Types of Standard

June 19th, 2007 Comments off
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The standard is the level of attainment accepted by management as the basis upon which standard costs are determined.

There are four different standards to consider:

Types

Definitions

Ideal

·      Relates to the most ideal level of attainment achieved if ideal conditions are obtained e.g. best possible prices for materials, most satisfactory rates for labor and overhead costs

·     Unrealistic and would not be experienced for any length of time

·     Though provide a target or incentive for employees but as it is so unattainable that they become discouraged and adverse variances are experienced.

Expected actual

·     This is the level which it is actually expected  will be achieved in the budget period based on current conditions

·      Standards set are on a short term basis and frequent revisions may be necessary.

Normal

·     Represents an average figure which it is hoped will smooth out fluctuations caused by seasonal and cyclical changes.

·      It should be attainable and provides a challenge to the staff

Basic

·     This is the level fixed in relation to a base year

·      Same basis used in calculating an index number. For example say in year 1990 the base year, the standard cost of material A is $1 per kg and in 1997 the price is $1.50 per kg, the basic standard must then be adjusted by 50%

·     This standard is set on a long term basis and is seldom revised.

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Financial Accounting

 
 

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