Standards

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ACTG 321Agenda for Lecture 7

• Standards
• Standard Costing Systems
• Practice Problems

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Two meanings of standard

• A standard is one type of a budgeted number
• Noted for its precision
• Often involves engineering estimates
• Budgeted amounts need not be standard amounts
  (e.g., might be historical data)
• Standard is a type of costing system
• prevalent among manufacturing firms
• other costing systems include actual costing and
  normal costing systems

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What is a Standard?
BUDGET
STANDARD
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ACTG 321Agenda for Lecture 7

• Standards
• Standard Costing Systems
• Practice Problems

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Choice of Cost Accounting Systems
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Actual versus Budgeted Amounts

• Actual or budgeted rates for overhead.
• Actual or budgeted prices/rates of direct inputs.
• Actual quantities of direct inputs, or standard
  quantities based on actual production.
• Actual quantity of overhead, or standard quantity
  based on actual production.

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Three Costing Systems
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Three Costing Systems
Standard quantity of the allocation base allowed
for actual outputs budgeted (or standard)
inputs per output x actual outputs
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Why Use Budgeted Amounts?

• Actual costs may not be known on a timely basis.
• Actual costs may be subject to short-run
  fluctuations.
• When actual O/H rates are used, production volume
  for one product affects the reported costs of
  other products.
• Standard costing facilitates variance analysis.
• Standard costing systems are economical.

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ACTG 321Agenda for Lecture 7

• Standards
• Standard Costing Systems
• Practice Problems