Standard Cost
Definition
A preset expected cost for each product, used to value inventory and COGS consistently, with any difference from actual costs tracked separately as a variance.
Want a deeper explanation?
Standard costs keep COGS steady and simple across many SKUs, which is why manufacturers and larger brands use them.
They need regular updates, or variances pile up. Watch for: standards that were set two years ago, which make every month's gross margin wrong until the variance is cleaned up.
Example
You set a standard cost of $8.00 per unit for the year. When a shipment lands at $8.30, the $0.30 per unit difference goes to purchase price variance.