Here is a compilation of term papers on ‘Standard Costing’ for class 11 and 12. Find paragraphs, long and short term papers on ‘Standard Costing’ especially written for school and college students.

Term Paper on Standard Costing

Term Paper Contents:

  1. Term Paper on the Introduction to Standard Costing
  2. Term Paper on Standard Cost and Standard Costing
  3. Term Paper on Standard Costing System
  4. Term Paper on Standard Costing and Marginal Costing
  5. Term Paper on Standard Costing and Standardised Costing
  6. Term Paper on Standard Cost Card
  7. Term Paper on the Applicability of Standard Costing
  8. Term Paper on the Advantages of Standard Costing
  9. Term Paper on the Limitations of Standard Costing

Term Paper # 1. Introduction to Standard Costing:

Cost control is a basic objective of cost accountancy. Standard costing is the most powerful system ever invented for cost control. Historical costing or actual costing is nothing but, a record of what happened in the past. It does not provide any ‘Norms’ or ‘Yardsticks’ for cost control. The actual costs lose their relevance after that particular accounting period.


But, it is necessary to plan the costs, to determine what should be the cost of a product or service. It the actual costs do not conform to what the costs should be, the reasons for the change should be assessed and appropriate action should be initiated to eliminate the causes.

Standard costing fulfills the need to compensate the shortcomings of historical costing from the point of view of cost control:

(a) It provides the norms or yardsticks in the form of standards- specifying what costs should be or yardsticks in the form of standards- specifying what cost should be.

(b) Comparison of actual costs with standards is facilitated to ascertain variances for each element of cost.


(c) The variances are further analysed for contributory reasons. Responsibility is fixed on the basis of the reasons for each variance.

(d) Corrective measures are under taken to eliminate the unfavourable variances wherever possible.

Thus, standard costing is a costing technique specifically evolved to provide complete ‘Infrastructure’ and ‘Systematic approach’ for cost control.

Term Paper # 2. Standard Cost and Standard Costing:

Standard cost is a predetermined estimate of costs to manufacture a single unit or a number of units of a product during a future period. Actual costs are compared with these standard cost. Standard costing is a method of ascertaining the costs whereby statistics are prepared to show – the standard cost, the actual cost, and the difference between these costs, which is termed the variance.


According to Prof. Eric L. Kohler, “Standard is a desired attainable objective, a performance, a goal, a model”. Standard may be used to a predetermined rate or a predetermined amount or a predetermined cost.

Standard cost is predetermined cost or forecast estimate of cost. I.C.M.A. Terminology defines Standard Cost as, “a pre-determined cost, which is calculated from management standards of efficient operations and the relevant necessary expenditure. It may be used as a basis for price-fixing and for cost control through variance analysis”.

The other names for standard costs are predetermined costs, budgeted costs, projected costs, model costs, measured costs, specifications costs etc. Standard cost is a predetermined estimate of cost to manufacture a single unit or a number of units of a product during a future period. Actual costs are compared with these standard costs.

Standard costing is defined by I.C.M.A. Terminology as, “The preparation and use of standard costs, their comparison with actual costs and the analysis of variances to their causes and points of incidence”. “Standard costing is a method of ascertaining the costs whereby statistics are prepared to show (a) the standard cost (b) the actual cost (c) the difference between these costs, which is termed the variance” says Wheldon.


Thus the technique of standard cost study comprises of:

1. Pre-determination of standard costs.

2. Use of standard costs.

3. Comparison of actual cost with the standard costs.


4. Find out and analyse reasons for variances.

5. Reporting to management for proper action to maximize efficiency.

Term Paper # 3. Standard Costing System:

Introducing standard costing in any establishment requires the fulfillment of following preliminaries.

1. Establishment of cost centres;


2. Classification and codification of accounts;

3. Determining the types of standards and their basis;

4. Determining the expected level of activity; and

5. Setting standards.


1. Establishment of Cost Centres:

A cost centre is a location, person or item of equipment for which costs may be ascertained and used for the purpose of cost control. The cost centres divide an entire organisation into convenient parts for costing purpose. The nature of production and operations, the organisational structure, etc. influence the process of establishing cost centres. No hard and fast rule can be laid down in this regard. Establishment of the cost centres is essential for pin pointing responsibility for variances.

2. Classification and Codification of Accounts:

The need for quick collection and analysis of cost information necessitates classification and codification. Accounts are to be classified according to different items of expenses under suitable headings. Each of the headings is to be given a separate code number. The codes and symbols used in the process facilitate introduction of computerization.

