Question

ANSWER ALL QUESTIONS...

(1) "Describe the advantages/benefits of Standard Costing".

(2) "Describe what is meant by "Standard Quantity Allowed" and "Standard Hours Allowed"".

(3) "Discuss the "Standard Cost Card"".

(4) "Discuss Variances and how Variances are determined".

Answer 1

There are many advantages of Standard Costing. They are as follows.

1. Pricing : Standard costs serve as a reliable base of calculating total cost of producing a good or service, to which margin can be added to determine selling price.
2. Cost Reduction: The process of setting, revising and monitoring standards encourages reapprisal of methods,materials and techniques thus leading to cost reduction.
3. Inventory Valuation: Inventory valuation becomes much easier if the actual number of physical unit in th inventory is known, then the inventory value is simply determined by multiplying the standard cost per unit with the physical units.
4. Cost Control : A properly implemented standard costing system acts like a yardstick against which all costs are measured to determine whether variance from the standard is favourable or not. This gives the organisation a need to monitor and control the costs
5. Budgeting is easier: Through standard costing, budgeting for all the departments becomes easy. As if the desired output units are known, then the budgeted cost is simply, the output units desired multiplied by the standard ccost per unit.

2. Standard Quantity Allowed is nothing but the limit for the usage of materials to manufacture usage of output during a period. Its calculated by multiplying actual units of production by the standard material quantity per unit.

Example: If a company produces 2500 units of output per month, and the standard material quantity to produce one unit is 3pounds, then the standard quantity allowed for actual production = 2500units*3= 7500pounds.

Standard Hours Allowed is the number of hours of production time that should have been used during a particular accounting period.

Example. If a company produces 5000 units of output in a month, and the standard labour hours required to produce one unit of output is 2hours, then the standard hours allowed for actual production = 5000units*2hours= 10000 hours.

3. Standard Cost Card is a database that stores the details of the standard amounts of materials, standard amounts of labor, standard amount of overheads,that should be allowed into one unit of product,multiplied by the standard price or rate that is set for each cost element. Its a record showing how the standard costs are built up. The xard also multiplies the standard cost of each of these items in it, to arrive at the total standard cost of a product.