Question

What is the difference between an ideal standard and a practical standard?

How can a standard cost system help manufacturers meet global competition?

Answer 1

What is the difference between an ideal standard and a practical standard?

Ideal Standard: - Ideal standards as the name suggests, assumes an ideal situation where there will be no machine break downs, external disturbance and will attain a 100% capacity and efficiency. These standards are non-attainable and will demotivate the employees.

Practical Standard: - Practical standards as the name suggests, assumes a practically possible situations factoring in normal machine break downs, employee rest period and a budgeted allowable variance. These standards are attainable and will motivate the employees.

How can a standard cost system help manufacturers meet global competition?

Standard costing is an accounting technique, where a budget or benchmark (the standard) is estimated and prepared by the management, and the actual results are compared with this benchmark. This comparing of actual results can be done with any plausible standards, that is there is no requirement to compare it with self-generated standard itself. The management can compare it with the industrial standards, or with international standards. There is no boundary for comparing the actual results with standard estimate. So a manufacturer in remote location of the world can compare and compete with huge corporates, by trying to meet their standards. Thus, manufacturers can meet global competition with standard costing.