Standard Costing

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Learning Objectives: ← To understand the meaning of standard costing, its meaning and definition ← To learn its advantages and limitations ← To learn how to set of standards and determinations ← To learn how to revise standards
Introduction:
Standard costing is a very practical and therefore widely used costing system, in businesses that make a range of products which, although different, pass through standard and repetitive processes and machinery. Standard cost is the estimated cost of material, labor, overheads and other costs for each unit of production or purchase in a given accounting period. It is used as the benchmark against which cost variances and financial performance are measured, the valuation for inventory and a basis for pricing.
It's best suited to businesses that manufacture, but can be used by any business where there is measurable repetition. It is a technique which helps you to control costs and business operations. It aims at eliminating wastes and increasing efficiency in performance through setting up standards or formulating cost plans.
Rather than the actual costs of production being attributed to products, the expected (standard) costs of production are attributed to the products produced.
History of Standard Costing:
Standard costing has been used for over a 100 years. Early last century financial accountants were interested in finding a better way of valuing stocks and work-in progress, important elements the calculation of profit and the concept of standard costing was born. Some historians say the origins of standard costing go back even further and have found evidence it was used in the American Civil War by quarter masters as a means of controlling costs. It doesn’t really matter when the technique was invented what is more relevant is that it is still in use today.
A survey conducted in 1989 reported that standard costing was being used by more than75% of British industrial companies and in a range

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