What Do We Mean By Standards, Standard Cost And Standard Cost System

This article seeks to differentiate the three terms:-standards,standard cost and standar cost system.

Standards:

• performance goals that are used to control and evaluate managerial performance
• two types of standards namely IDEAL standard re: most perfect and can be achieved if no wastage/spoilage, machine breakdown and others and ATTAINABLE OR NORMAL standard which are realistic levels of efforts. Allowances are made for interruptions, normal defectives, spoilage, waste and non productive time.
  

Standard cost:

• a target cost that should be achieved
• predetermined from historical experience, engineering studies and from operating personnel
• used to compare with actual cost to get the performance of a given costing department or operation

Standard Cost System:

• for determing accurate costing products and to control cost in managing production, marketing and administrative function within the business
• an accounting system designed to allocate costs of direct labor, indirect labor, materials, overheads and selling/general/administrative accounts on a unit basis