Standard Product Costs

Abstract

We saw in chapter 6 how pragmatic considerations led to normal costing. There, actual direct costs are combined with indirect costs; but the indirect costs are assigned with an estimated burden rate. Use of an estimated burden rate simplifies the record keeping, with little apparent sacrifice in accuracy. We now extend this theme, by examining the product costing art in a system where all the product cost components are estimated. This is called a standard costing system.