Page 109 - BA2 Integrated Workbook - Student 2017
P. 109
Standard costing and variance analysis
Standard costing
1.1 What is standard costing?
In the budgeting chapter we looked at the preparation of budgets within an
organisation. These budgets were prepared at a total level and became a target
against which actual results could be measured.
In this chapter we will look at another control technique known as standard costing.
Standard costing also produces a target against which we can measure actual
results, but in standard costing the targets are set at a unit level.
A standard cost is a carefully pre-determined unit cost which is prepared
for each cost unit..
The standard becomes a target against which performance can be
measured.
The actual costs incurred are measured after the event and compared to
the pre-determined standards.
The difference between the standard and the actual is known as a
variance. Analysing variances can help managers focus on the areas of
the business requiring the most attention. This is known as management
by exception.
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