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Accounting, 3rd Edition by Michael J. Jones

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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.

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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.

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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

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