Essentials or Preliminaries before Setting Standard

While setting standard cost for operations, process or product, the following Preliminaries must be gone through:

1. There must be Standard Committee, similar to Budget Committee, in which Purchase Manager, Personnel Manger, and Production Manager are represented. The Cost Accountant coordinates the functions of the Standard Committee.

2. Study the existing costing system, cost records and forms in use. If necessary, review the existing system.

3. A technical survey of the existing methods of production should be undertaken so that accurate and reliable standards can be established.

4. Determine the type of standard to be used.

5. Fix standard for each element of cost.

6. Determine standard costs for each product.

7. Fix the responsibility for setting standards.

8. Classify the accounts properly so that variances may be accounted for in the manner desired.

9. Comparison of actual costs with pre-determined standards to ascertain the deviations.

10. Action to be taken by management to ensure that adverse variances are not repeated.