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Importance of Standard Costing: Increase The Efficiency
Importance of Standard Costing: Increase The Efficiency
Importance of Standard Costing: Increase The Efficiency
Standard Costing one of the advance technique of cost accounting . With this manager calculates the standard cost and compare it with actual cost and after calculating variance , improvement is done in area of production . So Standard costing is so important for every type of business organisation . We can explain its importance under following points
Name x y -
of
Item
Actual $ $ $ 20000
material material
z - material
Because A company can not set the standard of quantity and rate of raw material cost . It may possible .
Company has purchased raw material more than current production and extra raw material is the waste of working capital .
Company does not research the market , it may possible that one supplier can supply same raw material with following cost
Name
of
Item
Actual
Cost
x y
$ $
35000 20000
z - material
Now company will face the total loss due to not utilization his resources effectively and standard costing is only way to effective utilization for reducing cost .
Proper decisions
Standard costing is also helpful for taking proper decisions for deciding cost. There are large number of expenses and there are many alternatives of these expenses . When standard cost is decided at that time , best alternative from different expenses is chosen and it will reduce extra cost burden .