Standard Cost and Standard Costing

To effectively control the costs of a certain organization, we require a yard stick to measure the real performance against. Traditionally, most organizations are identified to employ the previous period costs as the yardstick. But however the fast changing business environment of the world businesses operate in today, managers always determine that the previous period's performance is not a suitable yard stick to measure the next and future periods' performance against. This is why mainly organizations develop standard costs.

Therefore standard cost is a yardstick such measures how well the organization has achieved its set objectives. This easy definition standard cost implies that a standard cost is developed minimally for performance evaluation and cost control reasons. Therefore a standard cost has to be developed in advance before the real performance to be measured begins; for this purpose, a standard cost is a predetermined costs based on specific assumptions, the reader has to appreciate the fact is a standard costs is a mere estimate of expected costs under specific conditions. From the above discussion, a standard costs clearly comes out like a cost set before the actual cots are in fact incurred. Therefore some scholars refer to it like the "cost level that must be" under acceptable, attainable performance situations. Others refer to standard costs like carefully predetermined costs of production utilized as a basis for comparison and measurement.