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6 May, 2015 - 17:10

Standard cost systems are designed to measure the efficiency of manufacturing operations. A standard cost is the cost of a product determined by combining past year direct materials cost, factory overhead cost and direct labor cost, to arrive at the cost which can be anticipated for a "normal" level of production. Standard costs are used in job order and process cost accounting systems. The difference between the standard cost and the actual cost is called a variance. Variances are calculated for the total standard cost as well as for its components: materials, labor and overhead. Standard costs are revised when changes occur in the manufacturing process.