3. Determining the Types of Standards and their Basis:

Standards can be classified into two broad categories on the basis of the length of use:


(a) Current Standards:

These are standards which are related to current conditions, particularly of the budget period. They are for short-term use and are more suitable for control purpose. They are also more amenable for combining with budgeting.

(b) Basic Standards:

These are long-term standards; some of them intended to be in use for even decades. They are helpful for planning long-term operations and growth. Basic- standards are established for some base year and are not changed for a long period of time.

It is preferable to use both kinds of standards depending on the nature and type of activity or cost for which they are fixed. Generally, the number of basic standards may be very few and current standards are predominant in number.

Basic for Standards:

There can be significant difference in the standards set depending on the base used for them. The following are the different bases for setting standard, whether they are current standards for short-term or basic standards for long-term use.

(a) Ideal Standards:

These standards reflect the best performance in every aspect. They are like 100 marks in a paper for students taking up examinations. What is possible under ideal circumstances in all aspects is reflected in these standards.

They are impractical and unattainable in practice. Their utility for control purpose is negligible.

(b) Past Performance Based Standards:

The actual performance attained in the past may be taken as basis and the same may be retained as standard. Such standards do not provide any incentive or challenge to the employees. They are too easy to attain. Their value from cost control point of view is minimal.

(c) Normal Standard:

It is defined as “the average standard which, it is anticipated can be attained over a future period of time, preferably long enough to cover one trade cycle”. They are average standard reflecting the average performance over a complete trade cycle which may take three to five years. For a specific period, say a budget period, their relevance is negligible.

(d) Attainable High Performance Standards:

They are based on what can be achieved with reasonable hard work and efforts. They are based on the current conditions and capability of the workers. These standards are considered to be of great practical value because they provide sufficient incentive and challenge to the workers to attain them. Any variances from such standard are really significant because the standard which is attainable with effort is not attained.

4. Determining the Expected Level of Activity:

Capacity of operation or level of activity expected over a future period is vital in fixing current or short-term standards. When the activity level is decided on the basis of sales or production, whichever is the limiting factor; all standard can be developed with the activity level as the focal point. The purchase of material, usage of material, labour hours to be worked, etc. are solely governed by the planned level of activity.

5. Setting Standards:

Setting standards may also be called developing standards or establishment of standard cost because as a consequence of setting standards for various aspects, standard cost can be computed. Setting standards is like laying a building foundation. The success of standard costing system depends on the care with which the standards are developed.

It is preferable, particularly in large firms, to establish ‘Standard committee’ which is responsible for determining standards in all aspects of the business and also making suitable revisions in due course. The standards committee usually consists of all the functional managers like purchase, production and sales, technical experts like Production Engineer, the General Manager and the Cost Accountant.

It is the Cost Accountant’s role which is crucial because he has to assign the monetary values for the different standards set by the other experts in each area or function.

The following is a brief discussion on the setting of standards for each element of cost:

1. Standards for Direct Material Cost:

Direct material standards are broadly divided into standards for usage or quantity standards and standards for material price. There may be several materials used in the production of a product. It is necessary to set standards for each of the important materials.

Material Usage or Quantity Standards:

These standards deal with the quantity of material needed for each unit of finished product, the quality specifications and tolerances like length, breadth, strength, volume, etc. Based on the past experience, the normal loss to be expected has to be determined. Based on the expected or permitted loss, the quantity standard per unit is fixed. It two or more materials are mixed in the production; the standard proportion of each material has to be fixed.

The production manager and technical expert play the most important role in setting quantity standards. Their knowledge, experience and the shop floor situation are instrumental in deciding upon the quality and quantity of each material.

The following are the usual quantity standards set:

(i) Quantity of material per unit of finished product.

(ii) Standard loss permitted in the production process.

(iii) The proportion of different materials, if more than one material is used.

(iv) The yield expected from material.

Material Price Standards:

Price standards for the material are the most difficult to set because material prices are subject to the market forces. Usually, current market price for each material, the trends observed and the forecasts of the purchasing department are the determining factors. While fixing price standards, the other terms like trade discounts, freight, credit terms, etc., are also considered.

While fixing price standards, the other terms like trade discounts, fright, credit terms, etc., are also considered. Material price should also include the cost of purchasing and storing including the handling costs.

It is customary to prepare a standard ‘Bill of Materials’ which is a list of all the direct materials to be used and incorporate therein all the standards set for each material sot that it acts like a ready reckoner.

