Ashima Negi is teaching live on Unacademy Plus
UGC NET EXAMINATION 2019 METHODS TO UNDERSTAND COST ACCOUNTING IN 60 MINUTES By:- Assistant Professor(Ms.)Ashima Negi Candidate For Doctorate ( Ph.D.) UGC NET-Management. CA(I), MBA Finance, BBA, PGDM-Materials Management, NCFM, TQM & ISO 9000, QS 9000 & Assurance, CCIBL.
STANDARD COST ACCOUNTING Standard costing is the practice of substituting an expected cost for a cost in the accounting records. Subsequently, variances are recorded to show the difference between the expected and actual costs. This approgch represents a simplified alternative to cost layering systems, such as the HIFO and LIFO methods, where large amounts of historical cost information must be maintained for inventory items held in stock. al Standard costing involves the creation of estimated (i.e., standard) costs for some or all activities within a company. The core reason for using standard costs is that there are a number of applications where it is too time-consumin collect actual costs, so standard costs are used as a close approximation to actual costs Since standard costs are usually slightly different from actual costs, the cost accountant periodically calculates variances that break out differences caused by such factors as labor rate changes and the cost of materials. The cost accountant may periodically change the standard costs to bring them into closer alignment with actual costs
ADVANTAGES OF STANDARD COSTING Budgeting. A budget is always composed of standard costs, since it would be impossible to include in it the exact actual cost of an item on the day the budget is finalized. Also.since a key application of the budget is to compare it to actual results in subsequent periods, the standards used within it continue to appear in financial reports through the budget period. Inventory costing. It is extremely easy to print a report showing the period-end inve tory balances (if you are using a perpetual inventory system), multiply it by the standard cost of each item, and instantly generate an ending inventory valuation. The result does not exactly match the actual cost of inventory, but it is close. However, it may be necessary to update standard costs frequently, if actual costs are continually changing. It is easiest to update costs for the highest dollar components of inventory on a frequent basis, and leave lower-value items for occasional cost reviews. ication. If it takes too long to aggregate actual costs into cost pools for allocation to inventory, then you may use a standard overhead application rate instead, and adjust this every few months to keep it close to actual costs. Price formulation. If a company deals with custom products, then it uses standard costs to compile the projected cost of a customer's requirements, after which it adds a margin. This may be quite a complex system, where the sales department uses a database of component costs that change depending upon the unit quantity that the customer wants to order. This system may also account for changes in the company's production costs at different volume levels, since this may call for the use of Tonger production runs that are less expensive