Cost calculation is one of the most important functions of management accounting. The basic function of management accounting is to check wastage of resources, it is the basic requirement on the part of management to check all sorts of wastage. The management fixes the responsibilities of various activities and prescribes some predetermined norms so that a comparison be made with predetermined activities to actual performances.
Standard costing is such a technique wherein costs are fixed well in advance and compared to the actual costs, the reasons for variance are taken to tasks to avoid further adverse cost variations. Standard cost is a technique used for controlling cost and fixing responsibility of inefficient persons.
In this technique, costs are determined for various activities and these are compared to actual performances if adverse variations are found, these are taken seriously to corrective actions. In the present chapter, various cost elements are checked and corrected if shown adverse results.
Answer: What is standard costing? The efficiency of management, among other things, depends upon the control of costs. For controlling costs management should not only know the actual cost. but also see the variation in pre-determined cost to actual costs. Standard costing is the most effective way of controlling costs. It provides criteria to evaluate and …
Answer Advantages: 1. Measurement of efficiency. Standard costs are compared with actual costs when actual costs are equal or less than standard costs, it may be said that working of the organization is done efficiently and satisfactorily. In case, standard costs are less than actual costs, it will indicate some inefficiency. Thus it helps the …
Read moreQ. 2. What are the advantages of standard costing ? Discuss its limitations.
Answer Difference between Standard costing and Budgetary Control: Although standard costing and budgetary control both techniques are helpful in improving efficiency of employees, determination of this responsibility and controlling in cost of production. Following are the main differences between the standard costing and budgetary control: 1. Scope. Standard costing technique is used only for those …
Read moreQ.3 How will you differentiate between standard costing and budgetary control?
Cost may be divided into two broad categories – historical cost and predetermined cost. Historical costs are computed after the completion of production of goods, thus the cost figures have value only from a historical point of view. Though the figures obtained at the end of the production process may have a definite value in …
Read moreQ. 4. What is the difference between standard costing and historical costing?
Standard costs and Estimated Costs both are pre-determined costs of any production. Both these costs are calculated in advance before actual production is done and completed. Therefore. sometimes, some people confuse as similar to the standard costs and estimated costs. But actually these are two different costs and having certain differences, these differences are following as: …
Read moreQ. 5 What is the difference between standard and estimated costs
Answer What are Standard Costs? Standard costs are the predetermined costs of manufacturing a single unit or a number of products, during a specific period in the immediate future, standard costs are planned costs of a product under current or anticipated operating conditions. They are based on normal or ideal conditions or efficiency and volume …
Read moreQ. 6. What are the characteristics of Standard Costing?
Answer Similarities between budgeting and standard costing The following are the points of similarity between standard cost and budget cost: Standard Costing Budgeting Cost Predetermined cost Standard costs are predetermined costs fixed according to estimates. Budget costs are also estimated costs. Advance cost Standard costs are estimated in advance, these are compared to actual costs. …
Read moreQ. 7. What are the similarities and differences between budgeting and standard costing?
In this article, we are going to discuss some practical problems of standards costing with solutions which will help students to get their concepts cleared that how to standards can be used to different variances. Problem 1 The standard cost card shows the following details relating to material needed to produce 1kg. of groundnut oil: …
Read moreQ. 8. Standard Costing practical problems and solutions
Overhead cost variances can be: 1. fixed overhead and 2. variable overhead variances. 1. Fixed overhead variances: It is that cost which is not directly related to output, it is in general time-related cost. It is that cost which is a difference between standard cost and fixed overhead allowed for actual output achieved and the …
Read moreQ. 9. How to compute various overhead cost variances?
Answer What are Sales Variances? The change in price and change in sales quantity give birth to sales variances. There are two approaches to compute sales variances that are explained below: 1. Turn over method 2. Profit method 1. Turn Over method The turn over method can be : (i) Value variance This is the …