DEFINITION OF STANDARD COST

Standard cost is defined “as a pre-determined cost which is calculated from management’s
standards of efficient operation and the relevant necessary expenditure. It may be used as a
basis for price fixing and for cost control through variance analysis.”
The standard cost of a product has been defined by Blocker and Weltmer “as a predetermined
cost based upon engineering specification and representing highly efficient
production for quantity standards and forecasts of future market trends for price standards
with a fixed amount expressed in dollars for material, labour and overhead for an estimated
quantity of production.” It may be seen from this definition that engineering specifications are
the basis for quantity standards for materials and time standards for labour while budgets are
of importance in determining material price standards, labour rate standards and overhead
standards.