Question

Many companies do not have standard costs established such as educational institutions. Why would it be important for a college to understand the standard cost of educating one student?

Answer 1

• Standard cost is basically an estimated cost of producing a single output or performing service over a single unit under normal conditions.
• This estimate is vital for preparing budgets and forecasts for the entities. Thus, standard costs is the basis for preparing budgets of the entity.
• In order to obtain variances from the actual expenses or spends of the entity the comparison of these estimates standard costs and actual costs is essential.
• Considering an educational institution such as a college, the standard cost of educating a single student is essential in order to get the balance of expenses and availability of funds.
• Such standard cost may comprise of various costs such as remuneration of teaching staff, rent of classroom, cost of books, stationery etc.
• The college may set standards and budgets and allocate costs appropriately throughout the year if the standard cost of educating the student is obtained.
• Thus, these are the various reasons why setting of atanstan costs is important.