• Register
Types of Standard Costs

Types of Standard Costs

PDF
Print
E-mail

The standard cost set could be basic, ideal, attainable or current.

  1. Basic Standards These are long term standards that would remain unchanged over the years. This sole use is to show trends over time for such items as material prices, labour rates, efficiency etc. They therefore cannot be used to highlight current efficiency or inefficiency; for this reason, basic standards do not normally form part of the reporting system and will therefore be used as a background for statistical analysis over time.
  1. Ideal Standards These are standards, which can be achieved under the most favourable conditions. They are therefore based on the best possible operating conditions. They do not therefore make allowances for normal production problems such as material spoilage, stoppages, idle time, machine breakdowns, shrinkage etc.

They can be revised periodically to reflect changes in the organizations operating conditions. E.g. changes in technology.

However, since the ideal standards assume perfect operating conditions, they would be unattainable in real life, which has normal operating problems. Such as idle time and machine breakdown, idle time and employee slowdown due to fatigue.

But the standard must be set high enough such that although achievable, it has to be worked for. Attainable standards should provide a challenge to employees by giving them a tough but realistic target: thus it motivates employees and management to achieve high levels of output.

  1. Attainable standards Are used for product costing and pricing for stock valuation, for budgeting and for cost control and performance evaluation.

But to be meaningful, attainable standards need to be revised regularly so as to affect the conditions expected to prevail during the period in which the standards would be applied.

Of all the standards attainable standards are likely to produce the highest level of motivation especially when the employees are adequately involved in setting them.

  1. Current Standards These are standards set for use over a short period of time, related to current.

Since basic standards cannot be used for analyzing current efficiency levels, a current periods standard can be developed for the basic standards. The current period standard can then be used to analyze the current period performance.

Current standards are useful especially in inflationary conditions where current standards could be set for a 3 month period or on a monthly basis to reflect the changes in prices.

Tutorial Note

  1. The type of standard used (basic, ideal, attainable, current) directly affects the level of the variances which can arise, and the meaning, which can be attached to the variances. For example, negative (unfavourable) variance will be taken more seriously if it is registered using a current and attainable standard than when it is registered using basic or ideal standards.
  2. Standards for the same cost can vary from organization to organization depending on the level of efficiency desired by the management. Thus, standards are very subjective. What is also a matter of management opinion.
  3. The accuracy of the standards set depends on the accuracy of the forecasting prices, activity level, wage etc of the tam setting such standards. If the team is good in forecasting skills, then the standards set are likely to be error free and vice versa.

Other Custom Business Writing services


Businesswritingservices.org offers other custom business writing services such as Management writing services: Management essays, Management Dissertations, Management company analysis, Management Research papers and term papers: Finance writing services: Finance essays, Finance Dissertations, Finance case study analysis, Finance Research papers and term papers: Economics Writing Services: Economics essays, Economics Dissertations, Economics thesis, Economics Research papers and Economics term papers: Marketing Writing Services: Marketing essays, Marketing Dissertations, Marketing company analysis, Marketing Research papers and term papers:Business Writing Services: Business Essay, Business Research paper, Business term paper, Business Dissertation, Business Thesis, Business Case study: Auditing Writing Services: Auditing essays,Auditing Research papers, Auditing term papers, Auditing Dissertation, Auditing Thesis, Auditing Case study: Business information systems: Business information systems essays, Business information systems Research papers, Business information systems term papers, Business information systems Dissertation, Business information systems Thesis, Business information Case study: Taxation writing services: Taxation essays, Taxation Research papers, Taxation term papers, Taxation Dissertation, Taxation Thesis, Taxation Case study:Human resources writing services: Human resources essays, Human resource Dissertation, Human resources Thesis, Human resources case study, Human resources Research papers and term papers: Business law writing services: Business law essays, Business law Research papers and term papers, Business law dissertation, Business Thesis, Business law case study. Join the rest of our Business Writing services at Business Writing Services.org. 

 

Guests Online

We have 11 guests online