{"id":95,"date":"2021-01-26T22:05:25","date_gmt":"2021-01-26T22:05:25","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&#038;p=95"},"modified":"2021-07-26T17:46:11","modified_gmt":"2021-07-26T17:46:11","slug":"introduction-to-standard-costs","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/chapter\/introduction-to-standard-costs\/","title":{"raw":"Introduction to Standard Costs","rendered":"Introduction to Standard Costs"},"content":{"raw":"<h2>What you\u2019ll learn to do: identify the objectives of a standard cost system<\/h2>\r\n<img class=\"size-medium wp-image-1584 alignright\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/12231226\/25388682374_42c5bf68ba_k-300x200.jpg\" alt=\"Hands on a keyboard\" width=\"300\" height=\"200\" \/>Whenever you have set goals to achieve, these goals could also be called <strong>standards<\/strong>. For instance, if you have a goal of saving 10% of your gross income in order to save up $1 million by the time you retire, the 10% goal is a standard. Periodically, you should measure your actual performance against your standards and analyze the differences to see how close you are to your goal. Similarly, in business, management sets goals, like standard costs, and compares actual costs with these goals to identify possible problems and ultimately improve the bottom line.\r\n\r\nIn manufacturing, <strong>standard costing<\/strong>:\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">provides a formal basis for assessing performance and efficiency<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">controls costs by establishing standards and analysis of variances<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">enables the principle of \u2018management by exception\u2019 to be practiced at the detailed, operational level<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">is critical in creating and setting budgets<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">can be used for profit planning and decision making and as a basis of pricing where \u2018cost-plus\u2019 systems are used<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">assists in isolating responsibility for nonstandard performance in order to correct deficiencies or to capitalize on benefits<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">can be used to both assess and motivate staff and management<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">provides guidance on possible ways of improving performance<\/li>\r\n<\/ul>\r\nIn this section, you\u2019ll learn how to identify the components of a standard cost system and the benefits of using standard costs, and you\u2019ll gain an understanding of the standard-setting process.\r\n\r\nWhen you are done with this section, you will be able to:\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Identify the components of a standard cost system<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Identify the benefits of a standard cost system<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Understand the standard setting process<\/li>\r\n<\/ul>\r\n<h3>Learning Activities<\/h3>\r\nThe learning activities for this section include the following:\r\n<ul>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Reading: Components of a Standard Cost System<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Self Check: Components of a Standard Cost System<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Reading: Benefits of a Standard Cost System<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Self Check: Benefits of a Standard Cost System<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Reading: Standard Setting<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">Self Check: Standard Setting<\/li>\r\n<\/ul>","rendered":"<h2>What you\u2019ll learn to do: identify the objectives of a standard cost system<\/h2>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-1584 alignright\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/12231226\/25388682374_42c5bf68ba_k-300x200.jpg\" alt=\"Hands on a keyboard\" width=\"300\" height=\"200\" \/>Whenever you have set goals to achieve, these goals could also be called <strong>standards<\/strong>. For instance, if you have a goal of saving 10% of your gross income in order to save up $1 million by the time you retire, the 10% goal is a standard. Periodically, you should measure your actual performance against your standards and analyze the differences to see how close you are to your goal. Similarly, in business, management sets goals, like standard costs, and compares actual costs with these goals to identify possible problems and ultimately improve the bottom line.<\/p>\n<p>In manufacturing, <strong>standard costing<\/strong>:<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">provides a formal basis for assessing performance and efficiency<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">controls costs by establishing standards and analysis of variances<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">enables the principle of \u2018management by exception\u2019 to be practiced at the detailed, operational level<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">is critical in creating and setting budgets<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">can be used for profit planning and decision making and as a basis of pricing where \u2018cost-plus\u2019 systems are used<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">assists in isolating responsibility for nonstandard performance in order to correct deficiencies or to capitalize on benefits<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">can be used to both assess and motivate staff and management<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">provides guidance on possible ways of improving performance<\/li>\n<\/ul>\n<p>In this section, you\u2019ll learn how to identify the components of a standard cost system and the benefits of using standard costs, and you\u2019ll gain an understanding of the standard-setting process.<\/p>\n<p>When you are done with this section, you will be able to:<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Identify the components of a standard cost system<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Identify the benefits of a standard cost system<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Understand the standard setting process<\/li>\n<\/ul>\n<h3>Learning Activities<\/h3>\n<p>The learning activities for this section include the following:<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Reading: Components of a Standard Cost System<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Self Check: Components of a Standard Cost System<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Reading: Benefits of a Standard Cost System<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Self Check: Benefits of a Standard Cost System<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Reading: Standard Setting<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">Self Check: Standard Setting<\/li>\n<\/ul>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-95\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Introduction to Standard Cost Systems. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Accounting Principles: A Business Perspective. <strong>Authored by<\/strong>: James Don Edwards, University of Georgia &amp; Roger H. Hermanson, Georgie State University. <strong>Provided by<\/strong>: Endeavour International Corporation. <strong>Project<\/strong>: The Global Text Project. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>Hands typing. <strong>Authored by<\/strong>: #WOCinTech Chat. <strong>Provided by<\/strong>: Flickr. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/wocintechchat\/25388682374\/in\/album-72157664006621903\/\">https:\/\/www.flickr.com\/photos\/wocintechchat\/25388682374\/in\/album-72157664006621903\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":364389,"menu_order":2,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Introduction to Standard Cost Systems\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Accounting Principles: A Business Perspective\",\"author\":\"James Don Edwards, University of Georgia & Roger H. Hermanson, Georgie State University\",\"organization\":\"Endeavour International Corporation\",\"url\":\"\",\"project\":\"The Global Text Project\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Hands typing\",\"author\":\"#WOCinTech Chat\",\"organization\":\"Flickr\",\"url\":\"https:\/\/www.flickr.com\/photos\/wocintechchat\/25388682374\/in\/album-72157664006621903\/\",\"project\":\"\",\"license\":\"cc-by-sa\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-95","chapter","type-chapter","status-publish","hentry"],"part":25,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/95","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/users\/364389"}],"version-history":[{"count":8,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/95\/revisions"}],"predecessor-version":[{"id":2354,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/95\/revisions\/2354"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/parts\/25"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/95\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/media?parent=95"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=95"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/contributor?post=95"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/wp-json\/wp\/v2\/license?post=95"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}