Standard costing is a technique used in cost accounting to establish predetermined standards for costs and compare them to actual costs. It involves setting standard costs for direct materials, direct labor, and overhead based on factors such as historical data, industry benchmarks, and expected performance levels. These standards serve as benchmarks for evaluating and controlling costs. Actual costs are then compared to the standards, and variances are analyzed to identify areas of improvement or inefficiencies. Standard costing aids in cost control, budgeting, performance evaluation, and decision-making by providing a systematic approach to measure and manage costs within an organization.
