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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 Articles:

Definition and Explanation of Standard Cost
Purposes and Advantages of Standard Costing System
Setting Standards
Materials Price Standard
Materials Price Variance
Materials Quantity Standard
Materials Quantity Variance
Direct Labor Rate Standard
Direct Labor Rate Variance
Direct Labor Efficiency Standard
Direct Labor Efficiency Variance
Factory Overhead Cost Standards
Overall or Net Factory Overhead Variance
Overhead Controllable Variance
Overhead Volume Variance
Overhead Spending Variance
Overhead Idle Capacity Variance
Overhead Efficiency Variance
Variable Overhead Efficiency Variance

Fixed Overhead Efficiency Variance

Mix and Yield Variance
Variance Analysis Example
Standard Costing and Variance Analysis Formulas
Management by Exception and Variance Analysis
International Uses of Standard Costing System
Advantages, Disadvantages, and Limitations of Standard Costing




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