Standard Costs Establish the Minimum Desirable Costs
When actual costs incurred exceed or else are below the standard costs, we after that investigate the variances along with an objective to take suitable corrective measures. Standard costing, on another hand, is explained as the process of establishing predetermined estimates of the costs of products and services and comparing this along with the actual cost when they are incurred. Hence, it is an exercise that finds out the expected cost levels under specific conditions standard costs, after that applies the standard costs to the real performance or performance analysis so as to find out the difference or variance. This variance can be good like favourable or bad like un-favourable depending on whether this is more or less than the standard; this is the basis of taking corrective action or Control. The difference needs to be further analyzed to find out how it came about. It is referred to as variance analysis and it is significant since it pinpoints the exact reasons of favourable (F) or unfavourable (U) deviation. Such purposes can be accurate so as to achieve the desired performance.