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Standard costing

Standard costing records or analyses output using predetermined resource quantities and prices and compares them with actual results through variances. It can support budgeting, control, valuation and performance reporting under either absorption or marginal costing. Useful interpretation requires realistic standards, comparable activity and an understanding of causes. The system should prompt investigation and learning rather than punish every deviation or encourage managers to protect a target at the expense of quality.

Worked example

Actual output is 1,000 units with standard material quantity 2 kg each. Compare actual material use with 2,000 kg, not with the quantity budgeted for a different output.

Common mistake

Standard costing is not a third alternative to absorption and marginal costing; standards can be used within either cost basis.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA MA Direct September 2026–June 2027
ACCA PM Direct September 2026–June 2027
FIA FMA Direct September 2026–June 2027