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Chap 15:Budgeting and standard costing - Coggle Diagram
Chap 15:Budgeting and standard costing
A Standard cost = is an estimated unit cost.
Standard costing involves the establishment of predetermined estimates of the costs of products or services, the collection of actual costs and the comparison of the actual costs with the predetermined estimates.
The predetermined costs are known as standard costs and the difference between standard and actual cost is known as a variance.
The process by which the total difference between standard and actual results is analysed is known as variance analysis.
A Standard is prepared by management in advance and details their expectations of the future.
Purposes of standards:
Decision Making
Budgeting
Control
Performance Evaluation
Inventory Evaluation
Where standard costing should be used:
Large amounts of repetition
Mass Production
Can be used in services
Deriving Standards:
Based on expected prices and expected usage or time and wastage
Types of standard:
Ideal
Attainable
Current
Basic
Standards and Budgets:
Standards: by unit
Budgets: in total
Standards: areas of repetitions
Budgets: All areas
Standards: financial and non financial targets
Budgets: financial targets
Criticisms of standard costing:
Needs a stable environment
Needs regular revision
No incentive to do better than standard
Less appropriate for customised products
Revision of standards:
Changed when there is a change in the basis on which they were set
Flexible Budgets:
They should be used to show what cost and revenues should have been for the actual level of activity
The Principle of controllability:
Managers of responsibility centres should only be held accountable for costs over which they have some influence.
Controllable costs:
They are items of expenditure which can be directly influenced by a given manager within a given time span.