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Setting standard cost is set to check and measure the performance of the firm or department... In standard cost, we define three types of standards:
1. Direct Material Standards
2. Direct Labor Standards
3. Manufacturing overhead Standards
For example, we want to make a Notebook. For this we need papers, and Cover to bind it. Plus we also need some labors to do the work. So to set the Direct material standard cost, we'll analyze the market to see the cost of per unit paper and cover used in making notebook.
Like:
1 Paper Cost: $0.1
1 Cover Cost: $1.0
So the standard cost would be defined like (to make it easy i use just 1 paper cost):
Purchase price of 80Gram Paper: $ 0.1
Purchase price of Glossy Cover : 1.0
Receiving and Handling : 0.2
Deduct Any Discount Received : (0.1)
======================================================
So 1.2 dollar is the standard cost of Direct Material... Same way we calculate Direct Material and MOH...
Hope this helps...
Regards,
Nauman Shah
Wiki User
∙ 14y ago
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