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Title: STANDARD COSTING: ADVANTAGES AND DISADVANTAGES
Description: Standard costing is the practice of estimating the expense of a production process. It is a branch of cost accounting that's used by a manufacturer to plan their costs for the coming year on various expenses
Description: Standard costing is the practice of estimating the expense of a production process. It is a branch of cost accounting that's used by a manufacturer to plan their costs for the coming year on various expenses
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STANDARD COSTING: ADVANTAGES AND DISADVANTAGES
Standard cost accounting can be a highly useful tool for managers who are attempting to plan
a more accurate budget
...
This is because a standard costing system provides managers with a projected idea of
spending costs
...
Standard costing is the practice of estimating the expense of a production process
...
The manufacturers will also be able to compare the standard cost to
the actual cost
...
The
presence of variance indicates a deviation from what was recorded in the profit plan
...
If the actual cost is less than the standard cost, however, management might
anticipate a higher profit than they originally planned for
...
Future cost estimation: standard costs are determined after considering all the
possibilities that may arise in the future
...
2
...
In such a situation, these targets are helpful in checking the performance
through comparison with the actual results
3
...
The Process of Standard Costing
i
...
While fixing the standard cost, more weight is given to the past
data, the current plan of production, and future trends
...
Determination of actual cost
After standards are set, the actual cost for each element i
...
, material, labor, and overheads
are determined from invoices, wage sheets, account books etc
...
Comparison of actual cost and standard cost
The aim of this step is to find out the variance between the two costs
iv
...
v
...
Advantages of Standard Costing
✓ Standard costing provides a starting point for your budget
...
✓ It provides information on the efficiency of your performance
✓ It helps the management team make important decisions to improve efficiency and cut
costs
✓ Helps to effectively set prices for products and estimate a profit margin
✓ Make employees more cost aware and motivate them to improve their methods of
completing tasks and ultimately making the process more cost effective
...
It may involve examining
previous reports, interviewing employees, reviewing and changing certain processes,
and regularly reviewing the variance analysis
...
This process may
be too costly to implement for small businesses
Title: STANDARD COSTING: ADVANTAGES AND DISADVANTAGES
Description: Standard costing is the practice of estimating the expense of a production process. It is a branch of cost accounting that's used by a manufacturer to plan their costs for the coming year on various expenses
Description: Standard costing is the practice of estimating the expense of a production process. It is a branch of cost accounting that's used by a manufacturer to plan their costs for the coming year on various expenses