Question

How are standards developed and are they only useful for companies that manufacture products or do service type industries utilize standards? some examples please.

I think they are helpful for manufacture and service companies. am i right? for service based could be planned hours for a Restaurant? any help would be great.

Answer 1

In Standard Costing one of the important task is to develop a standard for each cost component

Standards are developed based on following factors. please note the list is only illustrative and not exhaustive.

1. Market and economic conditions
2. Past trends and experiences
3. Target profitability to be achieved
4. Level of competition in the industry   

However developing standard for each cost component has its own challenges and uniqueness.

Standard Costing is mostly deployed by manufacturing industries. It can be used by service type industries also but i have not come across any.

Standard costing is widely used by manufacturing industries for Cost Control and Cost Reduction. In order to gain a strategic advantage many companies do implement Standard Costing. Also it is a key for competitive advantage in the industry.

For Service based industries like restaurant Standard Costing can be implemented. But execution of this type of Costing would be a great challenge according to me