Standard costing provides the business’ management with details of the estimated unit cost of a product or service; for example within Food and Beverage, Chefs and Bartenders create receipies for their dishes and cocktails, by doing so the items costing becomes a lot more accurate and stock takes become more consistent. Ensuring that consistent ingriedients are used means that everything is accounted for within the cost and in turn it becomes a lot easier to determine what the selling price of that specific item should be. In adition, after standard costings are made they can be compared with the actual costs and varianances. Eventually this can lead to improvments and make changes so that production becomes more efficient and cost effective especially for start up businessestaht are already in the process of perfecting their pricing. Therefore, not only do standard costings maintaian a control of costs it they also maintain consistency as it provides chefs and bartenders with receipies to follow that allows for portion size control and ingridient control. Standard costing is used in budgeting, inventory costing, overhead application and also when determining prices. One of the main disadvantages of standard costing is that prices changed often especially with seasonal ingriedients therefore, they are not always accurate unless a business proactively updates the pricing.
The main purpose of standard costing is to control the Gross Operating Profit percentage (GOP%) for each item sold. The GOP is the percentage of revenue an item is converting to the bottom line profit. Cost of Sales percentages (CoS%) are set as part of a Food and Beverage budget to maintain control of the costs and there are three main CoS; food cost, beverage cost and other costs. Essentially standard costings are vital to any organisation as they are used to calculate the cost, contribution to overheads and in turn determine the selling price.