Cost Accounting - Standard Costing

Planned cost is a key for effective cost control which is not provided by historical cost concepts. The standard costing system was developed to overcome the drawbacks of the historical costing system. Since historical costing deals only with the actual costs incurred, it is not an effective device of cost control.
Standard costing tells us what should be the cost of the product and if the actual cost exceeds the projected cost, the standard costing system can point to the reason of deviation.

Points Related to Standard Costing

  • Standard costing includes pre-determination of costs under specific working conditions.
  • In this process, the standard quantity of machine time, labor time, and material is calculated and the future market trend for price standards is analyzed.
  • Standard costing helps in variance analysis.
  • Along with fixation of sale price, it also provides valuation of stock and work in progress.
  • Material, labor, and overheads cost are ascertained.
  • Actual cost is measured.

Standard Cost Card

Format


Standard Cost Card
No ... ... ... ...
Product... ... ... ...Date of setting Standard... ... ... ...
Element of CostQuantity of HoursRate Rs.Standard Cost
1. Direct Material
Material A
Material B
400 units
100 units
5.00
4.00
2,000
400
500 units2,400
Less: Normal Loss 5%25 unitsScrap Value400
Normal Output475 units2,000
2. Direct Labour100 hrs20200
3. Overheads

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