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sindhuri Thakur
Jun 29, 2025
Here is the explanation for Unit 3: Standard Costing and Variance Analysis as per Second Semester – Kakatiya University, Subject: Managerial Accounting:
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UNIT – 3: STANDARD COSTING AND VARIANCE ANALYSIS
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📘 Standard Costing: Meaning
Standard Costing is a cost accounting method where predetermined costs are established for materials, labor, and overheads, and then actual costs are compared against these standards. The differences between actual and standard costs are known as variances, which are analyzed to control costs and improve efficiency.
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🔹 Features of Standard Costing:
1. Pre-determined costs set in advance.
2. Used for performance evaluation.
3. Helps in cost control.
4. Useful in budgeting and planning.
5. Facilitates management decision-making.
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🔹 Objectives of Standard Costing:
To control costs by setting benchmarks.
To analyze performance through variance analysis.
To simplify inventory valuation.
To assist in decision-making and planning.
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🔹 Advantages of Standard Costing:
Helps in cost control.
Increases efficiency.
Simplifies stock valuation.
Useful for budget preparation.
Assists in performance appraisal.
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🔹 Limitations:
Not suitable for all industries (e.g., job-based).
Setting accurate standards is difficult.
May cause employee dissatisfaction due to pressure.
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Would you like the variance analysis part as well?
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