Standard Costing in Business: Uses, Review Reasons, and Applications

This essay provides a comprehensive analysis of standard costing, detailing its uses in planning, budgeting, and performance evaluation. It critically discusses the reasons for reviewing standards annually, emphasizing the importance of adapting to economic and systemic changes. Furthermore, it evaluates the applicability of standard costing in both manufacturing and service businesses, highlighting its role in cost control and variance analysis. The essay addresses the misconception that standard costing is sector-specific, asserting its universal relevance for businesses aiming to minimize costs and optimize pricing strategies. Ultimately, the essay underscores the value of standard costing in enabling efficient business operations and informed decision-making, while leveraging Desklib for additional resources.

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Answer A:
Introduction:
The term standard costing is the practise of comparing in the costs that are based upon
the previous year’s experiences as against the actual costs that have been incurred and
then recording the differences in between the two. This technique involves the creation
of an estimation of the costs that exists between the companies. The main reason for the
use of the standard costs is the fact that there are a number of different applications
which are too time consuming to collect the actual costs, so that standard costs could be
used.
Advantages and purposes of standard costing:
The following are the advantages and the purposes of standard costing:
 It provides in the best estimations of all of the future costs and also ensures better
planning and the function of budgeting
 It helps in comparing the actual costs with the budgeted costs for the purposes of
evaluating the performance of the managers
 The technique helps in the identification of the variances and then taking the
corrective course of action by the way of focussing on the adverse and favourable
variance. This helps in the improving of the present and the future planning and
control
 The setting up of these costs would help in the looking into the methods and the
operations that would lead to an improvement in the efficiency by the way of
eliminating in any inefficiencies caused.
 The technique encourages the management to look forward

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 It serves as a means of management by an exception wherein the management could
focus on more important areas and take decision accordingly
Further, standard costing technique has to be reviewed each year since it is based on the
previous year’s estimates and the judgements. But then these judgments change on the basis
of the changes that takes place in the economy or system, hence, these costs have to be
reviewed each year and these have to be adjusted accordingly.
Conclusion:
The technique of standard is very much helpful and helps the management to take the best
decisions possible and also encourages the management to look forward to more efficient
business operations. The management can also look into the other problematic areas.
Answer B:
Introduction:
The term standard costing is the practise of comparing in the costs that are based upon
the previous year’s experiences as against the actual costs that have been incurred and
then recording the differences in between the two. This technique involves the creation
of an estimation of the costs that exists between the companies. The main reason for the
use of the standard costs is the fact that there are a number of different applications
which are too time consuming to collect the actual costs, so that standard costs could be
used.
Use of standard costing:
Standard costing is all about comparing the actual costs that have been incurred as against the
estimated costs that were predicted at the start of the year. The difference between the two is

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termed as variance and then the management takes corrective actions so that the same
variance does not occur again in the coming year. It is just a myth that this technique cannot
be applied to any specific sector of companies since each and very company today is being
run for the sole purpose of earning profits. If it is not able to earn profits then it would go
bankrupt. So this technique helps these companies in the minimisation of costs and incurring
costs that were estimated during the start of the year. The main aim of the process is to
control costs and also to take the necessary action in the case of discrepancy. This is the
technique that is capable of being applied in each and every sector. In case these companies
are not able to control costs then they would set in the prices of their products that would help
in not only converting the costs that have benefit incurred by the company but also earn
profits.
Conclusion:
The main issue with the companies study is the fact that they are not able to control the costs
and so, they are not able to estimate the correct selling prices that should be quoted for the
goods. If the companies know the exact costs, both planned and actual, then they would be
able to achieve in the profits. If there is a discrepancy between the actual and the planned
costs, then the management would be able to take the necessary actions accordingly. This
helps the management to function by an exception. The technique helps the management in
concentrating on the issues that are involved and also helps them in solving their dilemmas
with much ease.
The various studies have shown that the technique could be used anywhere and in any
industry since the main objective of each and every business is to control the costs and take
the apt action as and when necessary. If the management follows this technique, it helps them
in efficiently carrying on its business operations.