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Sir, I saw your video on this topic but I didn’t understand what is actually standard costing
I have two questions (please say both of them are correct):
1) Standard costing is a system based on predetermined revenue per unit and costs per unit used as a benchmark to compare with actual performance (ie actual results) and provide useful information to the management. This is exactly what we do in variance analysis to compare the standard cost with the actual cost.
The setting of the standard costing per unit is done for the budgeting purpose only to compare the standard what we expected with the actual results to see whether we have done good performance or bad performance.
2) Is it also true that it is the management that sets these standards to assess the actual performance of the managers? But sometimes the management sets ideal standards that cannot be achieved so it is the management’s fault for not setting such standards.
Both statements are correct.
However standard costing might also be used to decide on a selling price, by budgeting the cost per unit (i.e. the standard cost) and using that to determine what selling price to charge in order to earn the required level of profit.