Standard cost
A cost basis built from assumptions set before production for a defined effective period.
ERP Guides
Production costing guide
How to Manage Standard and Actual Costs
Standard and actual cost management compares a cost basis set before production with recorded production results and investigates the differences. Comparisons should use the same product, quantity, period and cost scope, separating data errors from operational changes.
Actual cost
A cost view formed from recorded material, production and expense data.
Manage cost differences in six steps
- 1
Choose the comparison scope
Choose whether to compare by product/model, production order, batch or period. Match data prepared for the same scope and quantity/unit basis.
- 2
Set the standard version and effective date
A standard is a target cost view for a defined date and set of assumptions. Record the product/recipe version, price period, labour and expense-allocation bases used.
- 3
Complete actual production records
Check that actual output, material consumption/returns, scrap, labour, machine time and other expenses are recorded against the right order and period. Missing or misdated records distort variance review.
- 4
Compare data on a consistent basis
Match standard and actual values for the same product, quantity, unit, currency and cost scope. If output quantities differ, interpret totals and unit views separately.
- 5
Review variances by item and cause
Investigate differences by categories such as material price/quantity, output quantity, scrap, labour time, machine usage and overhead allocation. Separate data or classification errors first, then review operational causes with the responsible teams.
- 6
Turn findings into actions and revised standards
Assign an owner, action and review date to recurring or material variances. If standard assumptions change, approve a new version and record its effective date; retain historical comparisons with their original basis.
Pre-comparison checklist
- Is the standard version and effective date known?
- Are standard and actual quantities on the same basis?
- Are material consumption, returns and scrap records complete?
- Are labour and machine times recorded against the correct order?
- Are currency and expense allocation bases consistent?
- Is an owner and follow-up action assigned to each variance?
Frequently asked questions
What is standard cost?
Standard cost is a target cost view defined in advance for a set of assumptions and effective period. The prices, quantities and expense bases used should be documented.
What is actual cost?
Actual cost is based on material consumption and other production expenses recorded as work occurs. Reliable results require production and accounting records to be assigned to the correct product, order and period.
Why do standard and actual costs differ?
Differences can arise from quantity or price changes, scrap, time, output volume, capacity use, exchange rates or allocation bases. Check scope and data consistency first, then classify the actual cause.
When should cost standards be updated?
Review standards when material prices, product/recipe, production method or expense basis changes persistently. Keep prior versions and effective dates to preserve historical comparability.