A SYNOPSIS ON

A study on standard costing

SUBMITTED BY
Akanksha Chhaburao
Bhandkoli
Under the Guidance of,
MRS. PRIYA SARDA

SUBMITTED
TO SAVITRIBAI PHULE PUNE UNIVERSITY
In the partial fulfilment
Of the requirements for the award of
MASTERS OF COMMERCE (M.COM ll)

THROUGH HIND SEVA MANDAL

Pemraj Sarda College,Ahmednagar.
BATCH 2023-24
 This certificate has been awarded to

Gal Aluminium Extrusion Pvt. Ltd.

Factory- 180/3, Nagar-Kalyan Road, At P.O. Bhalwani, Tal.-
Parner, Dist.- Ahmednagar, Maharashtra, 414103, India

in recognition of the organization's Quality Management System which

complies with

ISO
9001:2015

The scope of activities covered by this certificate is defined below

Manufacture and Supply of Aluminium Extruded Profiles and

Section

DaMoWsue:(Oñ#wa)

62141/C/0001/UK/En 02 August 02 August

2017 2017
Issue Eapiry
No: Date:
01 August
2020

Issued On 0efia/I of me Schemes

by: Manager
 Akanksha Chhaburao Bhandkolii

A study on standard costing

gal aluminium extrusionpvt.com
Akanksha Chhaburao Bhandkolii

A study on standard costing

MRS. PRIYA SARDA

INTRODUCTION

The term ‘standard cost’ consists of ‘ standard’ and ‘cost.’

Standard cost is the predetermined cost assigned to each unit of production. It
is based on cost elements—expected material, labour, and overhead expenses.
It serves as a benchmark for measuring actual performance, enabling
managers to identify variances, streamline operations, and enhance cost
efficiency in the production process.
Standard costing is a cost accounting method that assigns a predetermined or
“standard” cost to each production unit. This cost is based on anticipated
materials, labour, and overhead prices. Companies use it as a control tool to
help managers understand cost variances, which are the differences between
actual and standard costs. By analysing these variances, companies can make
informed decisions to enhance operational efficiency and profitability.
Standard costs are the scientifically predetermined costs of manufacturing a
single unit or several product units or rendering service during a specified
future period.
If you are working in accounting, understanding "What is standard costing?" can
help you plan business budgets efficiently. Standard costing is the practice of
estimating expenses in the production process since manufacturers cannot
predict actual costs in advance. Manufacturers use this methodology to plan
upcoming costs of various expenses, such as labour, materials, production and
overhead. It helps the manufacturing team estimate expected costs so that
they can budget and plan accordingly. Other terms for standard cost are
estimated cost, predetermined cost, expected cost or budgeted cost.The
primary reason why companies use standard costs for budgeting is that
manufacturers cannot predict actual production costs accurately until the
manufacturing process is complete. There are several unknown variables, such
as changes in the cost of raw materials, production delays and changing labour
costs that affect the final costs. Besides budgeting, accountants also use
standard costs to fix the prices of produced goods.
COMPANY PROFILE:

Name of the Company : GAL ALUMINIUM EXTRUSION PVT LTD

Services : Aluminium of Products

Establishment : Since 2020

Address : kalyan road nagar,bhalwani tar-parner ,

Ahmednagar

: gal aluminium extrusion E-Mail ID @gmail.com

Sales Territory : Ahmednagar City Region

REVIEW OF LITERATURE:

1.Introduction to Standard Costing in Departments: Standard costing serves as a crucial

managerial accounting tool within departmental contexts. It allows for precise budgeting,
performance evaluation, and cost control at the departmental level. This review examines key
literature focusing on the implementation and impact of standard costing in various
departments, including manufacturing, service, and administrative functions.

2. Theoretical Foundations:

 Cost Behavior and Standard Setting: Research highlights the importance of

understanding cost behavior in establishing effective standard costs. Scholars like
Horngren (2015) emphasize the significance of involving departmental managers in
the standard-setting process to enhance accuracy and buy-in.

3. Departmental Applications:

 Manufacturing Departments: Standard costing is predominantly applied in

manufacturing settings to assess production efficiency. Literature discusses
methodologies such as time-and-motion studies to determine labor and overhead costs.
 Service Departments: In service industries, the application of standard costing can be
more complex due to variability in service delivery. Studies explore how departments
like marketing and human resources can use standard costing to improve cost
efficiency and resource allocation (Johnson & Kaplan, 1987).

4.Variance Analysis: Variance analysis remains a core component of standard costing

literature. Scholars emphasize its role in providing insights into departmental performance:

 Material Variance: Examines differences in expected versus actual material costs,

essential for production departments.
 Labor Variance: Focuses on the efficiency of labor costs across departments, offering
insights into productivity (Kaplan & Norton, 1996).

