Advantages Of Standard Costing

Standard costing in accounting can be stated as the predetermined cost or as expected cost. Standard costing is one of the vital costing methods utilized by manufacturers & firms to calculate the expected expenses to be occurred on a particular product. Standard cost can be planned under future or nearby active conditions. Standard costing is utilized to compare with actual cost after variance calculations as it is vital for firms to calculate future expenses. It involves creation of estimated standard costs for activities within a company. The variance calculation is used to break out between standard and actual costs as change of labor rate & materials.

ADVANTAGES

The standard costing advantages helps in operations planning & gaining perceptions

Example if standards are set high, non-achieved results will upset and build conflict from workforces. if standard are set low on other side achievement is easily obtained without any effort.

Rivalry in departments might lead to unsuccessful standard costing methods and techniques as all concerned department’s needs to collaborate for successful standard costing.

SIGNIFICANCE OF STANDARD COSTING

Standard costing improves the area of production as the technique calculates and compare with actual cost after variance calculations. The account manager can fix costs such as predetermined costs of direct material, labour and overheads of productions. After this accountant can compare and contrast the standard with actual costs which will result in work efficiency and cost reduction.

The budgets are set in budgetary control as we know budgets helps in setting standards of calculations of costs and it helps in setting future goals.

Standard costing is also supportive for large expenses as the division of particular expense are calculated in variance analysis and reconciliation statement make adverse or favourable

It is a procedure of simple analysis comparing the standard or actual costs. The firms usually set some standard on which actual costs are judged. The budgetary control is one aspects of budgeting process. The analysis of these is role of accountants that make importance in decision making of firm.

DISADVANTAGES / LIMITATIONS

Some of the factors that divert attention for using variance analysis are as follows:

1. Before issuing the final results or outcomes at the end of month the accounting staffs meets management to calculate variances which is time consuming. In today’s world which is fast paced in production and deliverance these relying on measurement of variances might led to raise alarms especially in every firm.

2. There are many records which are not included in accounting records of firm so accountants have to go through deep details of material bills, overtimes, etc to know the cause of problem. This extra work may lead to ineffective issues of a firm which can lead to disadvantage of variance analysis.

3. Many firms utilise horizontal analysis rather than variance to construe the financial results. Under this method the outcomes are listed side by side so that drift can be easily