As ‘standard’ is a relative expression, one has to determine for oneself what one deems appropriate as a ‘standard’. However, one should not lose sight of the objective which normally should be avoidance of all losses and wastages as far as possible. Management may certainly fix standards on the basis of maximum possible efficiency, possibly with an assumption of no wastage, no idle time, etc. However, this is not realistic; the standard will be the ‘Ideal Standard’ but impracticable – no one will even make an attempt to achieve it.
Alternatively an average of past few years’ costs could be taken as basis but this will mean perpetuating past inefficiencies, by making them the target. This will defeat the very purpose of standard costing. A target should be such that it will induce the worker to give out his best. In order to make people believe in standards and to induce them towards achieving them, standards should better be such as can be achieved but with an effort; in other words, they should be somewhat idealistic.
- Basic Standard: This is a “standard” which is established for use, unaltered over a long period of time. Standards are fixed scientifically and hence it is more of a technical job. These standards are supposed to remain unchanged so long as quality requirements are constant. Moreover, if forward contracts are entered into regarding materials and labour pact signed for a certain period, the costs can be planned accordingly. Such costs, i.e., basic standards may, however, have to be adjusted for changes in circumstances in a period.
- Current Standard: In practice, standards are fixed on the basis of scientific studies but adjusted for current subjective factors. A standard, therefore, is made realistic to reflect the anticipated conditions affecting operations; it is not too idealistic. Such a standard would bring to sharp focus the avoidable causes for variances, leading to control action. A current standard is a standard for a certain period, for certain condition and for certain circumstances. Basic standards are more idealistic whereas current standards are more realistic. Most companies use current and not basic standards.
- Expected or Attainable Standard: A standard though idealistic should also be realistic. If targets are fixed for a certain budgeted period, taking into account the expected conditions, it can be known as “expected standard” or “attainable standard”. It is defined by CIMA, London as “a standard which can be attained if a standard unit of work is carried out efficiently, a machine properly operated or a material properly used. Allowances are made for normal losses, waste and machine downtime.”
- Normal Standard: Yet another target is one which is intended to cover a longer period of time – a period long enough to cover one trade cycle, i.e., roughly 7 to 10 years. This is defined as “the average standard which it is anticipated can be attained over a future period of time, preferably, long enough to cover one trade cycle”.
- Ideal Standard: This standard refers to the target which can be attained under most ideal conditions. Hence, it is more idealistic and less realistic. It is defined by the Terminology as: “The standard which can be attained under the most favorable conditions, with no allowance for normal losses waste and machine down time”.