Question

Are standard costing systems just for manufacturing companies?

Answer 1

In a standard costing system, predetermined estimates of the costs of goods and services will be established; and afterwards will make a comparison to the actual costs which have incurred. The main reason for using standard costs is that there are huge applications where it is too time-consuming for collecting the actual costs, therefore standard costs are applied as a close approximation to actual costs. Since the standard costing systems are used in cost centers where the output can be measured and the input required to produce each unit of output needs to be specified, thus it is most suited to organizations such as manufacturing companies where activities includes series of repetitive or common operations. However it is not just manufacturing companies; and cam also be used to service industries such as transport, banking and computing (number of cheques) and to parts of the public sector (refusal disposal, street cleaning). Furthermore, organizations that produce a wide range of goods can also use a standard costing system as long as the manufacturing process includes a series of common operations