Standard Costing And Budgetary CostPaper Rating: Word Count: 1334 Approx Pages: 5
Explain the advantages and disadvantages of Standard costing as a cost control technique. How standard costing is related to Budgetary cost?
Standard costs are amount that are incurred in an ideal circumstance for raw materials, direct labour, and factory overhead. Standard costs are developed prior to the applicable operating periods and remain in effect until circumstances require their revision. Management's routine comparison of actual costs with standard costs reveals the difference, or cost variances. Cost variances are unfavorable when actual costs exceed standard costs and favorable when standard costs exceed actual costs. The concept of standard cost can be used informally in special periodic management reports comparing actual costs with what costs should have been according to plans. However, standard costs are most effectively used when they and related variances are recorded in accounts. Under such standard cost procedures, work in progress, finishing goods, and cost of goods sold are recorded at the standard costs for raw materials, direct labour, and factory overhead. Differences between the standard costs of goods produced and actual cost incurred are recorded as eithe