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Types of standards in standard costing

In cost accounting, actual performance is compared with standard performance so that to establish the adverse or favorable variance from the standard set as a benchmark. Adverse variance (if it is significant) need to be investigated and corrected. Thus a company can develop a standard performance, and such standard can be one of the followings;

1. Attainable standard

Represent the realistic target which is based on efficient working conditions with allowable made for machine breakdowns and stock-outs. Attainable standard is an achievable target to employees.  When an organization wishes to set standards, it is important to be realistic. Realistic standard act as motivation foe employees towards achieving the targets set.

2. Basic standard

Is a type of standard set to be used over a long period of time and it is used to compare with current standards so that to see the effects of changes in conditions over the years. Enables to make comparison over number of years.

3. Current standard

Is a standard that reflect current conditions with a limited use in time. In times of inflation, this standard can be set even on monthly.

4. Ideal standard

Is a standard that assumes perfection in production conditions with no failures, stock-outs, absenteeism etc. this standard is not realistic and unattainable. this standard also indicate what a company is supposed to strive for.

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