2. Standards for Direct Labour Cost:

The two major aspects for which standards are developed relating to labour are:

a. Labour time and

b. Labour rate.

a. Labour Time Standards:

These standards represent the time to be taken by the direct labour in the production of one unit of product or performing a specific operation.

It may be determined with the help of:

(i) Time and Motion study;

(ii) Technical estimates;

(iii) Trial runs;

(iv) Past experience;

(v) Caliber of the workers;

(vi) Working conditions.

Since, human factor is involved; the cooperation of workers should be obtained by suitable briefing about the purpose and significance of the exercise.

If different kinds of labour have to perform group tasks, standards should also be fixed for labour mix or gang. The most ticklish problem in setting the labour time standards is the provision for idle time. Idle time includes rest pauses, personal needs of the workers, etc. the care with which the idle time standards are fixed determines the level of arguments and quarrels on the production lines.

The following are the usual labour time standards etc.:

(i) Standard time to be taken for one unit of output.

(ii) Idle time permitted.

(iii) Proportion of different kinds of labour where two or more kinds of workers are involved.

b. Labour Rate Standards:

Labour rates are generally governed by agreements with trade unions, the firm’s wage policy and incentive systems in use.

However, the following factors influence the labour rate standards:

(i) Existing, labour rates;

(ii) Rates paid by similar firms;

(iii) Type or kind of labour needed for production and

(iv) Labour laws governing the industry.

Wage rate standards differ for different grades or kinds of labour. The rate is also subject to revision whenever new agreements are concluded with the unions.

3. Standards for Overhead Cost:

Overheads are usually segregated into fixed and variable. It is necessary to fix standard overhead rates separately for fixed overheads and variable overheads. Separate rates have to be determined for factory, office, selling and distribution overheads- both fixed and variable.

While determining the overhead rates, the factors to be considered are:

(i) Standard level of activity;

(ii) Number of units to be produced; and

(iii) Labour and machine hours to be worked.

Standard overhead costs-both fixed and variable should be determined. Based upon the standard output and standard hours, the overhead rates are finalized.

4. Standard Output and Its Standard Cost:

Once all the cost standards are finalised, it is possible to consolidate them in the shape of ‘standard cost for standard output’. The direct material cost per unit, direct wages per unit, fixed and variable overheads per unit can be listed out. The total of all of these represents standard cost per unit. This can be multiplied with the standard output for the budget period or a specified period to ascertain the standard cost of the standard output.

5. Standard Hour:

If a single product is produced in a firm, the output can be expressed in terms of the units of that product. However, several different products may be produced and they may be measured in different units like kgs, Tons, liters, gallons, barrels, etc.

Though all of these cannot be expressed in terms of a single measure, it possible to express all of theme in terms of ‘Time’. Time taken to produce is the common factor for all output. Production, expressed in terms of hours needed to produce them is called ‘Standard hours’.

According to I.C.M.A., England, “Standard hours are a hypothetical hour which represents the amount of work which should be performed in one hour under standard conditions”.

The ‘Standard hour’ is very useful is ascertaining overhead variances. The total output of a firm comprising different products is expressed in the form of standard hours and the fixed and variable overhead rates are set for standard hours.

6. Revision of Standards:

Current or short-term standards have to be periodically revised. Long-term or basic standards may be used for longer periods. They may also need revision when the factors affecting the standard change.

Revision may be needed in all the following cases:

(a) Change in market price of materials.

(b) Permanent change in labour rates.

(c) Major alterations in products or method of production or materials used.

(d) Basic change in product specifications or design.

(e) Errors in setting of the original standards.

Term Paper # 4. Standard Costing and Marginal Costing:

Standard costing is a system of accounting in which all expense: (fixed and variable) are considered for the determination of standard cost for a prescribed set of working conditions. On the other hand, marginal costing is a technique in which only variable expenses are taken to ascertain the marginal cost. Both standard costing and marginal costing are completely independent of each other and may be installed jointly.

This system of joint installation may be named as Marginal Standard Costing or Standard Marginal Costing System. Variances are calculated in the same way as in standard costing system with the only difference that volume variances are absent because fixed expenses are charged in totals in each period.

Term Paper # 5. Standard Costing and Standardised Costing:

The term ‘standardised costing’ is synonymous to inform costing. Uniform costing is a system of costing under which several undertakings use the same costing principles and practices.

