Standard Costing Q&A: What Are The Main Difference between Historical Costing and Standard Costing?

September 20th, 2007 Comments off
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Historical costing :

  • Actual cost adjustment is delayed until after the completion of the operation and there is no indication of efficient or inefficient performance.
  • The time-lag in reporting costs delays the introduction of corrective action
  • The necessary investigation is time-consuming

Compared to:

Standard Costing:

  • Standard costing is a system which introduces cost control and cost reduction
  • Standard costs are carefully prepared estimates of the cost of operations, carried out under specified working condition.
  • Management is motivate and employees are given an incentive. A yardstick is provided to measure performance
  • Only variances are investigated by use of the principle of exceptions.
  • Corrective action can be taken at an early stage.

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