Standard Costing:
One of the most important functions of management accounting is to facilitate managerial control.
The major aspects of managerial control is cost control. The efficiency of management among other things depends upon the effective control of costs. For controlling costs, management should not only know actual cost.
The actual cost actually incurred but also pre-determined costs, the cost which should have been incurred. Standard costs are the widely used form of pre-determined costs.
The system of standard costing is the most efficient way of controlling costs.
It is a managerial device to determine efficiency and effectiveness of cost performance.
STANDARD: It is pre-determined measurable quantity set in defined conditions.
It seeks to establish the cost of a product, operations or process under standard operating conditions. The aim of standard cost is to eliminate the influence of abnormal changes in prices. It is used as a guide for future decision and action over a period of time.
Standard costing is effective tool for planning, decision making, co-ordination and control of business. The object of determination of price policy. It is a technique of cost control.
It is a scientifically pre-determined cost, which is arrived at assuming a particular level of efficiency in utilization of material, labour and indirect services.
CIMA defines standard cost as “a standard expressed in money. It is built up from an assessment of the value of cost elements. Its main uses are providing bases for performance measurement, control by exception reporting, stock valuation and establishing selling prices”.
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