Standard Costing Discussion

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Ideal and Currently Attainable Standards

Ideal standards are standards that demand maximum efficiency and can be achieved only if everything operates perfectly. No machine breakdowns, slack, or lack of skill (even momentarily) are allowed. Currently attainable standards can be achieved under efficient operating conditions. Allowance is made for normal breakdowns, interruptions, less than perfect skill, and so on. These standards are demanding but achievable. Challenging but achievable standards can lead to higher performance levels—particularly when the individuals subject to the standards have participated in their creation

What are Ideal Standards?

Ideal standards (costs) are the standards which can be attained under the most favorable conditions possible. The level of performance under ideal standards would be achieved through the best possible combination of factors — the most favorable prices for materials and labor, highest output with best equipment and layout, and maximum efficiency in the utilization of the production resources—in other words, maximum output at minimum cost. Such standards reflect only goals or targets without any hope of performance being currently achieved.

These standards are extremely tight and do not provide for waste and inefficiency in any form; no material is wasted; no units are spoiled; there are no idle hours; operators work at predetermined speeds; the available capacity is fully utilized. The ideal standard represents the ultimate goal to strive for, but its attainment is impossible over sustained periods. It sets its sights on the stars.

What are currently attainable Standards?

Currently attainable standards are formulated after making allowance for the cost of normal spoilage, cost of idle time due to machine breakdowns, and the cost of other events which are unavoidable in normal efficient operations. They take the place of actual cost and are recorded in account books and financial statements. Any deviation from these standards reflect inefficiencies in the production activities, unless the variances have occurred due to uncontrollable factors.

Currently attainable standards are revised to reflect changes in methods and prices. Much effort and costs are involved in developing these standards. Based on engineering estimates, currently attainable standards are most expensive of the four types of standards. But these standards are most accurate and very useful to management in product costing, inventory valuations, estimates, analyses, performance evaluation, planning, employee motivation, and for managerial decision-making and external financial reporting.