In a standard costing system, standards are normally categorized as ideal standards and practical standards. The difference between these two types of standards is briefly explained below:.
The achievement of such standards requires highly skilled and motivated workers and the best possible use of production facilities. In short, we can say that the ideal standards can only be achieved under the best and perfect work circumstances.
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. The advocates of ideal standards argue that even though a company will rarely attain these standards, they offer the following advantages:.
How are standards developed? What is the difference between ideal and currently attainable standards? Historical experience, engineering studies, and input from operating personnel are three potential sources of quantitative standards.
Ideal standards are standards that demand maximum efficiency and can be achieved only if everything operates perfectly.
No machine breakdowns, slack, or lack of skill are allowed. Currently attainable standards can be achieved under efficient operating conditions. Allowance is made for normal breakdowns, interruptions, less than perfect skill, and so on. Attainable standards are the standards which can be achieved in normal circumstances. The attainable standards incorporate such factors as wear, breakdowns, accidents, employee burnout, and waste which are ignored in ideal standards.
Standard costs allow the managers to make projections of the manufacturing costs and once the actual costs are incurred, the managers are able to determine any deviations from the projections. When comparing the actual costs and the standards costs any deviations from the standard costs are referred to as variance.
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