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    Standard Cost and Standard Costing

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    Shaharul Islam Barbhuiya
    Standard costing involves setting standards for direct materials, direct labor, and overhead costs based on efficient operations. It allows companies to measure efficiency, find variances from standards, control costs, and make better decisions. Standards are predetermined costs that should be achieved if operations are efficient. While useful for cost control, standard costing has limitations in applicability and difficulty setting accurate standards. It works best for controllable costs in organizations producing standardized products.

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    Standard Cost and Standard Costing

    Uploaded by

    Shaharul Islam Barbhuiya
    22 views12 pages
    Standard costing involves setting standards for direct materials, direct labor, and overhead costs based on efficient operations. It allows companies to measure efficiency, find variances from standards, control costs, and make better decisions. Standards are predetermined costs that should be achieved if operations are efficient. While useful for cost control, standard costing has limitations in applicability and difficulty setting accurate standards. It works best for controllable costs in organizations producing standardized products.

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    Standard costing involves setting standards for direct materials, direct labor, and overhead costs based on efficient operations. It allows companies to measure efficiency, find variances from standards, control costs, and make better decisions. Standards are predetermined costs that should be achieved if operations are efficient. While useful for cost control, standard costing has limitations in applicability and difficulty setting accurate standards. It works best for controllable costs in organizations producing standardized products.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    22 views12 pages

    Standard Cost and Standard Costing

    Uploaded by

    Shaharul Islam Barbhuiya
    Standard costing involves setting standards for direct materials, direct labor, and overhead costs based on efficient operations. It allows companies to measure efficiency, find variances from standards, control costs, and make better decisions. Standards are predetermined costs that should be achieved if operations are efficient. While useful for cost control, standard costing has limitations in applicability and difficulty setting accurate standards. It works best for controllable costs in organizations producing standardized products.

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    Standard Cost And Standard Costing

    PRESENTED TO LURAI RONGMEI ASSISTANT PROFESSOR DBA---SMS ASSAM UNIVERSITY

    PRESENTED BY JAYJEET CHOUDHURY 2nd SEMISTER ROLL --- 11 SECTION A

    In the words of Backer and Jacobsen, Standard cost is the amount the firm thinks a product or the operation of the process for a period of time should cost, based upon certain assumed conditions of efficiency, economic conditions and other factors.

    ICMA LONDON :

    A predetermined cost which is calculated from managements standards of efficient operations and the relevant necessary expenditure.

    Advantages :

    Efficiency measurement

    Finding of variance

    Management by exception

    Cost control

    Right decisions

    Eliminating inefficiencies

    Limitations :
    It cannot be used in those organizations where non-standard products are produced The process of setting standard is a difficult task, as it requires technical skills

    There are no inset circumstances to be considered for fixing standards

    The fixing of responsibility is not an easy task. The variances are to be classified into controllable and uncontrollable variances. Standard costing is applicable only for controllable variances.

    Setting up the standard

    Setting Standards for Direct Materials


    Cost of materials Ordering cost Carrying cost

    Setting Direct Labor Cost


    Standard labor time for producing Labor rate per hour

    Standard labor time indicates the time taken by different categories of labor force which are as under:
    Skilled labor Semi-skilled labor Unskilled labor

    Setting Standards of Overheads


    The next important element comes under overheads. The very purpose of setting standard for overheads is to minimize the total cost. Standard overhead rates are computed by dividing overhead expenses by direct labor hours or units produced. The standard overhead cost is obtained by multiplying standard overhead rate by the labor hours spent or number of units produced. The determination of overhead rate involves three things:

    Determination of overheads Determination of labor hours or units manufactured Calculating overheads rate by dividing A by B

    Determination of Standard Costs


    How should the ideal standards for better controlling be determined?

    1. Determination of Cost Center


    According to J. Betty, A cost center is a department or part of a department or an item of equipment or machinery or a person or a group of persons in respect of which costs are accumulated, and one where control can be exercised.

    2. Current Standards
    A current standard is a standard which is established for use over a short period of time and is related to current condition.

    3. Ideal Standard
    This is the standard which represents a high level of efficiency. Ideal standard is fixed on the assumption that favorable conditions will prevail and management will be at its best.

    4. Basic Standards
    A basic standard may be defined as a standard which is established for use for an indefinite period which may a long period.

    5. Normal Standards
    As per terminology, normal standard has been defined as a standard which, it is anticipated, can be attained over a future period of time, preferably long enough to cover one trade cycle.

    6. Organization for Standard Costing


    The success of standard costing system will depend upon the setting up of proper standards. For the purpose of setting standards, a person or a committee should be given this job. In a big concern, a standard costing committee is formed for this purpose. The committee includes production manager, purchase manager, sales manager, personnel manager, chief engineer and cost accountant. The cost accountant acts as a cocoordinator of this committee.

    7. Accounting System
    Classification of accounts is necessary to meet the required purpose, i.e. function, asset or revenue item. Codes can be used to have a speedy collection of accounts. A standard is a pre-determined measure of material, labor and overheads. It may be expressed in quality and its monetary measurements in standard costs.

    Summary
    Basically, standard costing is a management tool for control. In the process, we have taken standards as parameters for measuring the performance. Cost analysis and cost control is essential for any activity. Cost includes material labor and overheads. Sometimes, we need to revise the standards due to change in uses, raw material, technology, method of production etc. For a proper organization, it is required to implement this under a committee for the activity. It is a continued activity for the optimum utilization of resources.

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