Business Management Studies

Standard Costing is a costing method, that is used to compare the standard costs and revenues with the actual results, in order to arrive at the variances along with its causes, to inform the management about the deviations and take corrective measures, for its improvement. The term standard cost can be defined as the expected cost per unit of the products produced during a period, which is based on various factors. It aims at measuring the performance, controlling the deviations, inventory valuation and deciding the selling price of the product especially when quotations are prepared. The three main elements of standard cost are Direct Material Cost, Direct Labor Cost and Overheads. Future cost estimation: Standard Costs are determined after considering all the possibilities that may arise in the future. It also helps in deciding whether a particular project is to be undertaken, by determining its profitability. Performance check: Standard cost acts as targets to the cost centres which should not be transcended. In such a situation, these targets are helpful in checking the performance through comparison with the actual results. Budgeting: The standard costs are used to prepare budgets, and evaluate the performance of the executive staff on the basis of these budgets. The basic objective of standard costing is to measure the differences between standard costs and actual costs, and analysing them to maintain the productivity of the organisation.