Standard Costs

A standard cost prescribes expected performance. A complete standard cost for a product or service includes
carefully established standards for each cost element, including manufacturing, selling, and administrative expenses.

Currently Attainable Establishing Standard Costs Establishing the Standard Cost Establishing the Standard Cost
Ideal Standards
Standards for Direct Materials for Direct Labor

An ideal standard reflects A currently attainable Establishing a standard A standard cost for direct Direct labor costs vary with
maximum efficiency in standard sets the cost often is a joint effort of materials of a product has types of work, product
every aspect of an performance criterion at a management, product- three facets: quality, complexity, employee skill
operation. By defini- level that a person with design engineers, quantity, and price. level, nature
tion, ideal standards are proper training and The first step in of the manufacturing
difficult, but not experience can attain most industrial engineers, establishing a standard process, and the type and
impossible, to achieve. of the time without having management accountants, cost is to specify the quality condition of the equipment
They assume peak to exert extraordinary production supervisors, the of the direct materials. The to be used.
operating effort. A currently purchasing depart- quality of direct materials After considering these
attainable standard ment, the personnel determines the quality of factors, industrial
efficiency and the absence emphasizes normality and department, and the product and affects engineering, production,
of any production allows for some employees affected by the many phases of the personnel, labor union
disruptions. imperfections standard. manufacturing process representatives, and
and inefficiencies. including quantity of direct management accountants
Suppose that a firm sets materials needed or used in jointly determine the
the standard for the manufacturing, quantity standard for
amount of plywood needed prices of direct materials, direct labor.
to produce 1,000 processing time, and the
tabletops at 525 sheets of extent and frequency of
plywood, although two supervision needed
tabletops can be cut from to complete manufacturing.
one sheet.