The technique of standard costing

The technique of standard costing involves the determination of cost beforehand. The cost is based on technical information after considering the impact of current conditions. Cost ascertainment is not based on a guess work. The impact of possible factors on cost is studied before setting the standards. The standard are set as per existing conditions of work. With the change in condition, the standard cost too can be modified so as to make it more realistic. The standard may be divided according to the elements of costs. The standard cost is divided into two parts which are standards for materials and labour and overheads. The sub division of standards will be more useful for cost control purposes. The actual cost is recorded when incurred. The standard cost is compared to the actual cost. The difference between the two costs is known as variance. The variances are calculated element- wise. The management can take corrective measures to set the things right

Standard Costing involves the following Steps:

• The determination of standard cost.
• The recording of actual cost.
• The comparison between standard and actual cost.
• The finding out of variance
• The reporting of variance so as to find out inefficiency and take necessary corrective measures.

 The technique of standard costing is complementary to the ordinary costing system. The standard costs will be of no use if they are not compared with actual costs. The basic purpose of standard costing is to determine efficiency or inefficiency in manufacturing a particular product. This will be possible only if both standard costs and actual costs are given side by side. Though standard costing system will be useful in those undertakings where production is standardised. It will be of less use in job costing system because every job has different specifications and it will be difficult to determine standard costs for every job.