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. |