Definition of Expected Standard
In the world of cost accounting, particularly within the framework of standard costing, an expected standard refers to a cost, income, or performance benchmark that is anticipated to be achieved in the normal course of business operations. These standards serve as a financial and operational compass, guiding companies through the choppy waters of budgeting and performance evaluation with the precision of a well-calibrated sextant.
Role and Importance
The expected standard is not just any run-of-the-mill benchmark; it’s the financial North Star for enterprises striving for operational efficiency. These standards are set based on historical data and realistic assessments of what the company can achieve under normal working conditions. Far from the utopian fantasies of ideal standards, expected standards are well-grounded in the soil of practicality.
Comparison with Other Standards
- Attainable Standard: While expected standards are comfortably realistic, attainable standards are like the corporate equivalent of stretching exercises – achievable with a good push but without causing a hamstring injury.
- Ideal Standard: As the name would suggest, ideal standards are the ‘pie in the sky’ – perfect scenarios that assume maximum efficiency and zero wastage, often unattainable but good for inspiring motivational posters in the office corridors.
Why Care About Expected Standards?
Embracing expected standards in cost accounting is akin to choosing a reliable sedan over a flashy sports car; it might not turn heads at red lights, but it’s what gets you consistently to your destination – on time and on budget. These standards help in:
Budgeting with Accuracy: They allow for more accurate predictions of costs and revenues, making budget meetings slightly less agonizing.
Performance Measurement: They provide a realistic framework to measure actual performances, adding a dash of fairness to performance evaluations.
Strategic Decisions: They aid in strategic planning by providing a realistic assessment of current capabilities and potential improvements.
Related Terms
- Cost Accounting: The art of turning the mundane day-to-day costs into strategic insights. The playground where expected standards show their mettle.
- Standard Costing: A costing method involving preset costs for delivering a product or service under normal conditions. It’s like having a financial script for a play where the actors are costs and revenues.
- Variance Analysis: The act of picking apart differences between expected performance and actual performance. It’s as exciting (and complicated) as forensics but for finances.
Further Reading
- “Cost Accounting For Dummies” by Kenneth Boyd – A friendly primer to the world of cost counting and the lore of expected standards.
- “The Balanced Scorecard” by Robert S. Kaplan and David P. Norton – Dive deeper into performance measures that integrate well with understanding standards.
- “Standard Costs and Variance Analysis” by George Orwell (not that one) – A detailed look at how to handle the discrepancies between what was expected and what was achieved, without the dystopia.
Expected standards in cost accounting are your ally in the often-overwhelming world of finance. They may not have the allure of lofty ideal standards, but they are the sturdy bridge spanning the tumultuous river of fiscal unpredictability. Remember, in finance, as in comedy, timing and realism are everything.
