The use of ideal standards is not common among companies because they are based on highly strict assumptions that do not allow even the normal inefficiencies. ITU (International Telecommunications Union)
The International Telecommunication Union (ITU) is an international organizationwhich provides global telecommunication standards. ITU-T Recommendations (standards), form the foundations of the information and communications technologies of today. NEMA (National Electrical Manufacturers Association)
The National Electrical Manufacturers Association is the trade association through which the electrical industry develops and promotes positions on standards and government regulations. The UW Libraries provide access to these standards in full-text online at the IEEE Xplore Digital Library (Draft Standards are not included in access). The standard must be realistic and attainable; otherwise, it will have the same pitfall as ideal standards.
These are such standards which are expected if normal circumstances prevail. Term normal represents the normal conditions of the business in the absence of any unexpected fluctuations (either favourable or unfavourable). Even through normal standards are more of a theoretical in nature as reality cannot be sufficiently predicted with all its fluctuations in advance. Also, circumstances may change in such a way that factors which were expected to be controllable are not so controllable by the mangers. However, normal standards acts as a good yardstick that represents challenging yet attainable results and can be used by management in such environment which is simple in nature and is not prone to great fluctuations.
What are different types of standards under standard costing?
Based on engineering estimates, currently attainable standards are most expensive of the four types of standards. But these standards are most accurate and very useful to management in product costing, inventory valuations, estimates, analyses, performance evaluation, planning, employee motivation, and for managerial decision-making and external financial reporting. Current standards are standards which are established for use over a short period of time, and are related to current conditions. They represent current costs to be expected from efficient operations.
Basic standards are seldom revised or updated to reflect current operating costs and price level changes. Normal standards are the average standards which (it is anticipated) can be attained during a future period of time, preferably long enough to cover one business cycle. Standards are set on a normal capacity basis which represent a volume that averages out the company’s peak and slack periods. Constant unit costs are employed throughout the cycle, regardless of changes in current costs or selling prices.
Types Of Standards In Standard Costing
Codes of Practice recommend sound good practice, as currently undertaken by competent and conscientious practitioners. They are drafted to incorporate a degree of flexibility in application, while offering reliable indicative benchmarks. They are commonly used in the construction and civil engineering industries. We can also help design and implement private standards, designed primarily for use within a company or organization and with its suppliers, or by a group of organizations forming part of a membership body. However, it is always developed in response to a commission by an external sponsor who funds a resource-intensive process, which allows it to be developed and published quickly to satisfy an immediate business need. In some standards, the type of agreement essentially amounts to advice and guidance; others are much more prescriptive and set out absolute requirements that have to be met, if a user wishes to make a claim of compliance with the standard.
- They allow for work interruptions because of machine breakdowns, workers’ rest periods and other conditions that are considered normal in a particular work environment.
- But these standards are most accurate and very useful to management in product costing, inventory valuations, estimates, analyses, performance evaluation, planning, employee motivation, and for managerial decision-making and external financial reporting.
- DISA (Data Interchange Standards Association)
DISA serves as the Secretariat for ASC X12 and their X12 EDI and XML standards development process.
- IEC (International Electrotechnical Commission)
The IEC prepares and publishes international standards for all electrical, electronic and related technologies.
Practical standards are standards that are challenging but achievable through the use of efficient and motivated workers under normal working conditions. They allow for work interruptions because of machine breakdowns, workers’ rest periods and other conditions that are considered normal in a particular work environment. These standards are not revised until the cycle has run its full course. This generally results in an incorrect valuation of inventories and consequent errors in the profit disclosed as the inventories are understated in periods of high prices, and overstated when prices are low. Since these standards do not reflect the goals to be attained, they are not often used. On the basis of these two factors, it is possible to classify standards as ideal, normal, basic, current or expected actual standards.
Standard Costing – Types, Meaning and Objectives
For example a machinery is expected to run for 4,000 hours where it can run for 5,000. Thus current standard is 4,000 hours where attainable is 5,000 hours. These standards are useful as they help management to analyze their performance and to use the unused potential at the right time. Currently attainable standards are revised to reflect changes in methods and prices. Much effort and costs are involved in developing these standards.
- These standards help compare business operations over a longer period of time.
- AHRI (Air-Conditioning, Heating, & Refrigeration Institute)
The Air-Conditioning, Heating, and Refrigeration Institute (AHRI) is a voluntary, nonprofit organization comprised of the manufacturers of air conditioning, refrigeration, and heating products.
- The UW Libraries provide access to these standards in full-text online at the IEEE Xplore Digital Library (Draft Standards are not included in access).
- These standards are based on current operating conditions and may be used over a short period of time.
ASTM develops technical standards for materials, products, systems, and services. ASTM Standards have an important role in the information infrastructure that guides design, manufacturing and trade in the global economy. Standards are one of important quantitative tools in the hand of management to control and measure performance of business operations. However it heavily depends on the type of standards used to decide about the control actions and to measure the performance. Standard in simple words is a measure of what is expected to take place under the current or anticipated circumstances.
Types of standards in standard costing
These standards do not anticipate ideal performance; they are difficult, but possible to achieve. Ideal standards (costs) are the standards which can be attained under the most favourable conditions possible. Such standards reflect only goals or targets without any hope of performance being currently achieved. These standards are based on current operating conditions and may be used over a short period of time. Currently attainable standards are formulated after making allowance for the cost of normal spoilage, cost of idle time due to machine breakdowns, and the cost of other events which are unavoidable in normal efficient operations.
ISO maintains a searchable online catalogue of international standards. These standards are representative of current business conditions. These are mostly short term in nature and are widely used as they are the most relevant standards to be used for control purposes. These standards represent the state that business currently achieving or must achieve.
Disadvantages of practical standards
Guides are published to give less prescriptive advice which reflects the current thinking and practice among experts in a particular subject. NISO (National Information Standards Organization)
The National Information Standards Organization (NISO) develops and promotes technical standards used in a wide variety of information services. Standards set on this basis should provide encouragement to employees to improve on existing efficiency. Most standards can be categorized according to the function they need to perform.
