Life Studying ACCA

A standard cost for a product or sevice is a predetermined unit cost set under pecific working conditions.

Procedures for the preparation of Standards:-

♥Materials - can be reprensented by quantity standards or value standards

• By striping a finished product 2 its basic components : appropriate 4 non-complex finished goods; time consuming and expensive
• By ad hoc trials : may not provide normal production conditions; lots of wastage.
• By investigation of specification
  
• By interview or observation : interviews ; require the exercise of inter-personal skills and judgement.

♥Direct Labour - the approach outlined 4 materials may be applicable 2 labour with suitable adjustments; wages can be determined with existing records.

Uses:

• Planning : plans relate 2 future period of time - used in preparation of budget
  
• Control : SC can be compared to actual cost and any differences can be investigated.
• performance measurement : any diff between SC and AC can be used as a basis to assesing the performance of cost centre managers.
• decision making : decisons relate 2 future period of time - suitable decisions can be taken
  
• an alternative 2 methods such as lifo fifo in measuring value of inventory.
• to simplify accounting.

SC is suitable 2 organisation with mass production of homogenoues products and repetitive assembly work.

Advantages :

• makes preparation of forecast and budgets easier since it is predetermined standards.

• highlight areas of efficiency and inefficiency - variances - investigation can be taken

• since they are attainable. it will motivate employees.

Diadvantages:-

• SC must be revised on a regular basis to retain effectiveness.
  

Types of standard:-

1. Attainable Standards : based upon efficient operating conditions; allowances are made for idle, loss, breakdown; motivate employees 2 work harder cause it is challenging but achiveable target.
2. Basic Standards : long-term standard which remain unchanged over a period of time; helps to compare variances over a period; no suitable for today's fast changing world; employees demotivated cause it is too easy and they feel bored and unchalleged.
3. Currents Standards : based on current working conditions;useful when current conditions are abnormal and other standards would provide meaningless information; this do not motivate employees, feel unchalleged.
4. Ideal Standards : based on perfect working conditions; no wastage, loss, braekdown, idle; demotivate employees, standard is impossible 2 achive.