Trusted by millions of Kenyans
LoginRegister
Study resources on Kenyaplex

Get ready-made curriculum aligned revision materials

Exam papers, notes, holiday assignments and topical questions – all aligned to the Kenyan curriculum.

Browse exam papers
Or go directly to:
Class notes Holiday assignments Topical questions Other resources

Discuss the Types of standards in the cost accounting context

Discuss the Types of standards in the cost accounting context

Answers

Wilfred
- There are four types of standards. These are explained as under:-

a) Basic Standards
- These are the standards which do not change from year to year. In these standards, prices level of efficiency and other factors remain the same over a period of time. A basic standard may be defined as “A standard established for use over a long period from which a current standard can be developed.”
These standards do not take into consideration the current situation so these are not realistic.
Ideal Standards: Usually this standard cannot be attained and leads to unfavourable variances as it assumes:
1. Minimum prices for all costs (Direct Material, Direct Labour and Factory OH).
2. Optimal usage of Direct Material, Direct Labour and Factory OH.
3. 100% manufacturing capacity.
- Thus, these are based on perfect operation conditions. It is assumed that the ideal level of efficiency is achieved. It means there are no breakdowns, no material wastages, no labour idle times and so on. An ideal standard can be defined as “A standard which can be attained under the most favourable conditions. Ideal standards are difficult to apply because the conditions, on which these standards are based, cannot be fulfilled.

b) Attainable Standard
Can be met because it recognizes:
1. Good overall price but not necessarily the lowest price for all costs.
2. Direct labour is not 100% efficient.
3. Normal spoilage will occur.
4. Manufacturers do not operate at 100% capacity.
- Most companies presently use attainable standards but a new manufacturing environment is development that emphasizes ideal standards.

c) Expected Standards
- These are also known as attainable standards. These are based on normal operating conditions and an allowance is made for average wastages and inefficiencies. In this caser, it is assumed that there will be some loss of production due to power failure, machinery breakdown or labour turnover etc. an expected or attainable standard unit of work is carried out efficiently, a machine property operated or material properly used.” These standards are more realistic and easy to apply. These can be used for product costing, for cost control, for stock valuation and as a basis for budgeting. These standards have some provisions for wastages and inefficiency but it does not mean that it should encourage employees for making excuses for not achieving their targets.

d) Current standards
- These standards are set for use over a limited period to reflect current conditions. These standards are normally used in the situations when the inflationary trends are very common. In this case, the standards are revised on monthly basis. A current standard may be defined as, “A standard established for use over a short period of time, related to current conditions.” These standards are not practicable in most of the circumstances.
Wilfykil answered the question on August 6, 2019 at 09:21

Answer Attachments

Next: Given the expression below,find the value of m.

Previous: Describe two ways in which water moves in ocean and seas

View more Cost Accounting Questions and Answers  |  Return to Questions Index

Exams With Marking Schemes

Related Questions