Standard cost has been described as a predetermined cost, an estimated future cost, an expected cost, a budgeted unit cost, a forecast cost, or a “should be” cost. Standard costs are often a part of a manufacturer’s annual profit plan and operating budgets. Standard costs will be established for the following year’s direct materials, direct labor, and manufacturing overhead. If standard costs are used, there will be:
► A standard cost for each unit of input (e.g., $30 per hour of direct labor)
► A standard quantity of each input for each unit of output (e.g., 3 hours of labor for each product)
► A standard cost for each unit of output (e.g., $30 X 3 hours = $90 of direct labor per product)
