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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 4545
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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What role do standard costs play in controlling the operations

Customer Question

What role do standard costs play in controlling the operations of a business?
Submitted: 6 years ago.
Category: Finance
Expert:  Rakhi Vasavada replied 6 years ago.

Dear Friend,


The Standard Costs definitely play important role in controlling the operations of a business. Budgets deal with total expected costs. But, these overall estimates are based upon fundamental assumptions about standard quantity and cost of inputs required in producing a single unit of output.Standards are the predetermined expectation of the inputs necessary to achieve a unit of output. Standard costs provide an assessment of what those inputs should cost. Standards are important ingredients in planning and controlling a business. They influence the budget preparation process. They are also integral to the assumptions needed for proper cost-volume-profit analysis.

Using of standard costs is also important in pricing goods and services.


In nutshell, a Standard cost, helps a business establish what is also called "a model" or a "Benchmark" cost and through the variance analysis of the same, it can make it extra cost efficient and it can cut back and monitor all unnecessary overheads and streamline its entire production and delivery and supply chain, ultimately positively effecting the botXXXXX XXXXXne.


I hope this helps...

Warm Regards,


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