For any business unit, Standard Costing acts as a corrective measure. However, framing a detailed analysis is not an easy feat! There are certain steps based on which this process can be determined.
Preliminary steps for carrying out Standard Costing procedure:
According to The Chartered Institute of Management Accountants, London, cost centre can be depicted as a person, location or equipment or even a combination of all these products that are suitable for controlling the cost of a particular business unit. With creation of a cost centre, standards are determined as well as analysis of variance can be done. Thus, this is a bold step in regards to management of a specific organisation.
Though a business organisation has a number of expenses, however, only actual expenses are classified under specific heads and provided with certain codes. With the help of these codes, analysis and speedy collection can be achieved.
Different standards have different operating periods, hence, it is important to determine the periods of operation.
The committee that is framed with head honchos of the production process and hence, standard cost for every material of production is taken into account. It is the cost accountant who acts as a coordinator of such activities.
When all these steps are carried out in a perfect manner, can it be said that a particular standard costing framework is formed.