Standard costing and the relationship it may have with other Essay

Standard costing and the relationship it may have with other management accounting development - Essay Example Standard costs are pre-determined or forecast estimates of cost to manufacture a single unit, or a number of units of a product, during a specific immediate future period. They are usually the planned costs of the products under current and anticipated conditions, but sometimes they are the costs under normal or ideal conditions of efficiency, based on an assumed given output, and having regard to current conditions. They are revised to conform to super-normal or sub-normal conditions, but ore practically to allow for persisting alterations in the prices of material and labour. Therefore, a standard cost can be defined as â€Å"A pre-determined cost calculated with respect to a prescribed set of working conditions, correlating technical specifications and scientific measurements of materials and labour to the price and wage rates expected to apply during the period to which the standard cost is expected to relate, with an addition of an appropriate share of budgeted overhead. Its main objective is to provide bases of control through variance accounting for the valuation of stocks and work-in-progress and in exceptional cases for fixing selling prices.† The use of standards facilitates many business functions. Standards are very useful in the monitoring and controlling of business activities in general. The need for standard costs arises as a result of the benefits it provides for a business, such as Cost control does not merely refer to minimization of costs. Cost control means identifying costs with their benefits and ensuring that the costs are justified, given the benefits that are derived. Standard costs provide a very useful framework for cost control. The great value of standards in cost control is that they provide the ability to compare actual costs with desired costs on a timely basis. Timely reporting of difference i.e. monthly, weekly, daily or for each work shift etc, between actual and standard costs allows managers to take