Former Member

# costing

hi gurus

i have doubt, what is standard cost and what is the actual cost.

at what way these related to production cost. and make to order and make to stock is related to standard / actual cost.

regards

prasanthi

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• Former Member
Posted on Jun 18, 2008 at 08:40 AM

Hi,

I will try to explain this with an example.

Say you have material X and its market price as of now is Rs.15. Assume the price of this material is very dynamic and and the consistent price is Rs.18 on an average.If you decided to make this material, it may cost you only Rs.12.

In such scenario, in the material master you can set Rs.18 as the standard price, which is not equal to actuals but on an average it would be the market price during the month. This standard price most organisation derives after some calculation which differ from company to company.

Actual price is the transaction cost at which you actually purchase the material.In our example, Rs.15 is the actual price on that day.

Production price is the price you incur to manufacture a particular material.In our example, Rs.12 is the production price.

Tx,

Usha.

Edited by: Usha Dillibabu on Jun 18, 2008 10:44 AM

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• Former Member
Posted on Jun 18, 2008 at 08:58 AM

Hi,

Standard cost: A cost that is based on an activity unit and that remains stable over a relatively long period of time. The standard cost of a material can remain stable for a year. It is essentially a norm that should not be exceeded.

Actual cost: Actual costs are the costs that were actually incurred. A cost consisting of the total debits made to a cost object.

In make-to-stock production, the standard cost of a material is calculated in a standard cost estimate for the material (cost estimate with quantity structure; cost estimate without quantity structure).

You create the standard cost estimate for a material in the application component Product Cost Planning.

The standard cost estimate for a material is normally created at the beginning of each fiscal year. In Cost Object Controlling, a standard cost is a predetermination of what the cost should be. This means that actual cost should not exceed standard cost. When variances are determined in the period-end closing process of Cost Object Controlling, standard costs are used as the basis for calculating target costs.

I hope it will help.

Regards,

Manju