Define Standard Cost, Standard Costing, Basic Standards, Current Standards
a.) Standard Cost is the pre determined cost, calculated from the management’s standards of efficient operation and the relevant necessary expenditure. It is the normal cost under the normal situation. It may be used for the purpose of price fixation and submission of quotations. It may be used as a yardstick to measure efficiency of the performance and can also be used as a tool for cost control.
b.) Standard Costing is the method of preparation and use of standard costs, their comparison with the actual cost, measurement of variance and analysis of the same and finding out the causes and points of incidence.
c.) Basic Standards are the unaltered standards which are used over for a longer period of time and do not reflect current conditions. These standards are not useful from the cost of control point of view as they consider only fixed costs.
d.) Current Standards are established standards for a shorter period of time and can easily adapt to the current conditions. Current conditions are of three types:
- Ideal Standards
- Expected Standards
- Normal Standards
Is standard costing a separate system of accounting?
No, standard costing system is not a separate system of accounting. It is only a technique which is used with the intention of controlling cost. It can be used in all methods of costing like process costing, job costing, etc but it is more useful in those industries where standard costs are produced on continuous basis.