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Standard cost

Srividya Murali (Article Assisstant) (211 Points)

24 March 2015

Hi friends...!

Can anyone please explain what exactly is standard cost?

Is it industry standard or standard set by an organisation based on past experience?

Thank you in advance.

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3 Replies

Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294) (5138 Points)
Replied 07 August 2015

Through Organised based on past experience

the estimated cost of a process, resource, or item used in a manufacturing enterprise, entered in an account and compared with the actual cost so that anomalies are readily detectable.

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JAGANATHAN R ACMA, SAP(Fi-Co) (Manager Accounts and Finance) (915 Points)
Replied 07 August 2015

Originally posted by : Srividya Murali
	Hi friends...! Can anyone please explain what exactly is standard cost? Is it industry standard or standard set by an organisation based on past experience? Thank you in advance.

The stadard cost is fixed by management the same equal to industry standard.,

Mukund (Nil) (36 Points)
Replied 25 September 2015

Standard Cost is cost for producing a standard component based on Historical Analysis if trends are available.The cost is usually fixed at begining of the year on standard component like ( Material,Labor,Manufacturing Overhead & DTW cost ( distribution,transportation,warehousing).

Standard cost is a good tool to give pricing estimate for doing sales assuming what will be your standard cost.If you operate in a very volatile market where there is huge price differences,substitution of materials ( using imported coal to local coal) the standards will have spikes & estimate provided will undergo many changes.

Standard cost is more about your internal need to give quick estimates for calculating product pricing,COGS sold for sales in monthly financial results finalization etc etc.It is internal ability of firm for sourcing based on its current model capability.It is not a function of Industry standard.A company like Tata to produce a steel will have lower costs for sourcing,proven manufacturing process & personnel,credible suppliers so they will have a edge compared to a small guy who will produce same steel....their standard costs will be different even if they produce alike a similar steel.