Steps involved in installation of standard costing system

Steps in installation of Standard Costing System

Steps in installation of Standard Costing System

Steps in installation of Standard Costing System

As Standard Costing is an important management tool, important should be given in its installation. The following steps are involved for establishing standard costing system in an organization.

1. Determination of Cost Centre

The cost centre is necessary for fixing costs and fixation of responsibility. In the manufacturing concern, cost centres are created according to the number of products produced and the number of sections, departments or divisions are involved in the production process.

A cost centre relating to a person is called personnel cost centre and a cost centre relating to products and equipment is called impersonal cost centre.

2. Classification of Accounts

The costs are incurring at various stages of production process. These costs should be recorded properly for accurate calculation of total costs incurred. Hence, there is a need of classification of accounts for cost control under standard costing system.

3. Codification of Accounts

The different accounts can be codified and different symbols can be used to facilitate speedy collection, communication and reporting. The following codes can be used for elements of cost.

4. Setting of Standards

A standard is an ideal which is anticipated and can be attained over a future period of  time, normally in the next accounting year. The success of standard costing system is based on the genuineness, reliability and acceptance of these standards.

There are three types of standards. They are current standard, basic standard and normal standard. The current standard is dividend into two i.e. ideal standard and expected or attainable standard.

5. Establishing Standard Costs

Standard costs are established for each elements of cost separately. Generally, elements of cost is grouped as material, labor and overhead. Moreover, standard cost is set for the sales also.

6. Preparing Standard Cost card or Standard Cost Sheet

Standard cost card or standard cost sheet is prepared separately for product wise or process wise.

7. Organization for Standard Costing

A committee is formed to set the standards. If so, the objectives of standard costing system can be easily achieved.

Leave a Reply




Recent Posts


Related pages


urbanization in indiaadvantages of process costingwhat is mbo management by objectivesfactoring small businessdefinition of countermandbenefits of oligopolystock audit processdefinition of arrearsstratified cluster sampling examplecashflow advantagecharacteristics of job order costing systemwhat are the advantages and disadvantages of corporationsfigurehead role of managerdefinition of quality circlesa high accounts receivable turnover ratio indicatesdifference between import and export letter of creditdefinition of capexpayables turnover ratiocredit rating icratax avoidance indiaaverage inventory turnover formulanon breaching party definitiontraditional bank online bankingperil defdefinition of impersonaldictatorship disadvantagesfunctions of packaging and labellingcardamom boardsignificance of profitability ratioswhat is the purpose of business process reengineeringvoid voidable and valid contractsinterpretation of debt equity ratioadvantages and disadvantages of sole proprietorshipsalesman duty and responsibilitydefine ratify contractventure capital method valuationwhat is meant by underwritingadvantages and disadvantages of autocratic managementsebi pdfretail industry current ratio averageco op bank loanspreference shares fixed dividendwho is drawer of chequemeaning of discharge in hindifunction of international monetary fundvertical merger examplescapital market reforms in indiasimilarities between financial accounting and cost accountingeffectiveness of autocratic leadershipidbi financial institutionbankers and customers relationshipjob and process costingmeaning of export marketingreceivables turnover ratio formulafinance lease vs operating lease accountingdefine requisitesadvantages and disadvantages of dictatorshipflexed budget formuladisadvantages of newspaper advertisingibrd chairmanstratified cluster samplingsteps involved in personal sellingdisadvantages of an oligopolynse definitiondefine scalar principlegeneral agreement on tariffs and trade pdflimitations of abc costingmeasures to control absenteeismzero base budgetingfranchisee and franchisor definitionmeasuring moraledefinition for hire purchasedefinition of bonus issuecommunicating sales promotionsphysical verification of fixed assetsadvantages of dematerialisation