Standard Costing Pros/Cons
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What are the advantages and disadvantages of standard costing in management accounting?
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Solution Summary
This solution explains the different pros and cons of standard costing, addressing performance, management by exception and setting standards.
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Advantages and Disadvantages of Standard Costing
Introduction: Accounting which is concerned with providing information, relating to the conduct of business is called management accounting. Management accounting is a tool of management. It is concerned with day today business. It is defined as the process of identification, measurement, analysis, interpretation and communication of financial information. The information provided by the management accounting is used by management to plan, evaluate and control the organization. Management accounting is not concerned with assertion with ascertainment or accumulation of cost, but it is mainly concerned with the control of cost. Cost control and cost Reduction are the important functions of management accounting. Cost data are used by the management for the purpose of pricing, performance evaluation and control. Standard costing is one of the techniques of cost control. Therefore it is a part of management accounting tools.
Meaning of standard costing: Standard costing is the technique of cost control. It refers to principles and procedures which involve the use of predetermined standards for each element of cost. Standard costing suggests what the reasonable cost should be under the given conditions. Standard cost is calculated on technical estimate. Actual costs are compared with standard costs and ...
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