--To assist in setting budgets & evaluating managerial performance.

(b)--To act as a control device by establishing standards, highlighting (via variance analysis) activities that do not conform to plan & thus alerting management to those are as that may be out of control & in need of corrective action.

(c)--To enable the principal of "management by exception" to be practiced a standard cost, when established, is an average expected unit cost. Because it is only an average, actual results will vary to some extent above & below the average variances should only be reported where the difference between actual & standard is significant.

(d)--To provide a prediction of future costs to be used in decision-making citoation.

(e)--To value stocks & cost production for cost counting purposes it is & alternative method of valuation to methods like FIFO, LIFO or replacement costing.

(f)--To motive staff & management by the provision of challenging targets.

(g)--To provide guidance on improvement of efficiency.

Setting Standards.

A standard cost implies that a standard or target exists for every single element that contributes to the product;the types, usage & prices of materials & parts, the grades, rates of pay & times for the labour involved, the production methods, tools & so on.The standard cost for.

Each part of the product is recorded on a standard cost card, an example standard costs may be used in both marginal & absorption costing systems.

The responsibility for setting standard costs should be shared between managers able to provide the necessary information about levels of expected.

Efficiency, prices & overhead costs. Standard costs are usually revised once a year (to allow for the new averheads budget, inflation in prices, & any changes in expected efficiency of materials usage or of labour). However they may be revised more frequency if conditions are changing rapidly.

Setting Up Standard.

1. Setting standards for material costs.
2. Setting standards for labour costs.
3. Setting standards for material usage & labour efficiency.
4. Setting standards for overheads.
5. Setting standards for selling price & margin.

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