standard costing Flashcards
meaning of standard cost
it is an estimated unit cost
what are the main 3 uses of standard cost
- To value inventories. It is an alternative to FIFO and average cost as a method of inventory
valuation. - To budget production costs. When a standard per unit of product as been established,
budgeting production costs becomes a fairly straightforward process. - To act as a control device by establishing standards (expected costs) and comparing
actual costs with the expected costs. Variances between actual and standard cost indicate
aspects of operations which may be out of control
For what kind of cost standard costing is used?
1.Mass production
2. Repetitive tasks
3.Process costing
what are the types of standard set?
ideal standard - When a standard level of performance is high, e.g. an ideal standard, employees and their managers will recognise that they cannot achieve it. Since the target is not achievable, they might not even try to get near it
current standard- When the standard of performance is not challenging (e.g. a current standard), employees and their managers might be content simply to achieve the standard without trying to improve their
performance
attainable standard-An attainable standard might be set which challenges employees and their managers to improve their performance. If this attainable standard is realistic, it might provide a target that
they try to achieve. Some employees will be motivated by this challenge and will work harder to
achieve it.
basic standard-This type of standard may motivate employees since it gives them a longterm target to aim for. However, the standard may become out of date quickly and, as result, may actually demotivate
employees