NEED FOR STANDARD COSTS

Since standard costs are pre-determined costs computed before the production takes place,
they are preferable to actual costs. Moreover, certain conditions resulting from mass
production make standard costs necessary and strongly advisable. Some of such conditions
are:
(a) Historical costs may be too expensive to compute. For example, in a manufacturing
concern producing about 1,00,000 parts, divided into various lots, imagine the time and
clerical labour involved in arriving at the actual cost lot by lot and then averaging it to
determine the cost per unit.
(b) The unit costs computed on historical data may vary from day to day and they are of no
use to the sales department in setting selling prices. For example, if the historical costs per
unit of product in a week are Rs. 1.05, 0.99, 1.27, 1.18, 1.42, 1.56, the selling price cannot be
varied from day to day to match the costs.