Differences Between Standard Basting And Standard Costing Vs. Standard Costing

Standard costing

Even considering the fact that standard costing can create variances between standard cost and actual cost, this system is the most commonly used costing system in all around the world. Standard costing provides easier to predict the cost and understand the cost, and also easier in decision making as well. Standard costing also required less time consuming for the management to record and maintain the system.

Standard costing is the system that organized cost for activities and the record to decide the cause for any variances. Standard costing can be a system to helps management account to calculating costs.

For example, the company predict the labour cost at the beginning of a year $3 per unit. After certain time, the actual

If actual cost is bigger than the standard costs, it is an unfavorable variance, if actual cost is less than the standard cost, it is a favorable variance.

Standard Costing

Whereas normal costing uses actual costs (or as close as can be determined), standard costing values manufactured products using predetermined costs and rates for materials, direct labor, and manufacturing overhead. These standard costs are used to come up with COGS and to value inventories. If the actual costs vary only slightly from the standard costs, the resulting variances will be assigned to the cost of goods sold. If the variances are significant, they should be prorated to the cost of goods sold and to the inventories.

Standard costing takes the idea of applying a predetermined overhead rate and extends it to materials and direct labor as well. Therefore the variances provide different information to management.

Why Use Standard Costing?

There are several reasons for using a standard costing

Company developed strong and experienced teams;

2. Company developed efficient training methods;

3. Managers are over estimating standard costs.

Although favourable variance creates positive side effect of exceeding projected profits, it is still a problem that should be addressed. Further investigation of possible causes is required. If investigation points to increased efficiency in work or in training, these causes should be increased further and duplicated across all divisions within the company. In case of simple over estimating standard costs, underlying cause might be either:

1. Managers are overly cautious and estimate working hours for their teams. This should be corrected by removing possible penalties when team exceeds their budgets and adjusting future estimations based on historical performance numbers;

2. Managers are over estimating working hours for their teams in order to demonstrate high performance and claiming possible financial bonuses that company might reward to high performing teams. This points to much larger ethical issue and needs to be corrected for future periods.

Standard and actual cost for