Question

Describe how standard costs are established using engineering studies

Answer 1

Standard cost is a pre determined cost calculated by taking into consideration the relevant necessary expenditure on the basis of management's standards of efficient operation. It is a far more technically improved system by which cause of variance can be exercised in a more specific and effective manner. A company labour cost should be estimate by any engineer or management scientist. A standard cost is a planned or budgeted cost of controlling business operations. It is commonly used to derive cost variances particularly to production and inventory costs. It is based on engineering designs production methodology. The standard cost in engineering studies is the practice complied to management of project cost involving such activities as estimating, cost control, cost forecasting, investment appraisal and risk analysis. The engineers budget, plan and monitor investment projects. The standard costing is a projection of the cost of a lumpsum for the project, a daily or hourly rate, direct labour cost as well as multiplier for the engineer's profit, a percentage of the total cost of the project, in terms of engineering design fees, depending on which type of contract the engineer sign for a project.

Standard cost is an unit concept . Under this system standard and the resulting variances are usually revealed through double entry accounts. Variances in standard costing refer to differences between actual costs and standard costs for specified areas of operation activity. In engineering studies the standard cost estimate is used to evaluate the required funding or budgets.