This presentation covers introduction,meaning,definition,characteristics,objectives,advantages,limitations,essential conditions for an effective system & methods of standard costing.
3. INTRODUCTION OF STANDARD COSTING
Standard costing is one of the most important techniques of
management accounting & control. In this era of competition
every manufacturer wants that whereas on the one hand the
quality of product should be as per standards specified, on the
other hand cost of production should be well within control.
3NEHA YADAV (ASST. PROF)
4. MEANING OF STANDARD COSTING
The term “Standard” refers to a specific measurement or “pre-
determined scale”. Standard cost is a pre-determined cost which is
determined for the production of goods on the basis of certain specified
standards under certain specific conditions
Standard costing is a process & technique of
accounting in which actual costs incurred are compared with pre-
determined cost. On the basis of comparison efficiency of operation is
determined & necessary corrective measures are taken if there are some
variances.
4NEHA YADAV (ASST. PROF)
5. Definition of STANDARD COSTING
“Standard costing is a method of ascertaining the cost whereby
statistics are prepared to show : (a) the standard costs ;(b) the actual
costs ; (c) the difference between these costs; which is termed as
variance”. --- H. J. Wheldon
5NEHA YADAV (ASST. PROF)
6. CHARACTERISTICS OF STANDARD
COSTING
• Determination of standards
•Computation of actual cost
•Comparison of standard & actual costs
•Computation of variances
•Ascertainment of reasons of variances
•Study of options
•Presentation of report to the management
6NEHA YADAV (ASST. PROF)
7. OBJECTIVES OF STANDARD COSTING
Increase in efficiency & productivity
Cost control
Determination of responsibility
Supplement to budgetary control
Information to the management
Progressiveness of management
7NEHA YADAV (ASST. PROF)
8. OBJECTIVES OF STANDARD COSTING
Increase in efficiency & productivity
Cost control
Determination of responsibility
Supplement to budgetary control
Information to the management
Progressiveness of management
8NEHA YADAV (ASST. PROF)
9. ADVANTAGES OF STANDARD COSTING
I) Advantages from the view of cost accounting
1. Elimination of the weakness of historical costing
2. Simple & economic
3. Cot control
4. Comparability
5. Basis of valuation of stock
9NEHA YADAV (ASST. PROF)
10. II) Motivational Advantages
1. Cost consciousness
2. Measurement of & increase in efficiency
3. Basis of incentive wage system
10NEHA YADAV (ASST. PROF)
11. III) Managerial Effectiveness Advantages
1. Facility in production planning
2. Management by exception
3. Effective delegation of authority
4. Determination of responsibility
5. Basis of price fixation
6. Helpful in budgetary planning
7. Facility of use of information technology
11NEHA YADAV (ASST. PROF)
12. LIMITATIONS OF STANDARD COSTING
Unsuitable for concerns dealing in non-standardized products
Difficulties in setting up standards
Not suitable for small firms
Difficulty in fixing responsibility
Changing business conditions
Need of budgetary control
Feeling of dissatisfaction among employees
12NEHA YADAV (ASST. PROF)
13. ESSENTIAL CONDITIONS FOR AN EFFECTIVE SYSTEM
OF STANDARD COSTING
Proper determination of standards
According to technical process
Simplicity & clarity
Promptness in variance analysis
Variance reports
Proper interest by management
Production of standardized goods
Standards of different elements of cost
13NEHA YADAV (ASST. PROF)
14. TYPES OF STANDARD
Basic standards-It is also known as ‘initial’, ‘static’ or ‘fixed’
standards . These standards are based on data of some base year & are
determined as abase for long period
Current standards-Current standards are established on the basis
of current conditions & are modified according to changing conditions.
These standards may be of the following three types:
i. Ideal Standard
ii. Expert standard
iii. Normal standard
14NEHA YADAV (ASST. PROF)