This course helps in understanding the important Tools of Cost Accounting- Standard Costing & Flexible Budget

Standard costing tells us what should be the cost of the product and if the actual cost exceeds the projected cost, the standard costing system can point to the reason of deviation.

Salient Features of Standard Costing

· Standard costing includes pre-determination of costs under specific working conditions.

· In this process, the standard quantity of machine time, labor time, and material is calculated and the future market trend for price standards is analyzed.

· Standard costing helps in variance analysis.

· Along with fixation of sale price, it also provides valuation of stock and work in progress.

· Material, labor, and overheads cost are ascertained.

· Actual cost is measured.

Flexible budget provides logical comparison. The actual cost at the actual activity is compared with the budgeted cost at the time of preparing a flexible budget. Flexibility recognizes the concept of variability.

Flexible budget helps in assessing the performance of departments in relation to the activity level achieved. Cost ascertainment is possible at different levels of activities. It is also useful in fixation of price and preparation of quotations.

Flexible Budget is useful in:

• the new organizations where it is difficult to foresee,

• the firms where activity level changes due to seasonal nature or change in demand,

• the industries based on change of fashion,

• the units which keep on introducing new products, and

• the firms which are engaged in ship-building business.