Uses of Standard Costing

Uses of Standard Costing

1.    Alternative of Cost Accounting

Standard costing provides alternative bases of producing the cost accounts. Sometime data is not timely available or collected at the end of period, then standard costing is used to prepare cost accounts.

2.    Budget preparation

First use of standard costing is budget preparation. Standard costing provides basic information for budget preparation i.e. unit cost of product.

3.    Performance measurement

Standard costing can be used to measure performance of different manager. Actual results are measured with expected results. for example actual cost incurred is compared with the standard cost for measuring the performance of production department or manager.

4.    Controlling Tool

Standard costing is also used as controlling tool for different operations. Results of different department are measured in relation to standard results and appropriate control action is suggested.