Standard Costing (1) Flashcards
What is a standard cost?
An estimated unit cost
How is a standard prepared?
By management in advance and details their expectations of the future
What is standard costing?
Involves establishment of predetermined estimates of the costs of products or services, collection of actual costs and comparison of actual costs with predetermined estimates
What are predetermined costs known as?
Known as standard costs and the difference between standard and actual cost is known as variance
What is variance analysis?
The process by which the total difference between stadnard and actual cost
Standard costing (decision making)
Prediction of costs and times for decision maknig (e.g. allocating resources)
Standard costing (setting budgets)
Standard costing is used in setting budgets
Standard costing (variance analysis)
A control technique which compares actual with standard costs and revenues
Standard costing (performance evaluation)
Performance evaluation systems make use of standards as motivators and as a basis for assessment
Standard costing (Inventory valuation)
Often less time consuming than alternative valuation method such as FIFO or weighted average
Standard costing (Management by exception)
Enable principle of “management by exception” to be practiced
Where should standard costing be used?
If there is a large amount of repetition in the production process so average or expected usage of resources can be determined
Standard costing well-suited vs less-suited/
Well suited: Mass production and repetitive assembly work
Less suited: Where items are manufactured to customer demand and specifications
How should responsibility for deriving standard costs be shared?
Between managers who are able to provide the necessary information about levels of expected efficiency, prices and overhead costs
How are standard cost of materials estimated?
By the purchasing department
