Within Accounting there is the so-called Cost Accounting.

Cost Accounting is internal and is used to measure the production costs of a product or service, and consequently measure efficiencies and make decisions regarding production, company organization, suppliers of raw materials or services for the company, personnel, etc.

Cost Accounting is also used to generate and establish the Standard Cost or Production Standard for companies. Below is a description of what a Standard Cost is.

The "Standard Cost" is a budgeted cost that is based on normal efficiency levels.

The Standard Cost is developed based on the budgeted direct and indirect costs.

The Standard Cost is a measure of how much it should cost to produce a unit of product or service always under conditions of efficiency, that is, without waste, idle time, etc.

The Standard Cost of a product is made up of the costs of the components required to produce said product.

For example, the standard cost of a leather jacket includes:.

Once cost is established, it provides the basis for making decisions, for analyzing and controlling costs, and for measuring inventory and cost of goods sold. Standard costs serve as a reference point against which current costs are compared. The differences between current costs and standard costs are called variances. Actual costs may differ from standard costs due to price differences, quantity differences, errors, or other less than ideal conditions. Determining the reasons for the variances can suggest corrective action or demonstrate that products are currently costing more or less than anticipated.

The variations to identify and correct deviations are:

Variation in consumption - use,

Variation in price,

Variation in Manufacturing,

Labor Variation,

Manufacturing Expenses Variation,

Review and Update Standard cost,

Variation in Inventories,

Variation in Transfers.