List various stages in the process of standard costing.
The process of Standard Costing involves the following stages:
- Predetermination of technical data related to production i.e details of material and labour required for the manufacturing process.
- Predetermination of standard costs under each element of cost i.e material, labour, overhead.
- Comparison of actual results with the standard costs to find out the variances.
- Analysis of variances to find out the reasons for deviations of actual results from the standards.
- Presentation of information to the level of management to take the appropriate action, or revision of standards.
What are the pre-requisites to set up a standard costing system?
- Cost centre should be defined very clearly in order to fix the responsibilities of every individual or department.
- Accounts should be designed in such a way, whenever the information about the actual performance is required; it is available as correctly and speedily as possible.
- Establish the standards with respect to the individual elements of cost.