A standard is understood to be a rule of measurement
established by authority.
An inch, an ounce, a gallon, a kilometer, a rupee--- is an
example of a standard of measurement, established by
duly constituted authority, accepted by all to whom it
applies.
Management, in assigning responsibility for the actual
results of operations, wants to know that those results
were measured accurately.
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
A meaningful standard must

bear the stamp of duly constituted authority,

the standards used to measure performance must have
been propagated by management and recognized and
accepted by those whose performance is being
evaluated.
The technique of using standard costs for the purpose of
cost control is known as standard costing.
The standard costing has been defined by the London
Institute of Cost and Works Accountants as
“An estimate cost, prepared in advance of production or
supply correlating a technical specification of material, and
labour to the price and wages rates estimated for a selected
period of time, with an addition of the appointment of
overheads expenses estimated for a selected period within a
prescribed set of working conditions.”
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1. The determination of standard cost.
2. The recording of actual cost.
3. The comparison between actual cost and standard
cost.
4.The finding out of variances.
5. Reporting of variances to the competent authority,
both favorable and otherwise.
6. Initiation of necessary corrective measures/steps,
particularly in case of controllable variances.
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Before, standards are drafted for the approval of
competent
authority,
consultation
is
ordinarily
undertaken with the operating personnel most directly
affected by them.
These persons can express intelligent opinion as to the
realism of the standards proposed.
It is generally conceded that standards are most
effective as a cost control tool if they are attainable---not
too easy to reach, but not impossible either.
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
Such standards prove to be motivating devices even
before any formal analysis of performance is
undertaken.

Attainable standards stand a good chance of being
accepted by all concerned because they should pose a
challenge---but not an impossible one---to operating
personnel.
In the initial years the scope of standard costing was
very much limited,
 as the standards were set unscientifically and
without much of the
involvement of the operative
people.
They were almost imposed and that is why not taken
very seriously.
With the passage of time the people at the operative
level were made to understand that these standards
were not to harass them but they are meant for the
welfare of the employees as well as the organization.
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



They were told that the standards will be set with their
active involvement and even if they go wrong
somewhere they need not worry as they will get all type
of help.
Now a days the standards are set carefully, which are
attainable, of course, are challenging.
The variances are noted and analyzed, and if there are
controllable variances, necessary steps are initiated to
minimize the chances of recurrence.
It has proved to be an effective measure of cost
ascertainment and cost control.
1. It is concerned with the ascertainment of standard
costs, under each element, i.e. materials, labour and
overheads.
2. It is concerned with the measurement of actual cost.
3. It is concerned with the comparison of actual costs
with the standard costs.
4. On the basis of comparison it is concerned with the
analysis of variances, both favorable and otherwise.
5. It is concerned with the initiation of necessary steps in
case of, unfavorable variances.
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The setting of standards and the establishment of a
standard cost system allow managers to follow the
exception principle, which specifies that the manager
will maximize his or her efficiency by concentrating on
those operational factors which are deviations from the
plan.
A variance is the difference between the standard and
the actual.
CIMA has defined variance analysis as
“Method of accounting by means of which planned
activities are compared with actual results”.
.
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
Realistic and attainable standards should be set and any
deviation from such standards, has to be viewed
seriously.

When actual cost is less than standard cost, actual profit
is more than the standard profit and actual yield is more
than the standard yield, such variances are called
favourable variances, and are considered to be the sign
of efficiency and vice versa.
Variances may also be classified as
controllable
non
and
controllable variances.
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There are a number of reasons which give rise to
variances, and analysis of variances will help in locating
the reason and person or department responsible for a
particular variance.
Variance analysis, if properly used, can be of immense
help.
1.Early Warning.
2. Performance Evaluation.
3. Evaluating strategy.
4. Makes the people more responsible.
5. Helpful because of management by exception.
6. Makes the job more challenging.
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Variance analysis if implemented seriously and with good
intention can work wonders and can help substantially in
cost control.
Analysis of variance can be done in respect of each
element of cost and sales:
1. Direct Material Variances
2. Direct Labour Variance
3. Overhead Variance
4. Sales Variance
1.Standards provide yardstick against which actual
costs are compared.
2. Helps in minimizing waste and inefficiency.
3. Management by exception is facilitated.
4. Improvement in the methods of production and sales.
5. Provides valuable guidance in the formulation of price
and production policies.
6. Useful in planning and budgeting.
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7. Makes everyone in the organization cost- conscious.
8. Effective delegation of authority is facilitated.
9. Helps the management in performing its functions in a
better way.
10. Enhances the value of reports.
11. Economical means of costing.
12.Measuring Efficiency.
13.Determination of Variance.
14.Facilitates Cost Control.
15.Helpful in taking important decisions.
Standard costing cannot be used in those concerns
where non-standard products are produced.
If the production is undertaken according to the
customer’s specifications then it is not possible to set up
standards for every job.
The process of setting up standards is a difficult task as
it requires technical skill.
The time and motion study is required to be undertaken
for this purpose. These studies require a lot of time and
money.
The conditions under which standards are fixed do not
remain static.
The reconsideration of standard is a costly process.
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
The fixing of responsibility is not an easy task. The
variances are to be classified into controllable and
uncontrollable variances.

The industries liable for frequent technological changes
will not be suitable for standard costing system.