CHAPTER 10: STANDARD COSTING - MANAGERIAL CONTROL T OOL
Unit Standards to determine unit standard cost for particular input, two decisions must
1. Quantity Standard amount of input that SHOULD BE USED per unit of output
2. Price Standard amount that SHOULD BE PAID for the quantity of the input to
Unit Standard = Quantity Standard x Price Standard
How Standards Are Developed Historical Experience, engineering studies and input
from operating personnel are three potential sources of quantitative standards.
Engineering studies determine most efficient way to operate and provide rigorous
Prince standards joint responsibility of operations, purchasing, personnel and
Type of Standards
Idle Standards demand maximum efficiency and can be achieved only if
everything is perfect.
Currently attainable standard can be achieved under efficient operating
conditions. Allowance made for normal breakdowns, interruptions, less than
Planning and Control Unit standards are requirements for flexible budgeting systems,
which is a key feature of meaningful planning and control system.
Budgetary control systems compare actual costs with budgeted costs used variances
Standard costing system for operational control in manufacturing environments
that use JIT and continuous improvement can produce dysfunctional behavior.
(May encourage purchasing department to buy in large quantities in order to get
discounts, causing increase in inventories)
Variances may still be computed and presented in reports to higher-level
managers so financial dimensions can be monitored
87% of firms use a standard costing system.
Product Costing costs are assigned to products using quantity and price standards for all
manufacturing costs: direct materials, direct labor and overhead.
Standard Product Costs using product costing, standard cost per unit is computed.
Standard Cost Sheet provides production data needed to calculate the standard
SQ = Unit Quantity Standard x Actual Output
SH = Unit Labor Standard x Actual Output
1 C HAPTER 10: TANDARD COSTING - MANAGERIAL C ONTROL