Cost Accounting Standard Costing - Accounting Basics

What is standard costing?

In order to overcome the drawbacks of the historical costing system, standard costing system was developed. Historical costing only deals with the actual cost incurred and hence are not an effective tool of cost control. The standard costing predicts the projected cost and also tells what should be the cost of the product, and in cases where actual cost exceeds the projected cost, standard costing system identifies the reasons for the deviation.

Some of the key points related to Standard Costing

  • Pre-determination of the costs under specific working conditions is included in standard costing.
  • The standard quantity of the machine, time, labour and material is calculated by standard costing and standard costing facilitates in analyzing the price trends.
  • Standard costing helps in variance analysis.
  • Stocks are valued and work in progress is valued apart from fixing the selling price.
  • The costs related to material. Labour, overheads are ascertained.
  • Actual cost is measured.

Standard Cost Card

Format

Standard Cost Card

No ... ... ... ...

Product... ... ... ...Date of setting Standard... ... ... ...

Element of Cost

Quantity of Hours

Rate Rs.

Standard Cost

1. Direct Material

Material A

Material B

400 units

100 units

5.00

4.00

2,000

400

500 units

2,400

Less: Normal Loss 5%

25 units

Scrap Value

400

Normal Output

475 units

2,000

2. Direct Labour

100 hrs

20

200

3. Overheads

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