Definitions for TrueValueMetrics
Cost ... Actual and Standard
Actual costs. Keeping detailed records about actual costs is possible ... but it is rarely desirable. The purpose of cost accounting ... analytical accounting ... it to have an understanding of the behavior of costs, and the factors having an impact of cost. The detail associated with a full system of cost accounting often makes it possible to have data, but not much understanding.
Standards. The techniques of standard costing can be used in TVM as they are in corporate accountancy. A standard is what might be expected ... compared to an actual which is what actually happened. There are many ways in which the comparison between actual and standard can be made ... the aim of analytical accountancy is for this comparison to improve understanding the most and cost the least.
Useless ... or valuable. Standards my be thought of as being fixed and arbitrary and useless ... or they may be used as a very powerful tool for understanding a lot of complex material in an efficient way. In this latter mode standards come alive. They start off being the best that can be ... best in the sense of reflecting the best data that are accessible ... and then they improve as better data becomes available and is made accessible.
Standard cost. Standard cost accounting helps cost accountants measure cost performance without getting deeply buried in detail. Standard costs are the theoretical cost of an item or service
Standard, actual, variance. The comparison of standard with actual alerts a cost accountant to something that is different and helps put the focus of effort onto something that is out of the ordinary. If actual costs are different from standard costs, then it is time to find out why.