Standard costing

Q:- 7 Defined standard cost and standard costing? Preliminaries to the establishment of standard costing ?

Ans . Definition of standard cost

Standard costing is the predetermined cost based on the technical estimation of material , labours and overheads for a selected period and working condition.

Definition of standard costing

standard costing is the technique of costing in which we calculate standard cost and identify the variation from standard cost and analysing the causes of variations .

Preliminaries to establishment of standard costing / steps

Ist step

1Make standard cost center .

standard cost center may be machine , a man or place who is responsible for cost. First of all , we must establish cost centre before calculating standard cost.

2nd step

determination any type of standard

i) short term standard

It may use for calculating the standard cost of current asset .

ii) Medium term / normal standard

it may use for 5 years

iii) basic / long term standard

It may use 15 to 20 years standard cost .

3rd step

3 Setting of standard

a) standard cost of direct material

i) For Quantity

ii) for rate

B) standard cost of direct labour

When we set the standard cost of direct labour , we must kept following point in our mind .

i) No. of workers

ii)Standard hour rate for per worker

iii)standard hours

c) Standard cost of overheads or indirect expenses

When we set the standard cost of indirect expenses , we must kept following point in mind

i)standard rate

ii)standard category of respective expenses.

You can determine any type under any situation