Standard Costing Part-1 Intro

Summary

This video provides an in-depth explanation of standard costing, an essential tool in managerial accounting. It covers the definition of standards and standard costing, how these are structured within companies, and why they are adopted. The video explores various costing systems such as exploration costing, normal costing, and standard costing. It also discusses how companies analyze cost variations, comparing actual costs to standard costs, and how this information aids managerial decision-making and cost control. The speaker emphasizes the importance of using these methods to optimize efficiency and manage financial performance.

Takeaways

• 😀 Standard costing is an important management tool used to control costs and set benchmarks for cost efficiency.
• 😀 Standards are essentially reference points or benchmarks that guide expectations in various aspects of life, such as salary or relationships.
• 😀 In business, standard costs refer to the ideal cost of producing one unit of a product, helping in cost management and planning.
• 😀 Standard costing is an accounting method where the costs of materials, labor, and overhead are assigned based on pre-determined standards.
• 😀 Variance analysis is a crucial aspect of standard costing, used to compare actual costs with standard costs to identify discrepancies.
• 😀 Positive variance (costs lower than the standard) is favorable, while negative variance (costs higher than the standard) is unfavorable.
• 😀 Standard costing helps businesses determine the total production cost, which includes material, labor, and overhead based on ideal cost assumptions.
• 😀 The system of standard costing contrasts with other costing methods like normal costing and actual costing, which use real costs for allocation.
• 😀 Three costing systems are highlighted: actual costing (based on actual costs), normal costing (using estimated overhead rates), and standard costing (using ideal standards).
• 😀 Overhead costs are often difficult to control; hence, standard costing uses ideal overhead rates to improve cost management and control in businesses.

Q & A

What is the definition of 'standard costing'?

Standard costing is an accounting method used to allocate costs based on predefined, ideal costs for production processes. It allows businesses to estimate the expected costs of manufacturing a product, such as materials, labor, and overhead.

What is the first learning objective of the video?

The first learning objective is to define what standard costs and standard costing are, and to understand their roles within a company's financial system.

Why is the concept of 'standard' important in daily life and business?

In daily life and business, 'standards' serve as benchmarks or reference points to measure expectations. They help in setting goals, managing budgets, and achieving desired outcomes, such as minimum salary expectations or maximum expenditure on vacation.

What is the difference between a positive and a negative standard gap?

A positive gap occurs when actual results exceed the expected or ideal standard, which is usually considered favorable (e.g., earning more than the expected salary). A negative gap occurs when actual results fall short of the ideal standard, which is unfavorable (e.g., spending more on vacation than planned).

How does 'standard costing' differ from other costing methods?

Standard costing is distinct from other costing methods like 'actual costing' or 'normal costing' because it uses predetermined ideal costs for materials, labor, and overhead, rather than actual costs incurred during production.

What are the three main types of cost systems mentioned in the video?

The three main types of cost systems discussed are: 1) Actual costing, where costs are based on actual expenses, 2) Normal costing, where overhead is assigned using ideal rates, and 3) Standard costing, where all production costs (materials, labor, and overhead) are assigned based on predetermined ideal standards.

Why is the analysis of variances important in standard costing?

Variance analysis helps businesses understand the differences between expected (standard) costs and actual costs. It provides insight into where and why discrepancies occur, allowing managers to take corrective actions to control costs.

How does the video illustrate the concept of 'standard cost'?

The video uses the example of making fried bananas (pisang goreng), where the standard cost for producing one unit is set at 200 IDR. This serves to demonstrate how businesses estimate the ideal cost of producing a unit of product.

What is the role of a manager in controlling costs using standard costing?

A manager plays a crucial role in controlling costs by analyzing variances between standard costs and actual costs, and implementing corrective actions to improve efficiency and reduce waste in production processes.

How does standard costing help in managing overhead costs?

Standard costing helps in managing overhead costs by establishing ideal rates for overhead based on past data and industry standards, allowing for better control and prediction of costs rather than relying on fluctuating actual expenses.