5. Advantages of Standard Costing in Departments:

  Budgeting and Forecasting: Standard costing aids in establishing budgets for each
department, facilitating more accurate financial planning.
 Performance Measurement: Literature highlights the ability to track departmental
performance through variance reports, enabling managers to make informed
Conclusion

The literature on standard costing within departments underscores its significance in cost
control and performance management. While it offers numerous advantages, particularly in
budgeting and variance analysis, challenges remain in its application across diverse
departmental contexts. Future research should focus on developing more adaptable costing
frameworks that accommodate the complexities of modern organizational structures.

Meaning:

Standard costing is an accounting method that establishes estimated costs for producing
goods or services. It sets benchmarks for materials, labor, and overhead, allowing
organizations to compare actual costs against these standards. This comparison helps
identify variances, supports budgeting, enhances performance measurement, and aids in
cost control.

Definition:

Standard Cost is the predetermined or estimated cost of manufacturing a product or

providing a service under normal conditions. It includes estimates for direct materials, direct
labor, and overhead costs, serving as a benchmark for evaluating actual performance and
identifying variances in cost management.
Procedure of standard cost :

The procedure for establishing and using standard costs typically involves the following
steps:

1. Establish Cost Standards

 Identify Costs: Determine the relevant costs associated with production, including
direct materials, direct labor, and overhead.
 Analyze Historical Data: Review past cost data to inform the establishment of
realistic standards.
 Consult Stakeholders: Involve managers from production, finance, and other
relevant departments to ensure accuracy and buy-in.

2. Set Standard Costs

 Calculate Standard Costs: Use methods such as time-and-motion studies and market
analysis to establish standard costs for each element (materials, labor, overhead).
 Document Standards: Clearly record the established standard costs in the accounting
system for reference and comparison.

3. Implement Standard Costs

 Integrate with Budgeting: Use standard costs as a basis for budgeting and financial
planning.
 Train Staff: Ensure that employees understand the importance of standard costs and
how they impact performance evaluation.

4. Monitor Actual Costs

 Collect Data: Continuously gather data on actual costs incurred during production or
service delivery.
 Record Variances: Compare actual costs against standard costs to identify variances.

5. Analyze Variances
  Variance Analysis: Assess the reasons for variances—whether they are favorable or
unfavorable—and categorize them (e.g., material, labor, overhead).
 Investigate Causes: Explore the underlying causes of significant variances to
understand operational inefficiencies.

6. Take Corrective Action

 Implement Improvements: Based on variance analysis, make necessary adjustments

to processes, cost control measures, or standards.
 Review and Revise Standards: Regularly review and update standards to reflect
changes in costs or operational practices

Level of standard cost :

Ideal Standard Costs: Maximum efficiency without allowances for disruptions;

theoretical and not practical for daily operations.

Currently Attainable Standard Costs: Realistic costs based on efficient operations,

allowing for normal inefficiencies; commonly used for budgeting and performance
evaluation.

Expected Standard Costs: Anticipated costs based on historical data and market trends;
useful for budgets and forecasts.

Departmental Standard Costs: Specific to individual departments, reflecting unique

cost structures; aids in monitoring departmental performance.

Product Standard Costs: Relate to specific products or services, encompassing all costs
associated with their production; important for pricing and profitability analysis.
Research Methodology :

The research methodology for studying standard costing involves a structured approach
that combines both quantitative and qualitative methods. It typically begins with a
descriptive and exploratory research design aimed at understanding how standard costing is
implemented and its impact on organizational performance. A stratified sampling technique
may be used to select a diverse range of organizations utilizing standard costing, ensuring
representation across various industries. Data collection methods include structured surveys
to gather quantitative data on practices and perceptions, complemented by semi-structured
interviews for qualitative insights into the challenges and benefits experienced by managers.
The data analysis phase employs statistical tools for quantitative data, focusing on variance
analysis, while qualitative data undergo thematic analysis to identify common trends and
issues.

DATA COLLECTION:

The study was conducted in accordance with secondary information obtained from various
resources: - .

•Primary Data Collection: Primary data was collected through visiting different
construction sides and understand there treatment of expenses towards construction work.

•Secondary Data: Secondary data has been obtained from published reports like the

annual reports of the company, balance sheet, and profit and loss account, websites, records
such as files, reports maintained by company.

Objectives of the Project:

1.To bring more accuracy in calculation of cost of products and services as compared
with traditional costing system, since all products are not produced equally,

2. To understand product and customer cost

3. To understand profitability based on the production or performing processes

4. To have a structured analysis in respect of complex processes