Standard Costing PDF

Unit – III Standard Costing Prepared By; Dr. Ashima Pahwa Assistant Professor Mittal School of Business Lovely Professional University  Learning Outcomes  Concept of Standard Cost  Concept of Standard Costing  Advantages of Standard Costing  Limitations of Standard Costin...

Unit – III Standard Costing Prepared By; Dr. Ashima Pahwa Assistant Professor Mittal School of Business Lovely Professional University  Learning Outcomes  Concept of Standard Cost  Concept of Standard Costing  Advantages of Standard Costing  Limitations of Standard Costing Standard Cost  Standard Cost- Definition  According to CIMA, London, “Standard cost is the predetermined cost based on technical estimates for materials, labour and overhead for a selected period of time for a prescribed set of working conditions”. Standard Costing  Standard Costing  Basically, it is the name given to a technique whereby standard costs are computed and subsequently compared with actual costs to find out the differences between two.  Variance = Standard Cost – Actual Cost  The differences are than analysed to Definition of standard costing The CIMA, London has defined standard costing as ‘the preparation of standard costs and applying them to measure the variations from actual costs and analysing the course of variations with a view to maintain maximum efficiency in production’. Advantages of Standard Costing Limitations of Standard Costing  Steps involved in standard costing I. Setting up of standards for the elements of cost-material, labour and overhead. II. Ascertain actual cost III. Compare standard and actual cost IV. Analyze variance for ascertaining the reasons thereof V. Reporting these variances and analysis is done for corrective actions.  MCQs 1. Standard costing is a yardstick: a. To measure cost b. To improve efficiency c. To control costs d. All of these  MCQs 2. Standard costing determines: a. ‘what a product should have costed’ b. ‘what it did actually cost’ c. None of these 3. Standard costing helps in: a. Planning b. Cost management c. Improve efficiency d. All of these Thank you