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Cost standard method is basically used by an organization who does not want to go cost layering method such as first in first out (FIFO) and last in first out (LIFO). Mostly students face difficulties in understanding the method pertaining to establishing cost standards and this is why to give them the proper guidance we have come up with our online service for establishing cost standards assignment help.
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Establishing cost standards
Establishing cost standards or standard cost refers to an estimated or predetermined cost for performing an operation or producing goods or services, under normal circumstances. Standard costs are used as the basis for comparison with the actual cost and are prepared from historical data analysis. Cost standards can be subdivided into ideal cost standard and practical cost standard.
These costs can be attained only under best conditions and circumstances. It calls for a level of effort that can be achieved by the most efficient and skilled employees working 100% of the time. Though it is not possible to meet these standards, it is still used to increase the efficiency and effort.
These standards are tight but still attainable. It allows for employees rest period and normal machine downtime etc. It can be attainable through high efficiency from the average worker. Practical standards serve multiple purposes like they can be used in planning inventory and forecasting cash flows.
The Purpose of establishing cost standards
• Establishing a budget and promoting cost reduction wherever possible.
• Motivating employees, measuring efficiencies and controlling costs.
• Simplifying cost procedures and preparing cost reports.
• Assigning a cost to materials, finished goods inventories and work in progress.
• Basis for establishing contracts and bids and setting sales prices.
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