Cost Control: The Definition of Standard Cost Essay

1609 Words 7 Pages
Introduction:
Definition of standard cost according to the CIMA London, “predetermined cost which is calculated from management’s standards of efficient operations and relevant necessary expenditure.” They are the predetermined costs on technical estimate of material labor and overhead for a selected period of time and for prescribed set of working conditions. In other words, a standard cost is a planned cost for a unit of product or service rendered. (Langfield- Smith, 2009)
The technique of using standard cost for the purposes of cost control is known as standard costing. It is a system of cost accounting which is designed to find out how much should be the cost of a product under the existing conditions. The actual cost can be
…show more content…
However, this reasoning is not correct, because actual costs are tracked by the accounting system in journal entries to accumulate liabilities for the purchase of material and the payment of labor, entries to record accumulated depreciation, and entries to record other costs related to production. Hence, a standard costing system record both budgeted and actual amounts provide important information about cost control.
2. Even out short term fluctuation indirect costs.
3. When actual overhead rates are used production volume of each product affects the reported costs of all other products.
4. Costing systems that use budgeted data are economical in many cases, standard costing system provide highly reliable information, and the additional cost of operating an actual costing system is not warranted. (Caplan, 2014)
Global Acceptance of standard costing:
According to the survey, while numerous academics were pointing out the weakness of standard costing others examine that standard costing system is continuously broadly used throughout the world. Studies done in developed countries revealed that it was as high as 86% in Japan and 73% in United Kingdom. The survey conducted by David Lyall and Carol Graham depicted that more than 90% of 231 companies in United Kingdom were using standard costing for cost control purposes. Apart from this, they also found that 63% of the managers were using standard costing…