BUDGETING AND

STANDARD COSTING
CHAPTER 16
STANDARD COST
• PREDETERMINED ESTIMATED COST UNIT

INVENTORY
CONTROL DEVICE
VALUATION
STANDARD COST CARD – FOR 1
UNIT
WHEN TO USE STANDARD COSTING

MASS PRODUCTION REPETITIVE WORKS

 IDEAL ATTAINABLE

HOW TO SET
STANDARD
FOR MY
DEPARTMENT?

CURRENT BASIC
BASIS OF STANDARD (IDEAL)
IDEAL

WHAT? PERFECT OPERATING CONDITION

SUITABLE? LONG TERM (CONTINUOUS IMPROVEMENT)

ADV
Pinpointing areas where a close examination
may result in large savings in order to
maximize efficiency and minimize waste
DISADV 1. DEMOTIVATING
2. ADVERSE VARIANCE
BASIS OF STANDARD
(ATTAINABLE)
ATTAINABLE
WHAT? 1. SOME ALLOWANCE FOR
WASTAGE AND INFFICIENCIES
2. INCLUDE IMPROVEMENT

ADV
Useful psychological
incentive by giving employees a
realistic but challenging target of
efficiency
 BASIS OF STANDARD (CURRENT)
CURRENT
WHAT? 1. CURRENT CONDITION

SUITABLE? 1. under current conditions, these standards outline what

should be the cost
2. these standards call or make frequent revisions & periodical
review
3. with changes in production method & price level, these
standards are required to be changed
BASIS OF STANDARD (BASIC)

BASIC

WHAT? Kept unaltered over

a long period of
time, and may be
out of date
SUITABLE? 1. SHOW LONG
TERM CHANGES
THE PRINCIPLE OF CONTROLLABILITY
• MANAGERS SHOULD ONLY BE HELD RESPONSIBLE FOR COST OVER
THEY HAVE INFLUENCE