Std Costing and Co. Audit
* Standard Costing
Introduction
Cost figures, in general, can be divided into two broad categories. They are Historical Costs and Standard Costs. Historical costs are available, after they are incurred. Such cost figures may have some value, once they are analysed. By analysis, the inefficiencies and deficiencies in production may be detected. However, the damage would have occurred, by the time the analysis under Historical costs is made. Analysis can be done only after the completion of the period and so the exercise would not be effective to correct the past course of action, though it would be of value to learn lessons for not repeating the same mistakes, in future.
Standard Cost is a predetermined cost. Under standard costing, cost of production is determined, in advance. From the Management’s point of view “What a product should have costed” is more important than “What did it cost?” Standard costs are compared with the actual costs to find out the differences between the two. The differences or variances so obtained are analysed to determine the efficiency of operations, so that necessary remedial action may be taken, immediately.
To plan what should be the cost, before production is made, is the
Underlying idea of Standard Costing.
Management is always concerned to plan the costs, before they are actually incurred, to exercise the required control. The important techniques for exercising cost control are Standard Costing and Budgetary Control. Standard costing is superior compared to historical costing or actual costing. Historical costing is just post-mortem of the expenditure, which has been incurred. So, this is not, indeed, an effective tool for cost control.
Meaning and Defination
Standard: The word ‘Standard’ means criterion. Standard is a predetermined measurable quantity, under defined set conditions.
Standard Cost: Standard cost is a scientifically pre-determined cost, which is arrived at assuming a particular level of
Introduction
Cost figures, in general, can be divided into two broad categories. They are Historical Costs and Standard Costs. Historical costs are available, after they are incurred. Such cost figures may have some value, once they are analysed. By analysis, the inefficiencies and deficiencies in production may be detected. However, the damage would have occurred, by the time the analysis under Historical costs is made. Analysis can be done only after the completion of the period and so the exercise would not be effective to correct the past course of action, though it would be of value to learn lessons for not repeating the same mistakes, in future.
Standard Cost is a predetermined cost. Under standard costing, cost of production is determined, in advance. From the Management’s point of view “What a product should have costed” is more important than “What did it cost?” Standard costs are compared with the actual costs to find out the differences between the two. The differences or variances so obtained are analysed to determine the efficiency of operations, so that necessary remedial action may be taken, immediately.
To plan what should be the cost, before production is made, is the
Underlying idea of Standard Costing.
Management is always concerned to plan the costs, before they are actually incurred, to exercise the required control. The important techniques for exercising cost control are Standard Costing and Budgetary Control. Standard costing is superior compared to historical costing or actual costing. Historical costing is just post-mortem of the expenditure, which has been incurred. So, this is not, indeed, an effective tool for cost control.
Meaning and Defination
Standard: The word ‘Standard’ means criterion. Standard is a predetermined measurable quantity, under defined set conditions.
Standard Cost: Standard cost is a scientifically pre-determined cost, which is arrived at assuming a particular level of