IGNOU : M.COM : MCO 5 : UNIT 11 : Q - 6. Write a note on Revision of Standards.

Ans. Revision of Standards

Standard cost is based on a number of factors. These factors some may be internal or external may vary from time to time depending upon different situations. Standard cost may become unrealistic if it is not revised according to the changed circumstances. Then a question arises what would be the period in which standards should be set? If the standard is set for a shorter period it is expensive and frequent revision of standards will impair the utility and purpose of the standard cost. If the standard is set for a longer period it may not be useful particularly during periods of high inflation and rapidly changing technological environment. Therefore, standards are normally set for a fixed period of one year and revised annually at the beginning of accounting period. If there are major changes, a revision may also be required within the accounting period. If there are minor changes, the causes of difference between actual and standards may be explained without being revised the standards. There are certain conditions which necessitate the revision of standard costs. These conditions are:

i) Changes in price levels of materials, labour and overheads

ii) Technological changes

iii) Changes in production methods or product mixes

iv) Changes in plant capacity utilization

v) Errors discovered in setting standards

vi) Changes in designs or specification

vii) Changes in the policy of organisation

viii) Changes in government policy affecting the product or organisation, etc.