With the help of uniform costing, several common processes of various industrial units can be standardised which will be helpful in improving the performance of inefficient units. Both standard costing and standardized costing (i.e. uniform costing) can be used for better management of industrial units.

Term Paper # 6. Standard Cost Card:

When all the standard costs have been determined, a Standard Cost Card is prepared for each product or service. The process of setting standards for materials, labour and overheads results in the establishment of the standard cost for the product.

Such a cost card shows for a specified unit of production, quantity, quality and price of each type of materials to be used, the time and the rate of pay of each type of labour, the various operations the product would pass through, the recovery of overhead and the total cost.

The build-up of the standard cost of each item is recorded in standard cost card. These details serve as a basis to measure the efficiency against which actual quantities and costs are compared. The type of standard cost card varies with the requirements of individual firm hence no uniform format can be prescribed.

Term Paper # 7. Applicability of Standard Costing:

Standard Costing is a control device. It is not a separate method of product costing. Any activity of recurring nature is susceptible for setting standards. The standard-cost process is mostly used to control the operating tasks. Manufacturing activities are routine and frequent and therefore easy for establishing standards.

Industries where standardized and uniform work of repetitive nature is done are suitable for introduction of standard costing. Standard costing system is of little use or no use where works vary from job to job or contract to contract.

Setting of Standards:

While setting standard cost for operations, process or product, the following preliminaries must be gone through:

(i) There must be Standard Committee, similar to Budget Committee, in which Purchase Manager, Personnel Manager, and Production Manager are represented. The Cost Accountant coordinates the functions of the Standard Committee.

(ii) Study the existing costing system, cost records and forms in use. If necessary, review the existing system.

(iii) A technical survey of the existing methods of production should be undertaken so that accurate and reliable standards can be established.

(iv) Determine the type of standard to be used.

(v) Fix standard for each element of cost.

(vi) Determine standard costs for each product.

(vii) Fix the responsibility for setting standards.

(viii) Classify the accounts properly so that variances may be accounted for in the manner desired.

(ix) Comparison of actual costs with pre-determined standards to ascertain the deviations.

(x) Action to be taken by management to ensure that adverse variances are not repeated.

Term Paper # 8. Advantages of Standard Costing:

Standard costing fulfills the need to compensate the short comings of Historical costing from the point of view of cost control. Standard costing is a costing technique specifically evolved to provide complete ‘Infrastructure’ and ‘Systematic approach’ for cost control.

The advantages are as follows:

1. Cost Control:

Standard costing is universally recognised as a powerful cost control system. Controlling and reducing costs becomes a systematic practice under standard costing.

2. Elimination of Wastage and Inefficiency:

Wastage and inefficiency in all aspects of the manufacturing process are curtailed, reduced and eliminated over a period of time if standard costing is in continuous operation.

3. Norms:

Standard costing provides the norms and yard sticks with which the actual performance can be measured and assessed.

4. Locates Sources of Inefficiency:

It pin points the areas where operational inefficiency exists. It also measures the extent of the inefficiency.

5. Fixing Responsibility:

Variance analysis can determine the persons responsible for each variance. Shifting or evading responsibility is not easy under this system.

6. Management by Exception:

The principle of management by exception can be easily followed because problem areas are highlighted by negative variances.

7. Improvement in Methods and Operations:

Standards are set on the basis of systematic study of the methods and operations. As a consequence, cost reduction is possible through improved methods and operations.

8. Guidance for Production and Pricing Policies:

Standards are valuable guides to the management in the formulation of pricing policies and production decisions.

9. Planning and Budgeting:

Budgetary control is far more effective in conjunction with standard costing. Being predetermined costs on scientific basis, standard costs are also useful in planning the operations.

10. Inventory Valuations:

Valuation of stocks becomes a simple process by valuing them at standard cost.

Term Paper # 9. Limitations of Standard Costing:

Standard costing system is of little use or no use where works vary form job to job or contract to contract. The standard-cost process is mostly used to control the operating tasks. Manufacturing activities are routine and frequent and therefore easy for establishing standards.

Limitation of standard costing are as follows:

1. It is costly, as the setting of standards needs high technical skill.

2. Keeping of up-to-date standard is a problem. Periodic revision of standard is a costly thing.

3. Inefficient staff is incapable of operating this system.

4. Since it is difficult to set correct standards, it is difficult to ascertain correct variance.

5. Industries, which are subject to frequent changes in technological process or the quality of material or the character of labour, need a constant revision of standard. But revision of standard is more expensive.

6. For small concerns, standard costing is expensive.