Why Standard Costing is important?

Standard Costing main purpose is to

• Investigate the reasons
• Identify the problems
• Take corrective action.

Variances are broadly of two types, controllable and uncontrollable. Controllable variances are those which can be controlled by the departmental heads whereas uncontrollable variances are those which are beyond control.

For example, price variance is normally regarded as uncontrollable if the price increase is due to market fluctuations. It becomes controllable if the production controller has failed to place orders in time and urgent purchase was made at extra cost. In the former case, no responsibility is attached to any one whereas the departmental head has responsibility for the loss in the latter case. Since all price variances are uncontrollable and are of significant nature and are persistent, the standard may need revision.
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