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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
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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.
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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.
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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
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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
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OBJECTIVES OF STANDARD COSTING Increase in efficiency & productivity
Cost control
Determination of responsibility
Supplement to budgetary control
Information to the management
Progressiveness of management
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OBJECTIVES OF STANDARD COSTING Increase in efficiency & productivity
Cost control
Determination of responsibility
Supplement to budgetary control
Information to the management
Progressiveness of management
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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
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II) Motivational Advantages
1. Cost consciousness
2. Measurement of & increase in efficiency
3. Basis of incentive wage system
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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
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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
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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
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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
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Thank You