After reading this article you will learn about:- 1. Meaning of Standard Cost 2. Determination of Standard Costs 3. Advantages.

Meaning of Standard Cost:

It is the pre-determined cost of a product. After compiling different expenses, an estimated cost of product is forecasted, which is known as “Standard cost”. It is used as a device to check and lower overhead expenses and improving efficiency. Generally, standard costs are not flex­ible but when sudden variation in the material costs or any change in the production methods occur, standard cost should be modified.

“Standard cost is a predetermined or budgeted costs of a unit of a product and helps in comparing with actual costs”.

Determination of Standard Costs:

As we know that standards are used for comparing the efficiency, hence, as a general rule standards must be such that they can be attained with some efforts. The standards should neither be unattainable nor should be such that which can be attained without any effort.


The standards are decided by using past experience and by taking the help of experiments or previously fixed norms (e.g., using time and motion study or by adopting standards data for work study). As far as possible standards for indirect expenses should also be fixed in quanti­tative terms, which can be converted into money afterwards.

Advantages of Standard Cost:

(i) It provides a check on various expenses,

(ii) It helps in deciding the budget,

(iii) It helps in budgetary control,


(iv) It helps reduction in wastage of material and labour,

(v) It helps in price determination, and 

(vi) It is a measure of arriving at the efficiency of the whole concern.