Definition and Explanation of
Standard Costing:
A
standard cost is the predetermined cost of
manufacturing a single unit or a number of product
units during a specific period in the immediate
future. It is the planned cost of a product under
current and/or anticipated operating conditions.
A
standard cost has two components: a standard and a
cost. A standard is like a norm and whatever is
considered normal can generally be accepted as
standard. For example, if a score of 72 is the
standard for a golf course, a golfer's score is
judged on the basis of this standard. In industry,
the standards for making a desk, assembling a radio,
refining crude oil, or manufacturing railway cars
are based on carefully determined quantitative and
qualitative measurements and engineering methods.
A
standard must be though of as a norm in terms of
specific items, such as pounds of materials, hours
of labor required, and percentage of plant capacity
to be used.
In
many firms, a standard can be operative for a long
time. A change is needed only when production or the
products themselves have become obsolete or
undesirable. Relevant
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