Standard Costing

• Standard Costing?

  an accounting system combined with job order costing to determine the projected cost of manufacturing a single or number of products during an accounting period under current and anticipated operating conditions.

  • Bench mark for measuring performance.
  • Set in budgets based on past experiences and projected business activities
  • Calculates most efficient cost of manufacturing each product. These costs aka standard costs; recorded in accounting system and later compared to actual manufacturing costs.
• What can management judgement of standard cost be based on?

  What is acceptable or attainable

  • historical cost data
  • A job, task, or product analysis
• What is a variance?

  When there is a significant difference between standard cost and the actual result
• What is variance analysis?

  when using standard costs, a variance analysis compares actual results to the standard amounts in the flexible budget
• Aim of variance analysis?

  To focus attention on areas of the business that are not performing as planned
• benefits of standard costing?

  reliable estimates for future planning

  Standards used as targets / benchmarks

  Used for inventory validation

  Information is made available immediately for decision making

  Make employees more aware of costs and their impact on firm
• how to increase workforce motivation to allow high output level?

  pay employees on piece basis

  • provide incentives for meeting target performance
  • create harmonious work environment and abolish "them and us" attitude between workers and management
• How to ensure efficiency standards set are at optimum level?

  Monitor selected efficient employee and use as standard

  Compare output with industry standard