ECONOMICS

Detailed explanation-1: -Standard costs are estimates of the actual costs in a company’s production process, because actual costs cannot be known in advance. This helps a business to plan a budget.

Detailed explanation-2: -Standard costs are based on scientific analysis and engineering studies while estimated costs are based on historical basis. Standard cost emphasis is on “what cost will be” while estimated cost emphasis is on “what cost should be”. Standard costs are more frequently revised compared to estimated cost.

Detailed explanation-3: -Standard costs are based on historical data and expected levels of efficiency. They can be considered the “ideal” cost of producing something and provide a target for managers to strive for. On the other hand, budgets are actual costs that have been incurred.

Detailed explanation-4: -In accounting, a standard costing system is a tool for planning budgets, managing and controlling costs, and evaluating cost management performance. A standard costing system involves estimating the required costs of a production process.