An Ideal Approach to Standard Costing
AN IDEAL APPROACH TO STANDARD COSTING By Jitesh Chandak
INTRODUCTION
Before you start your study on standard costing you must be clear in your mind that you are going to study a chapter which wants more practice and hard work to develop a strong and sound concept. Costing can be defined as “The technique and process of ascertaining costs.”
Standard costing is a technique, which uses standards for cost and revenue for the purpose of control through variance analysis. We can say standard costing is a technique of costing, which also established control over costing. Standard cost can be defined “As a pre-determined cost which is calculated from management’s standard of efficient operation and relevant necessary expenditure. It may be used as a basis for price fixing and for control through variance analysis.”
Hence we can say standard costs are pre-determined estimates of cost of a single unit or a number of units of a product service.
Uses of Standard Cost: -
1. Use of standard cost is an effective way for planning and controlling costs.
2. Pricing decisions and decisions involving submission of quotations, answering tenders etc are also facilitated by the use of standard costs.
3. Identification and measurement of variances from standards have been made possible with the use of standard cost, with a view to improve performance or to correct loose standards, if any.
4. Facilitates management by exceptions.
DEFINITION OF STANDARD COSTING Standard costing is defined by the I.C.M.A. London “As the preparation and uses of standard costs, their comparison with actual costs and the analysis of variance to their causes and point of incidence.” Hence we can say standard costing is a method of preparation of standards and their uses for comparison with actual costs by variance analysis.
It involves following steps:- 1. Setting up of standard. 2. Ascertainment of actual costs.
INTRODUCTION
Before you start your study on standard costing you must be clear in your mind that you are going to study a chapter which wants more practice and hard work to develop a strong and sound concept. Costing can be defined as “The technique and process of ascertaining costs.”
Standard costing is a technique, which uses standards for cost and revenue for the purpose of control through variance analysis. We can say standard costing is a technique of costing, which also established control over costing. Standard cost can be defined “As a pre-determined cost which is calculated from management’s standard of efficient operation and relevant necessary expenditure. It may be used as a basis for price fixing and for control through variance analysis.”
Hence we can say standard costs are pre-determined estimates of cost of a single unit or a number of units of a product service.
Uses of Standard Cost: -
1. Use of standard cost is an effective way for planning and controlling costs.
2. Pricing decisions and decisions involving submission of quotations, answering tenders etc are also facilitated by the use of standard costs.
3. Identification and measurement of variances from standards have been made possible with the use of standard cost, with a view to improve performance or to correct loose standards, if any.
4. Facilitates management by exceptions.
DEFINITION OF STANDARD COSTING Standard costing is defined by the I.C.M.A. London “As the preparation and uses of standard costs, their comparison with actual costs and the analysis of variance to their causes and point of incidence.” Hence we can say standard costing is a method of preparation of standards and their uses for comparison with actual costs by variance analysis.
It involves following steps:- 1. Setting up of standard. 2. Ascertainment of actual costs.