Accounting, 3rd Edition

Chapter 18

Planning, control and performance: Standard costing

‘No amount of planning will ever replace dumb luck.’

Anonymous

Source: The Executive's Book of Quotations (1994), p. 217.

Learning Outcomes

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.

Go online to discover the extra features for this chapter at www.wiley.com/college/jones

Chapter Summary

• 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.

Introduction

SOUNDBITE 18.1