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Before developing a standard costing system, a company must carefully consider several preliminaries to ensure the system is effective, practical, and aligned with its operational and financial objectives. The first step involves defining clear objectives for introducing standard costing. These objectives could include controlling costs, facilitating budgeting, evaluating performance, determining product pricing, or assisting in decision-making. A clear understanding of why the system is being implemented helps in designing standards that are relevant and useful for management. Next, the company must analyze and understand its existing cost structure. This involves reviewing historical cost data, identifying key cost drivers, and classifying costs into fixed, variable, and semi-variable components. Understanding the current cost behavior is crucial because standard costs are ___ _____ ________ _________ ______ _________ __________ _______ __________ _________.
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