Approaches to Establishing Standard Costs:

1. Historical Records:
   This approach uses the company’s past operational data, including the purchase and use of materials and labor, to set current standard costs. The advantages include low cost, use of actual company data, and providing a reference for future improvements. However, this approach might incorporate past inefficiencies into current standards, and it may not be relevant if the production process changes or new products are introduced.
2. Engineering Studies:
   This approach involves detailed studies of each production operation to establish standard costs based on observed and recorded activities. Engineering studies are future-oriented, aiming to avoid incorporating past inefficiencies into standards and accommodating expected changes like process alterations or product redesigns. While this approach can improve reliability, it is time-consuming and expensive, requiring input from various departments such as production, human resources, sales, and finance.