Standard Costing

Topics: Cost accounting, Cost, Costs Pages: 25 (7330 words) Published: September 4, 2013
Sr no : Name
1. : Meaning and Introduction of Standard costing 2. : CIMA { }
3. : Advantages of Standard costing
4. : Limitation of standard costing
5. : Types of standard costing
6. : Examples of standard costing
7. : Variance analysis
8. : Types of analysis
9. : Refferences
10. : Conclusion

Standard Costing and Variance Analysis

Standard Cost
The word "Standard" means a "Yardstick" or "Bench Mark." The term "Standard Costs" refers to Pre-determined costs. Brown and Howard define Standard Cost as a Pre-determined Cost which determines what each product or service should cost under given circumstances. This definition states that standard costs represent planned cost of a product. Standard Cost as defined by the Institute of Cost and Management Accountant, London "is the Predetermined Cost based on technical estimate for materials, labour and overhead for a selected period of time and for a prescribed set of working conditions." ,Standard Costing

Standard Costing is a concept of accounting for determination of standard for each element of costs.
These predetermined costs are compared with actual costs to find out the deviations known as "Variances." Identification and analysis of causes for such variances and remedial measures should be taken in order to overcome the reasons for Variances. Chartered Institute of Management Accountants England defines Standard Costing as "the Preparation and use of standard costs, their comparison with actual costs and the analysis of variances to their causes and points of incidence." From the above definition, the technique of Standard Costing may be summarized as follows : (1) Determination of appropriate standards for each element of cost. (2)'Ascertainment of information about actuals and use of Standard Costs. (3) Comparison of actual costs with Standard Costs, the differences known as Variances. (4) Analysis of Variances to find out the causes of Variances. (5) Reporting to the responsible authority for taking remedial measures. Difference between Estimated Costs and Standard Costs Although, Pre-determination is the essence of both Standard Costing and Estimated Costing, the two differ from each other in the following respects: Standard Costing

(1) It is used on the basis of scientific.
(2) It emphasises "what the cost should be."
(3) It is used to evaluate actual performance and it serves as an effective tool of cost. (4) It is applied to any industry engaged in mass production. (5) It is a part of accounting system and standard costing variances are recorded in the books of accounts. Esti11UZUd Costing-

(1) It is used on the basis of statistical facts and figures. (2) It emphasises "what the cost will be."
(3) It is used to cost ascertainment for fixing sales price. (4) It is applicable to concern engaged in construction work. (5) It is not a part of accounting system because it is based on statistical facts and figures. Compare and Contrast between Standard Costing and Budgetary Control : Relationship: The following are certain basic principles common to both Standard Costing and Budgetary Control: (1) Determination of standards for each element of costs in advance. (2) For both of them measurement of actual performance is targeted. (3) Comparison of actual costs with standard cost to .find out deviations. (4) Analysis of variances to find out the causes.

(5) Give the periodic report to take corrective measures.
Differences : Though Standard Costing and Budgetary Controls are aims at the maximum efficiencies and Marginal Cost, yet there are some basic differences between the two from the objectives of using the two costs. Standard Costing and Variance Analysis 599

Budgetary Control Standard Costing
(1) Budgets are...
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