ACCA PM Syllabus D. Budgeting And Control - Standard Costs - Notes ^{1 / 4}

A standard cost is a predetermined estimated unit cost of a product or service.

Therefore, a standard cost represents a target cost.

Standard costing has a variety of uses

• It is useful for planning, control and motivation.

• It is used to value inventories and cost production for cost accounting purposes.

• It acts as a control device by establishing standards (planned costs), highlighting activities that are not conforming to plan and thus alerting management to areas which may be out of control and in need of corrective action.

Criticisms of standard costing

• It works best in a stable environment and is not suitable for fast-changing business environments.

• It is less useful for customised products

• Meeting the standard should not necessarily be accepted as satisfactory if further improvements could be made.

• Regular revisions to the standard are required, which is expensive and time-consuming.

• Standard costing is potentially misleading when just-in-time (JIT) is used, as it can make managers focus their attention on the wrong issues.