Lecture 4- Standard costing and variance analysis (1)

First step in how a standard costing system operates is [blank_start]standard costs[blank_end] for the [blank_start]actual output[blank_end] are recorded for each [blank_start]operation[blank_end] for each [blank_start]responsibility centre[blank_end]

Second step in how standard costing system operates is [blank_start]actual costs[blank_end] for each [blank_start]operation[blank_end] are [blank_start]traced[blank_end] to each [blank_start]responsibility centre[blank_end]

Third step in how standard costing system operates is [blank_start]standard[blank_end] and [blank_start]actual costs[blank_end] are [blank_start]compared[blank_end]

Fourth step in how standard costing system operates is [blank_start]variances[blank_end] are investigated and [blank_start]corrective action[blank_end] is taken where [blank_start]appropriate[blank_end]

Fifth step in how standard costing system operates is [blank_start]standards[blank_end] are monitored and [blank_start]adjusted[blank_end] to [blank_start]reflect[blank_end] changes in [blank_start]standard usage[blank_end] and/or [blank_start]prices[blank_end]

One approach used for setting standard costs is using [blank_start]past historical[blank_end] records to [blank_start]estimate[blank_end] [blank_start]labour[blank_end] and [blank_start]materials[blank_end] usage

Another approach used for setting standard costs is [blank_start]based[blank_end] on [blank_start]engineering studies[blank_end]

Engineering studies- [blank_start]Detailed studies[blank_end] of each operation, based on [blank_start]careful specifications[blank_end] of materials, [blank_start]labour[blank_end] and equipment and on [blank_start]controlled[blank_end] observations of [blank_start]operations[blank_end]

One purpose of standard costing system is providing [blank_start]predictions[blank_end] that can be used for [blank_start]decision making[blank_end] purposes

Another purpose of standard costing system is setting [blank_start]challenging target[blank_end] which [blank_start]individuals[blank_end] are [blank_start]motivated[blank_end] to achieve

Third purpose of standard costing system is providing [blank_start]reliable[blank_end] and [blank_start]convenient[blank_end] source of [blank_start]data[blank_end] for [blank_start]budget preparation[blank_end]

Fourth purpose of standard costing system is acting as [blank_start]control device[blank_end] by highlighting [blank_start]activities[blank_end] that do not [blank_start]conform[blank_end] to plan and therefore [blank_start]alerting managers[blank_end] to situations that may be [blank_start]out of control[blank_end] and in need of [blank_start]corrective action[blank_end]

Fifth purpose of standard costing system is [blank_start]simplifying task[blank_end] of [blank_start]tracing[blank_end] costs to [blank_start]products[blank_end] for profit [blank_start]measurement[blank_end] and [blank_start]inventory valuation[blank_end] purpose

Standard cost- [blank_start]Target costs[blank_end] that are [blank_start]predetermined[blank_end] and should be [blank_start]incurred[blank_end] under [blank_start]efficient operating[blank_end] conditions