Standard Costing System:

Enhancing Management
Control and Planning

Welcome to our presentation on the benefits, components, implementation process,

and measurement of a standard costing system. Discover how this system can
enhance management control and planning.

by Shibin Lal
Benefits of a Standard Costing System
Cost Analysis 🔎 Performance Inventory Valuation 💼
Evaluation 📈
Gain insights into cost behavior Accurately value inventory
and identify areas for cost Compare actual costs with based on predetermined
reduction. standard costs to evaluate standards to optimize financial
performance and make reporting.
informed decisions.
Components of a Standard Costing System

Bill of Materials Standard Costs Variance Analysis

Create a detailed list of raw Establish predetermined costs for Analyze the differences between
materials, components, and materials, labor, and overheads actual costs and standard costs to
associated costs required for based on historical data and industry identify areas of improvement or
production. benchmarks. inefficiency.
Implementation Process of a Standard Costing
System

1 Assessment

Evaluate current costing methods and

identify areas that can benefit from standard
Standard Setting 2 costing.
Establish standard costs for materials, labor,
and overheads using historical data and
industry benchmarks. 3 System Integration

Implement a robust system to record and

track actual costs, perform variance analysis,
Training & Monitoring 4 and generate reports.
Provide training to employees on standard
costing procedures and regularly monitor
system performance.
Measurement and Evaluation of Variance
Analysis
1 Material Variances 2 Labor Variances 3 Overhead Variances

Analyze differences in Evaluate variations in labor Examine discrepancies in

material prices, usage, and rates, hours, or efficiency to overhead costs to highlight
mix to identify purchasing or understand workforce areas of under or over
production inefficiencies. productivity and cost allocation and improve
control. resource allocation.
Role of Standard Costing in Management
Control

Decision Making & Control Performance Evaluation & Cost Optimization &
Reporting Efficiency Improvement

Standard costing provides vital data Facilitate the assessment of Identify cost-saving opportunities
for decision making, controlling individual and departmental and streamline operations for
costs, and achieving financial performance through variance improved efficiency and
objectives. analysis. profitability.
Utilizing Standard Costing for Planning and
Decision Making
Pricing & Profitability
Set optimal prices based on cost data to
ensure profitability while remaining
competitive.
1 Budgeting
Develop accurate budgets by aligning costs
with projected outputs and analyzing
2 variances.
3 New Product Development
Evaluate the costs of materials and labor to
determine the feasibility and profitability of
new products.
Case Study: Successful Application of a
Standard Costing System
Manufacturing Company XYZ

Implemented standard costing resulting in a 30% reduction in production costs and improved decision-
making capabilities.

Key Strategies

Invested in training, integrated the system with ERP software, and regularly analyzed variances for process
improvements.

Achievements

Enhanced cost control, better resource utilization, increased profitability, and improved overall
competitiveness.