Question

Please give two examples for each type of cost standard: basic standard, current standard, normal standard, expected standard, ideal standard, and historical standard. Thank you!

Answer 1

1) Basic Standard: These Standards will remain unchanged during the Long period of time, examples

A) Insurance for the Factory machinery or Premises

B) Depreciation of Machinery or Equipments Used in the factory will remain same irrespective of production

2) Current Standard are those cost are short term in nature and must achieving type for business

A) Advertisement or Business Promotion Expenses to be incurred while promoting  the product in market

B) Research and Development Expenses incurred at the basic stage of Product

3) Normal Standard are expected if normal circumstances prevail . It can be either controllable or uncontrollable

A) Direct Material Cost and Labor cost - Controllable

B) Departmental Overheads Allocated to the product- Uncontrollable

4) Expected Standard Cost: Attainable Standards according to the potential of Business

A) The Run hour the machine can be 6000 hours but expected attainable hours can be 4000 so the cost for  

Runtime for the 4000 hours is Expected Standard cost

B) Same way when the labor can work for all 365 days but the wage for working days is expected cost

5) Ideal Cost: Can be called as theoretical cost they are not meant to be achived

A) Equilibrium Price calculated in economics it is only an approximation

B) It is used while bidding or Negotiation - Original price is Ideal Price and Price after bargain is real price

6) Historical cost : Cost Incurred in past . It has no impact in decision making

A) Written Down Value of Old machinery While Buying a new One