- Slides: 7
Meaning of Standard, Standard Cost and Standard Costing Dr. Parmila Assistant Professor of Commerce Kanya Mahavidyalaya, Kharkhoda
Meaning of Standard � The term ‘Standard’ refers to a ‘Specific measurement’ or pre-determined scale or measurement’. In the context of management accounting ‘Standard’ may be defined as measurable quantity of material, labour and other elements of cost required in the production of predetermined quality, level or technical characteristics.
Meaning of Standard Cost � Standard cost is a predetermined cost, which is determined for the production of goods on the basis of certain specified under certain specific conditions. According to Brown and Howard, “ The Standard Cost is a pre-determined cost, which determines what each product or service should cost under given circumstances, ” According to Cecil Gillespie, “Standard Cost usually employed are pre-determined operation costs computed to reflect specified quantities, prices & level of operation. ”
Standard Costing is a process and technique of accounting in which actual costs incurred are compared with pre-determined cost. (a) (b) (c) (d) The technique of Standard Costing involes: The ascertainment of Standard Costs of various elements of costs i. e. material, labour & overhead. The comparison of actual cost with pre-determined standard cost. The analysis of variances for ascertaining the reasons for the same. The location of responsibility for the variances and the corrective measures to be taken.
Salient features of Standard Costing (a) (b) (c) (d) (e) (f) (g) Determination of Standards. Computation of actual cost. Comparison of Standard & Actual Cost. Computation of variances. Ascertainment of reasons of variances. Study of options. Presentation of Report to the Management.
Objectives of Standard Costing (a) (b) (c) (d) (e) (f) Increase in Efficiency and Productivity. Cost Control. Determination of Responsibility. Supplements of Budgetary Control. Information to the Management. Progressiveness of Management.
Advantages of Standard Costing (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) Cost Consciousness Cost Control Increase in Efficiency Determination of Price and Policy Management by Exception Valuation of Stock Reconciliation of Cost and Financial Accounts Delegation of authority and responsibility Optimum use of resources Basis of incentive wage system Helpful in Budgetary Planning Facility of use of information technology