INTRODUCTION (STANDARD COSTING)

INTRODUCTION

• Management of an organisation uses standard costing as a controlling tool for cost control and performance evaluation. Controlling is a principal function of management along with planning, directing and staffing.
•  Every organisation sets a goal and to achieve it management of the organisation make plans, get these plans executed and monitor the work for any deviation from the plan. Please note the word deviation. 
• Deviation means the amount by which a single measurement differs from a fixed value such as the mean or standard (here it is used in the context of cost accounting). Deviation is measured by comparing actual figure with the standard figure.
•  Standard costing is a method of costing which measures the performance or an activ- ity by comparing actual cost with standard cost, analyse the variances (deviations) and reporting of variances for investigation and appropriate action.
•  Official Terminology of CIMA, London defines standard costing as “Control technique that reports variances by comparing actual costs to pre-set standards so facilitating action through management by exception.”