Cost and Management Accounting

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Concept of standard cost and standard costing

Standard cost is the cost that is expected to incur while producing goods or providing services.

  • It is also called as budgeted cost or planned cost.
  • Its main objective is to ascertain the deviation between standard cost and actual cost.
  • It is predetermined cost.
  • It is a future cost since it is expected to take place in future.
  • It is estimated on the basis of past costing information.
  • They serve as a reference point to compare actual costs and standard cost to identify variances.

Standard Costing is a cost control technique that involves setting standard costs for products, services, or operations, and then comparing these standards cost with the actual costs incurred to measure the variances.

  • It helps in performance evaluation, cost control, and managerial decision-making.
  • In standard costing, cost for all factors are pre-determined in advance.
  • The standards are set based on the past records and performance.
  • It compares actual costs with standard costs to identify deviations and their causes.
  • It is used to measure the efficiency of production.
  • It is used to measure the performance of each segment.
  • It is used to identify and measure the variances between standards and actuals.
  • It is used to prepare budgets and set financial goals based on cost standards.
  • It helps in monitoring and controlling costs.

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