Standard costing

This presentation covers introduction,meaning,definition,characteristics,objectives,advantages,limitations,essential conditions for an effective system & methods of standard costing.

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 2 Neha 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. 3 Neha 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. 4 Neha 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 5 Neha 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 6 Neha Yadav (Asst. Prof)

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 7 Neha 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 8 Neha Yadav (Asst. Prof)

9. ADVANTAGES OF STANDARD COSTING I) Advantages from the view of cost accounting Elimination of the weakness of historical costing Simple & economic Cot control Comparability Basis of valuation of stock 9 Neha Yadav (Asst. Prof)

10. II) Motivational Advantages Cost consciousness Measurement of & increase in efficiency Basis of incentive wage system 10 Neha Yadav (Asst. Prof)

11. III) Managerial Effectiveness Advantages Facility in production planning Management by exception Effective delegation of authority Determination of responsibility Basis of price fixation Helpful in budgetary planning Facility of use of information technology 11 Neha 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 12 Neha Yadav (Asst. Prof)

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 13 Neha Yadav (Asst. Prof)

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: Ideal Standard Expert standard Normal standard 14 Neha Yadav (Asst. Prof)

15. Thank You 15 Neha Yadav (Asst. Prof)