STANDARD COST

NAMES SHILPA SADAPHULE DEEPAK CHAUDHARY KAMLESH DUBE JYOTI PANDY NILESH RAMESH ROLL NO 121176 121131 121138 121162 121190

What is standard costing?

Standard costing involves using the predetermined costs/standard costs to compare with the actual to find the difference or variance. Variance can be adverse (actual result is worse than standard) or favourable ( actual result is better than standard) Standard costing values its manufactured products with a predetermined materials cost, a predetermined direct labor cost, and a predetermined manufacturing overhead cost.

Definition

Standard costing is the preparation of standard costs and applying

them to measure the variances from actual costs and analyzing the causes of variations, with a view to maintain maximum efficiency in production.

STANDARD COST AND ACTUAL COST

STANDARD COST a budget for the production of one unit of product or service ACTUAL COST used in the production of the product or service

COST VARIANCE the difference between the actual cost and the standard cost

STEPS INVOLVED IN IMPLEMENTING STANDARD COSTING

(A) Determination of standard cost (B) Recording of actual cost (C) Comparison of standard cost and actual cost (D) Finding out reasons for variance

(E) Reporting variance to the concerned for corrective action

Purpose of standard costing

1. For fixing the responslibity

2. Study of Time & Speed

3. Increase in Efficiency

4. Helpful in production policy

5. Easy to Delegate power

Types of standard cost

IDEL STANDARDS -These represent the level of performance attainable when prices for material & labour are most favourable.

NORMAL STANDARDS This achieved under normal operating conditions.Standard hours which will produce at normal efficiency goods to meet the average sales demand over a term of years.
BASIC STANDARDS It is likely to remain constant over a period.A base year is chosen for comparision purpose like statisticians use price indices. CURRENT STANDARDS These standards reflect the managements anticipation of what actual cost will be for the current period.

Companies Using Standard Costing:1. Indian Machine Tool - INDIA

2. Highlink Industrial Ltd. - CHINA

3. Sino Spares Ltd.

- TURKEY

Advantages of standard cost

It provides the best basis for estimating future cost and contribute to the planning/budgeting function; it assist in the comparison of the actual with the planned to evaluate managerial performance;

by focusing on the variance whether adverse and favorable, it enable the management to identify and take action to correct or improve present and future planning and control;
the setting of standards will require the looking at the methods and operations which will lead to improvement in efficiency by eliminating inefficiencies;

LIMITATIONS STANDARD COSTING

VARIATION IN PRICE VARYING LEVELS OF OUTPUT CHANGING STANDARD OF TECHNOLOGY ATTITUDE OF TECHNICAL PEOPLE MIX OF PRODUCTS DO NOT REFLECT THE TRUE VALUE AND EXCHANGE BASED ON THEORETICAL MAXIMUM EFFICIENCY, ATTAINABLE GOOD PERFORMANCE & AVERAGE PAST PERFORMANCE