Question

In 250 words, What is standard costing, and when is it used? Give an example of a well-known company that you think would use standard costing methods and explain why.

Answer 1

1.

Standard costing accounting is a accounting system used by some and passages to identify the differences for variances between the actual cost of the goods that are scheduled and the cost that should have occurred for actual goods produced.

2.

Standard fast are usually associated of direct material, direct labour and manufacturing overhead. Rather than sending the actual cost of direct material, direct labour, manufacturing overhead to a product many manufacturers assign the expected or standard cost.

Usually standard cost are used in the organisation which are in manufacturing activities this organisation set some standards in production of particular goods with some estimated cost and compare the actuals with the estimated standard to the product if there is any deviation then management go through that and investigate reasons for the deviation and control that deviation.

A leading pharmaceutical company was using the standard costing in their production process.

Explanation

As we know the manufacturing of medicines involve in the combination of several drugs

Each and every drug has to be manufactured by organisation very care so for differentiation and to maintain particular standards in manufacturing of medicines they use standard costing.

In standard costing the manufacturer will estimate the usage of raw material before the production has started so the amount of raw material will be decided prior to manufacturing in medicine to get a perfect drug.

Then if there is any deviations from standards there is a chance of spoiling entire medicine so they will take care that no drug should have any deviations.

All these setting standards and calculation of deviations are available in standard costing so that is the reason why the pharmaceutical companies use standard costing.

These are all the information required to solve the given question.

I hope, all the above given information and explanations are useful and helpful to you.

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