![]() Also, since a key application of the budget is to compare it to actual results in subsequent periods, the standards used within it continue to appear in financial reports through the budget period. A budget is always composed of standard costs, since it would be impossible to include in it the exact actual cost of an item on the day the budget is finalized. In most cases, users are probably not even aware that they are using standard costing, only that they are using an approximation of actual costs. Though most companies do not use standard costing in its original application of calculating the cost of ending inventory, it is still useful for a number of other applications. ![]() The cost accountant may periodically change the standard costs to bring them into closer alignment with actual costs. Since standard costs are usually slightly different from actual costs, the cost accountant periodically calculates variances that break out differences caused by such factors as labor rate changes and the cost of materials. This results in significant accounting efficiencies. The core reason for using standard costs is that there are a number of applications where it is too time-consuming to collect actual costs, so standard costs are used as a close approximation to actual costs. Standard costing involves the creation of estimated (i.e., standard) costs for some or all activities within a company. This approach represents a simplified alternative to cost layering systems, such as the FIFO and LIFO methods, where large amounts of historical cost information must be maintained for inventory items held in stock. Subsequently, variances are recorded to show the difference between the expected and actual costs. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretative guidance.Standard costing is the practice of substituting an expected cost for an actual cost in the accounting records. Certain aspects of this publication may be superseded as new guidance or interpretations emerge. PricewaterhouseCoopers LLP, its members, employees, and agents shall not be responsible for any loss sustained by any person or entity that relies on the information contained in this publication. The information contained in this publication was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. You should not act upon the information contained in this publication without obtaining specific professional advice. This publication has been prepared for general informational purposes, and does not constitute professional advice on facts and circumstances specific to any person or entity. Transfers and servicing of financial assets Revenue from contracts with customers (ASC 606) Loans and investments (post ASU 2016-13 and ASC 326) Investments in debt and equity securities (pre ASU 2016-13) Insurance contracts for insurance entities (pre ASU 2018-12) Insurance contracts for insurance entities (post ASU 2018-12) IFRS and US GAAP: Similarities and differences Business combinations and noncontrolling interestsĮquity method investments and joint ventures
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