In a context of controlling a cost which comes out in manufacturing products, management oftenly applies a certain measurement that is used as a base in determining cost, that measurement is called standard. On another word, standard is commonly defined as a foundation, a postulate or a norm used as a base in measuring performance. Standard regarding an activity of producing goods or services can be divided into two types, standard of quantity and standard of cost. Standard of quantity reflects the total (quantity) of element of cost such as total working hours and total raw materials consumed in manufacturing process.
Standard of cost shows total cost supposed to be happened in consuming either working hours or raw materials in order to produce a product. By then, we can here see the different between standard of quantity and standard of cost. Standard of quantity is relating to the total quantity of production factors supposed to come out while standard of cost is relating to the total cost of using those factors of production. In conducting the cost control, the standard then in the next future will be compared to the real quantity and cost of consuming the factors of production. On a condition where there is a difference between the standard and the real condition called variant, management should take a look into it and find out why and where the difference comes from.
But how to determine the standard? Is there any factor we need to consider? There are factors we need to take a look while determining the standard. The most prominent factor is the capacity of factors of production. According to that factor, the standard will come into two types, those are ideal standard and practical standard. Ideal standard is a standard that could be formed in a condition that there is no interruption in the factors of production such as a corruptness or temporary stopage of machines. In this standard, all factors of production are assumed to work in full capacity. On the other hand, practical standard is a standard used in an assumption that all factors of production work in normal capacity. We can say that the practical standard could be formed in an inverse condition to the ideal standard that the practical standard is used in a condition where machines work normally with an interruption such as a temporary stopage or any other kinds of interruption. That’s why we say the practical standard is used under the normal capacity assumption.
The second most prominent factor is economic condition. The standard will also be affected by economic condition where a company manufactured its product. Example, the price of raw material and the price of labour force are definitely affected by economic condition of a country and change over the year. Thus, determining the standard will also need the consideration of fluctuative condition in economy.
We’re going to find the implementation of the standard in a form of standard card which contains the data of raw material, working hours, and overhead used in manufacturing every single product multiplied by standard cost or tarrif established in advance for every element of cost. As I said before, the standard by then will be compared to the real cost and quantity, and the difference between the standard and the real cost is called variant. This variant, whether the standard is less or higher than the real cost, will be a responsibility of a certain departement. It is mandatory for that departement to take it into account and take an action to explain that variant. But what department does need to be responsible to the variant? The department that need to be responsible relies on the element of cost where the variant comes out.
Ultimately, the concept of standard of cost will be very useful for management to control any cost that could happen in the next future so that the cost will not exceed more than what is expected. Management should take care about this in order to achive the company’s objectives.