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Accounting For Managers - Cost Estimation And Control-Standard Costing And Variance Analysis

Meaning Of Standard Costing

   Posted On :  03.05.2018 11:37 pm

Standard costing is a technique which uses standards for costs and revenues for the purpose of control through variance analysis.

Meaning Of Standard Costing
 
 
Standard costing is a technique which uses standards for costs and revenues for the purpose of control through variance analysis. Standard costing involves the setting of predetermined cost estimates in order to provide a basis for comparison with actual costs. Standard costing is universally accepted as an effective instrument for cost control in industries.
 
 
 
A standard cost is a planned cost for a unit of product or service rendered. According to h.j. wheldon, “standard costs are pre-determined or forecast estimates of cost to manufacture a single unit or a number of units of product during a specific immediate future period”. Standard cost is defined in the cima official terminology as: “a predetermined calculation of how much costs should be under specified working conditions. It is built up from an assessment of the value of cost elements and correlates technical specifications and the qualification of materials, labour and other costs to the prices and/or usage rates expected to apply during the period in which the standard cost is intended to be used. Its main purpose is to provide basis for control through variance accounting for the valuation of stock and work-in-progress and in some cases, for fixing selling prices”.

 

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