standard cost

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Related to standard costs: Cost Control
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Fig. 78 Standard cost. Table showing the standard cost of an upholstered chair.

standard cost

an estimated product cost, prepared in advance of production, that shows what a product ought to cost given reasonably efficient working. Standard cost includes the direct materials cost of the product, direct labour cost and production overheads, as well as distribution, selling and administration overheads. Overheads are charged to products using an appropriate COST RATE derived by dividing budgeted overheads by budgeted output. Fig. 78 shows a simplified standard cost for a product. Such predetermined standard costs are used to provide a basis for price fixing and for cost control through VARIANCE ANALYSIS. See also DIRECT-LABOUR COST VARIANCE, DIRECT-MATERIALS COST VARIANCE, OVERHEAD-COST VARIANCE.
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