Cost Accounting Assignment Help >> Defining Standard Cost, Standard Costing

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Standard Cost

The standard cost management methods are applied on a given set of specified materials, specified manufacturing operation or specified manufacturing order. For a standard material purchase material, the standard cost is also the standard purchase ice which is maintained in the system by manual methods. The standard cost results form roll-up form the standard BOM, standard routing etc for any product which is manufactured. The systems are able to do roll ups automatically. This helps in improving the efficiency of the calculations of standard castings.

Standard costing

Standard cost methods are used for the recordings of all the stock-in and stock out transactions. Managers are able to query cost reports in a real time manner by generating the journal entries at the moment the transactions take place. The managers can thus focus more on key problems, seek their various root causes and take essential measures for improving cost controls.

Variance analysis

A credit or debit item of overhead is termed as an overhead. The variance between the standard costs and the actual costs is displayed by the cost variance analysis reports. The logical classification of variance gives two types of variances, namely the purchase variance and the point variance. The point variance can be further classified as the purchase variance and the production variance. The purchase variance report displays the PPV, which are the purchase receipt prices the purchase order and the IPV, which is the purchase price versus the purchase order. The production variance report helps in breaking down the production variances into the material variances, direct labor variances and the overhead variances. The tracking of the cost variances and the performance evaluation of the production department is done easily with the abundant variance reports.

Cost assessment

The system is used for providing abundant reports for analyzing the variances which occur between the actual cost of production and the standard cost. The entities can improve their cost control level by using the reports which also helps in tracking sources of the variances by the cost controllers.

Calculation of cost of a new product

The system gives the tool for rolling up the standard costs of any new product as per the cost BOM, routing and the purchase price of the raw materials used. The cost quantity benefit analysis of the new products can be done and their pricing decided by using the results of the roll-ups.

Standard cost adjustments

The standard costs can be adjusted on yearly and ad-hoc term after updating the standard cost of items, the system is able to automatically revaluate the inventory and the WIP cost. The reevaluation is then posted to the GL. The system keeps the history of the standard cost change for future references.

Tolerance control

When the variances between the standard cost and actual costs are involved, a tolerance level is set for indicting the acceptable variance range of the one works order. This feature helps in differentiating the normal variances form the abnormal variances, and also helps in controlling and restricting the use of raw materials. This reduces any type of unnecessary wastes and also decreases unreasonable production costs, thereby improving the cost control level.

The multiple cost types

Multiple cost type can be built with different BOM, routing etc and a comparison can be conducted between various cost types. The simulation of standard costs is done in order to compare the standard cost of one’s own company with the standard cost of some other benchmarked company. The process helps in driving information for the processes of operational analysis and management decision making.