Standard costing involves setting standards for materials, labor, and overhead and comparing actual costs to the standards to calculate variances. It has several advantages as a management tool including cost control, finding inefficiencies, and measuring efficiency. Some limitations include difficulty setting standards for non-standard products and not considering all circumstances when setting standards. The document provides examples of calculating variances for materials, labor, and overhead costs based on standard and actual amounts. It also discusses classification of standards, revising standards, and advantages and limitations of standard costing.

1. Standard CostingPresented By: AshutoshMishra, Ashok Gupta, AtharJawaid, AvinashTiwari, Chandan Kumar

2. Flow of PresentationMeaning

3. Types of Standard & Revision

4. Procedure of setting standard cost :

5. Material

6. Labour

7. Overhead

8. Advantages

9. Limitations

10. ReferencesWhat is Costing ?Costing (or cost-benefit analysis) is the process of analyzing the costs and benefits of different options to determinewhat approach should be taken to a particular conflict.

11. what solution or resolution should be chosen once various options are being considered.Historical cost systems are associated with recording of historical or actual cost. Historical costing is the ascertainment of costs after they have been incurred.Ineffective in cost control.

12. No standards or goals so cost reduction isn’t an option.

13. Not reliable for management tasks.Historical Cost & it’s Limitations

14. A Standard may be a norm or a measure of comparison in terms of specific items such asPounds or kilos for material.

15. Labour hours required.

16. Plant capacity used in hours.Real Life Examples :ISO – International Standards for Business, Government & Society.CMMI – Process improvement approach from Carnegie Mellon University, USA.NBA – an AICTE program for institution evaluation.What is Standard ?

17. A Standard Cost is a planned cost for a unit of product or service rendered.In the words of Backer and Jacobsen, “Standard cost is the amount the firm thinks a product or the operation of the process for a period of time should cost, based upon certain assumed conditions of efficiency, economic conditions and other factors.”Standard Costing

18. Classification of StandardsThe two principal considerations for classification of standards are :Attainability of standards.

19. Frequency with which the standards are revised.Ideal standard is fixed on the assumption of those conditions which may rarely exist. This standard is not practicable and may not be achieved.This is the standard which represents a high level of efficiency. Ideal standard is fixed on the assumption that favourable conditions will prevail and management will be at its best. The price paid for materials will be lowest and wastes etc. will be minimum possible. The labour time for making the production will be minimum and rates of wages will also be low. The overhead expenses are also set with maximum efficiency in mind. All the conditions, both internal and external, should be favourable and only then ideal standard will be achieved.

20. The changes in manufacturing costs can be measured by taking basic standard, as a base standard cannot serve as a tool for cost control purpose because the standard is not revised for a long time.BasicBasic standard is established for a long period and is not adjusted to the preset conations. The same standard remains in force for a long period. These standards are revised only on the changes in specification of material and technology productions. It is indeed just like a number against which subsequent process changes can be measured. Basic standard enables the measurement of changes in costs.

21. The normal standard concept is theoretical and cannot be used for cost control purpose. Normal standard can be properly applied for absorption of overhead cost over a long period of time.NormalNormal standard has been defined as a standard which, it is anticipated, can be attained over a future period of time, preferably long enough to cover one trade cycle. The standard attempts to cover variance in the production from one time to another time. An average is taken from the periods of recession and depression.

22. It is presumed that conditions of production will remain unchanged. In case there is any change in price or manufacturing condition, the standards are also revised. Current standard may be ideal standard and expected standard.CurrentA current standard is a standard which is established for use over a short period of time and is related to current condition. It reflects the performance that should be attained during the current period. The period for current standard is normally one year.

23. We need to revise the standards which follow for better control. Even standards are also subjected to change like the production method, environment, raw material, and technology.Standards may need to be changed to accommodate changes in the organization or its environment. When there is a sudden change in economic circumstances, technology or production methods, the standard cost will no longer be accurate.Revision of Standards

24. If actual costs are greater than standard costs the variance is unfavourable.