Explain about standard cost?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 kruthika asked almost 3 years ago

Hi, What is standard cost?explain briefly.

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5 Answers
Open uri20170510 32134 h540ea?1494421812 Chaitanya answered over 2 years ago

The cost which should be incurred in the given circumstances is standard cost.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 acharya answered over 2 years ago

Standard costing and the related variances is a valuable management tool. If a variance arises, management becomes aware that manufacturing costs have differed from the standard (planned, expected) costs. If actual costs are greater than standard costs the variance is unfavorable. An unfavorable variance tells management that if everything else stays constant the company's actual profit will be less than planned. If actual costs are less than standard costs the variance is favorable. A favorable variance tells management that if everything else stays constant the actual profit will likely exceed the planned profit. The sooner that the accounting system reports a variance, the sooner that management can direct its attention to the difference from the planned amounts.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 narahari answered almost 3 years ago

Standard costing and the related variances is a valuable management tool. If a variance arises, management becomes aware that manufacturing costs have differed from the standard (planned, expected) costs.

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Open uri20170510 32134 1c996lj?1494421732 Anil answered almost 3 years ago

the estimated cost of a process, resource, or item used in a manufacturing enterprise, entered in an account and compared with the actual cost so that anomalies are readily detectable If you were to design a cost accounting system with no accounting education other than financial accounting courses, you would probably design an accounting system that collects, summarizes, and reports actual costs. This approach would be consistent with the implicit assumption throughout every financial accounting course that when financial statements report historical cost data, such as would normally be the case for cost-of-goods-sold and ending inventory, that the information reported represents actual costs. Therefore, it comes as a surprise to most students that the initial journal entries to record the production and movement of inventory in the costing systems of most manufacturing firms are not based on actual costs at all, but rather are based on budgeted per-unit costs. In most manufacturing firms, the initial journal entries to debit work-in-process, finished goods and cost-of-goods-sold are based on the actual quantity of output produced, multiplied by budgeted data about the inputs necessary to produce those outputs, and the budgeted costs of those inputs. Then, at the end of the month (or possibly quarterly), an “adjusting” or “closing” entry is made to record in the inventory accounts the difference between actual costs incurred, and the budgeted information that has formed the basis for the journal entries during the month. The nature of this adjusting entry depends on the materiality of the amounts involved. If the differences between actual costs and budgeted costs are small, this adjusting entry might be made in an expedient manner, involving only cost-of-goods-sold, but if the differences are large, the adjusting entry might also involve work-in-process and finished goods inventory accounts. The accounting system described above is called a standard costing system, and it is widely-used by companies in the manufacturing sector of the economy. This chapter describes standard costing systems, and explains why companies use them. But first we discuss a related concept, standard costs, which constitutes an important component of standard costing systems. Standard Costs: A standard, as the term is usually used in management accounting, is a budgeted amount for a single unit of output. A standard cost for one unit of output is the budgeted production cost for that unit. Standard costs are calculated using engineering estimates of standard quantities of inputs, and budgeted prices of those inputs. For example, for an apparel manufacturer, standard quantities of inputs are required yards of fabric per jean and required hours of sewing operator labor per jean. Budgeted prices for those inputs are the budgeted cost per yard of fabric and the budgeted labor wage rate. Standard quantities of inputs can be established based on ideal performance, or on expected performance, but are usually based on efficient and attainable performance. Research in psychology has determined that most people will exert the greatest effort when goals are somewhat difficult to attain, but not extremely difficult. If goals are easily attained, managers and employees might not work as hard as they would if goals are challenging. But also, if goals appear out of reach, managers and employees might resign themselves to falling short of the goal, and might not work as hard as they otherwise would. For this reason, standards are often established based on efficient and attainable performance. Hence, a standard is a type of budgeted number; one characterized by a certain amount of rigor in its determination, and by its ability to motivate managers and employees to work towards the company’s objectives for production efficiency and cost control. There is an important distinction between standard costs and a standard costing system. Standard costs are a component in a standard costing system. However, even companies that do not use standard costing systems can utilize standards for budgeting, planning, and variance analysis. Example of a Standard Cost Sheet: The following example shows a standard cost sheet for a deluxe widget. It is a fictional example, yet provides a realistic picture of the level of detail involved in setting standard costs. Many manufacturing companies would have a standard cost sheet for each product, and would revise these cost sheets periodically, perhaps annually or once every three to five years, to incorporate changes in prices of inputs and manufacturing processes.

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Open uri20170510 32134 1uwcnoc?1494421631 Shubhangi Jain answered almost 3 years ago

**Standard costs** are usually associated with a manufacturing company's costs of direct material, direct labor, and manufacturing overhead. Rather than assigning the actual costs of direct material, direct labor, and manufacturing overhead to a product, many manufacturers assign the expected or standard cost. This means that a manufacturer's inventories and cost of goods sold will begin with amounts reflecting the standard costs, not the actual costs, of a product. Manufacturers, of course, still have to pay the actual costs. As a result there are almost always differences between the actual costs and the standard costs, and those differences are known as variances. Standard costing and the related variances is a valuable management tool. If a variance arises, management becomes aware that manufacturing costs have differed from the standard (planned, expected) costs. If actual costs are greater than standard costs the variance is unfavorable. An unfavorable variance tells management that if everything else stays constant the company's actual profit will be less than planned. If actual costs are less than standard costs the variance is favorable. A favorable variance tells management that if everything else stays constant the actual profit will likely exceed the planned profit. The sooner that the accounting system reports a variance, the sooner that management can direct its attention to the difference from the planned amounts. **If we assume that a company uses the perpetual inventory system and that it carries all of its inventory accounts at standard cost (including Direct Materials Inventory or Stores), then the standard cost of a finished product is the sum of the standard costs of the inputs:** - Direct material - Direct labor - Manufacturing overhead - Variable manufacturing overhead - Fixed manufacturing overhead

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