Standard costing is the practice of substituting an expected cost for an actual cost in the accounting records, and then periodically recording variances that are
the difference
between the expected and actual costs. It appeared in the early
twentieth century, when transaction volumes were overwhelming
the
record
keeping systems in use at that
time.
Standard costing involves the creation of estimated (i.e., standard) costs for
some or all activities within a company. The core reason for using standard costs
is that there are a number of applications where it is too time-consuming to
collect actual costs, so standard costs are used as a close approximation to
actual costs.