Page 35 - Cost Accounting - Ready Reckoner
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CHAPTER – 11
Standard Costing
Standard Costing:
Standard costing is a technique used for variance analysis.
Standards are more defined/precise estimates than budgets. Standards are with
relevance to actual production.
Standards are set for every element of cost and compared with actuals to know
the variances. Variance can be favourable (F) or adverse (A).
A variance is said to be adverse when actual spending is more than standard and
favourable when actual spending is less than standard.
Variance analysis helps management to keep cost under control by comparing
costs with standards. Reasons for variance could be either the standards are set low or
it can be any fraudulent activity that gets exposed because of the analysis. Corrective
action can be taken by management.
