Standard Costing Basis
ACCA Director 
Standard Costing
Standard Costing
Sketch
This chapter gives detailed guidance on how to apply standard costing in businesses.
Uses of Standard Costing
- Set per-unit performance targets for products, ie selling price, variable cost per unit and fixed costs in total
- Provide a basis for control, ie budgetary control
- Value inventory, ie issued inventories are valued at standard costs
Variances
Variance is a difference between standard and actual results.
A favourable variance arises because of:
1. Increased sales volume
2. Increased selling price
3. Decreased costs
An adverse variance arises because of:
1. Decreased sales volume
2. Decreased selling price
3. Increased costs
Different Standards
- Ideal standards - based on perfect operating conditions, ie no inefficiencies.
- Attainable standards – not based on perfect operating conditions, ie allow some inefficiencies.
- Current standards - based on current working conditions.
- Basic standards – based on the old standards for comparison purpose.
Case Study:
Let’s consider ACCA exams as an example. The full marks for each ACCA exam are 100 whereas the passing marks are 50. Suppose a student who worked very hard and got 60 marks in one paper and she is about the take the next exam.
- Ideal standard – she should get 100 marks.
- Attainable standard – she should get 62 marks as an improvement to the previous exam.
- Current standard – she should get 60 marks which are the same as the previous exam.
- Basic standard – she should simply pass the exam with 50 marks as the passing mark is kept unchanged over the long period of time.
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Categories: : Management Accounting (MA)