Planning, control and performance: Standard costing
‘No amount of planning will ever replace dumb luck.’
Source: The Executive's Book of Quotations (1994), p. 217.
After completing this chapter you should be able to:
- Explain the nature and importance of standard costing.
- Outline the most important variances.
- Calculate variances and prepare a standard costing operating statement.
- Interpret the variances.
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- Costing, and planning, control and performance are the two main branches of cost accounting.
- Standard costing, along with budgeting, is one of the key aspects of planning, control and performance.
- Standard costing is a sophisticated form of budgeting based on predetermined costs for cost elements such as direct labour or direct materials.
- There are sales and cost variances.
- Variances are deviations of the actual results from the standard results.
- Standard cost variances can be divided into quantity variances and price variances.
- There are direct materials, direct labour, variable overheads and fixed overheads cost variances.
- Standard cost variances are investigated to see why they have occurred.