See Also:
Standard Costing Example
Process Costing
Activity Based Costing vs Traditional Costing
Absorption vs Variable Costing
Implementing Activity Based Costing
Cost Driver
Budgeting 101: Creating Successful Budgets
Analyzing Your Return on Investment (ROI)
Product Pricing Strategies
Standard Costing System
In accounting, a standard costing system is a tool for planning budgets, managing and controlling costs, and evaluating cost management performance.
A standard costing system involves estimating the required costs of a production process. But before the start of the accounting period, determine the standards and set regarding the amount and cost of direct materials required for the production process and the amount and pay rate of direct labor required for the production process. In addition, these standards are used to plan a budget for the production process.
At the end of the accounting period, use the actual amounts and costs of direct material. Then utilize the actual amounts and pay rates of direct labor to compare it to the previously set standards. When you compare the actual costs to the standard costs and examine the variances between them, it allows managers to look for ways to improve cost control, cost management, and operational efficiency.
Advantages and Disadvantages of Standard Costing
There are both advantages and disadvantages to using a standard costing system. The primary advantages to using a standard costing system are that it can be used for product costing, for controlling costs, and for decision-making purposes.
Whereas the disadvantages include that implementing a standard costing system can be time consuming, labor intensive, and expensive. If the cost structure of the production process changes, then update the standards.
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Source:
Hilton, Ronald W., Michael W. Maher, Frank H. Selto. “Cost Management Strategies for Business Decision”, Mcgraw-Hill Irwin, New York, NY, 2008.
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how the standard costing can help manager in decision making
Without standard costing, how a manager can decide actual nearby price of a product?
Its helpful for negotiation & cost down
Ankur Bakshi
India
What happens if A company is using the Standard cost system and the sales manager put in a rush order? Do the cost go up for labor or has cost of over time been included from the beginning period of planing ?
standard costing system assist management in planning and control of operations
2. it is also vital because it helps management to identify variance and how to improve performance.
3.it also helps management in decision making
how standard costing motivate employees