What are the standard costs?
In the production and service industry, the standard cost of the product, unit or service provided by the service estimated to estimate how much the company thinks that the product, unit or service is based on production. It can be compared to the actual cost of the product, unit or service that helps the company in deciding on future production. The actual cost is how much the product, unit or service ended in costs when all expenses were finally increased and can only be determined after the product production. For this reason, standard costs are often used in planning.
If a company wants to release a new product, such as a pen, the company must first consider whether it is useful to produce a pen. The company will consider whether it can achieve a pen sales profit as soon as the expenditure for its production has been paid. To determine this, the company will find standard pen costs. This may include the costs of raw materials, work and even for the purchase or renting and providing the energy of the equipment. AlsoYou can also find out other expenses such as marketing and pen transport.
The company will examine all variables. A person or committee of people will examine the costs of ink, how much does the production of similar pen and the cost of production facilities cost in the past. All these factors contribute to standard costs. Once the pen is produced, the company compares the standard with actual costs.
If the deviation between these two is high, the company will be even more research to find out why the pen costs more than expected. The company may investigate procedures, suppliers and other aspects of production to find out where other expenses come from. This increases society's efficiency by allowing it to change its actions to lead to lower actual costs. In some cases, the company may decide that the product costs too much to produce and remove from the market.
Standard cost of PRoduct, unit or service have certain limitations. Finding an accurate estimate requires a lot of research, time and money. Market changes, materials and manufacturing or distribution lines can make the character inaccurate long before the actual costs. Finally, standard costs cannot be used for non -standard products, such as products that are performed directly on consumer specification, as their costs will vary depending on what the customer requires.