Standard Costing

Sujoy kr paulAssam University,silchar

• Specialized technique of costing for cost control,

• Provides yardsticks or norms;• Std. is fixed, compare & analyzed for reasons;• Responsibility is fixed on each variance,• Corrective measures are taken accordingly

useful

• Decision making• Production planning, • Policy formulation,• Proper Budgeting • Feedback system

Advantages

• Formulation of price & Production policies,• Measuring efficiency• Elimination of wastage & efficiency• Cost consciousness• Better capacity to anticipate• Management by exceptions

Advantages over HistoricalBasis of difference Historical Std costing

Basic objective Cost ascertainment (What the cost will be)

Aimed at cost control(What the cost should be)

applicability All the organisation Manufacturing firms

uses Ascertain P/L of certain period

Operational efficiency

Comparative Analysis Independent Comparative Analysis to find variance

Follow up action Reveal the cost of production & distribution

Variances & causes

Used for pricing, quotations, tenders & so on

Follow up actions can be taken

Standard costing & Budgetary ControlNature Std Costing Budgetary Costing

Basis Cost determined on technical info.Planned Cost & expected in future

Costs are based on Past record & expense

Concept Std are set & is a unit concept Total concept

Scope Std are set for expenditure only Different functional department(Purchase, sales & finance)

Time frame No specific time frame (long time or else revision)

Specific time period

Approach Intensive & concentrated on each element Extensive & meant for department

Nature of costs

What cost should be? Specified circumstances

What cost will be?

Forecasting Cannot be used as it involves goals Can be used, Expected costs & revenues

Limitations

• Costly as need the periodic revision• Need high technical skill• Correct standard are rarely made• Some Industries demand frequent

revision(technological)• Applicable for specific industries (production

takes place >1yr)

Variance Analysis(What should be the cost?)

• Process of analyzing variance,• Difference between actual & standard,• Cost reduction• Efficient use of material & labor• Favorable Variance(Profit/efficiency) &

Unfavorable variance (Loss/inefficiency)

Controllable Variance

•Primary responsibility of a person or department•Depends on the degree of efficiency of the person/deptt

Uncontrollable Variance

•Factors beyond control•Govt. restrictions, market forces etc

Purpose of variance

• Provide practical pointers to the causes of off-standard performance,

• Must fulfill the need of the org.• Calculation is useful,

Material Price variance

Material Usage Variance

Direct Material Variance

Material Mix Variance

Material Yield variance

Material usage

Variance