Standard costing is a management accounting technique that compares actual production costs with predetermined standards to assess efficiency and implement corrective actions. Its objectives include improving productivity, controlling costs, and providing management with necessary information. While it offers advantages like simplified cost control and motivation, it also has limitations such as being unsuitable for non-standardized products and small firms.

1. Cost Accounting
STANDARD COSTING
Ms. Neha Yadav
Asst. Professor

2. CONTENTS
 Introduction
 Meaning
Definition
Characteristics
Objectives
Advantages
Limitations
Essential conditions for an effective system of standard costing
Methods of standard costing
2NEHA YADAV (ASST. PROF)

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
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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
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10. II) Motivational Advantages
1. Cost consciousness
2. Measurement of & increase in efficiency
3. Basis of incentive wage system
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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
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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
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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
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15. 15NEHA YADAV (ASST. PROF)