Question

What are some of the virtues of standard costs as use in process costing?

Answer 1

STANDARD COSTING IN PROCESS COSTING

STANDARD COSTING

Standard costing is the method of costing by which standard costs are employed. It involves estimating the required costs of a production process. Standard costing is the series of activities, were ;preparation and use of standard costs, comparison with the actual costs, and the result analysis are involved.

PROCESS COSTING

Process costing is the method of costing which is used in the manufacturing concern/industry to determine the total production cost of a unit of merchandise. Such costing techniques are most commonly used in those organizations, were production carried over through different cost centres.

VIRTUES OF STANDARD COSTS AS USE IN PROCESS COSTS

Organizations often uses the combination of standard costing system and process costing system. There are many advantages for using such a combo in the companys. They are :

• management can review and investigate the variances between the standard cost and actual process cost . It is done through reviewing the actual activity in the process costing system of management.   
• The accounts used to accumulate the the standard cost budget process can be used to accumulate the process cost during the year. It means similiar accounts can be used for both the purpose.   
• The application of standard costing in process costing is helpful for the control of performances of organization. It is the process of evaluating the performances of company, by determining the efficiency of current operations facilitated through the management by exception.   
• Yet another virtue is cost reduction. Since both systems are of concerned with the cost of organization, standard costing method of cost reduction is applicable in the process costing system of organization.