In the pharmaceutical industry, the most commonly used cost accounting method is Standard Costing.

Points to consider:

  1. Standard Costing: This method involves setting predetermined cost standards for materials, labor, and overhead for each product or service. It helps in assessing and controlling costs by comparing actual costs to these predetermined standards.
  2. Reasons for use in pharmaceuticals: Pharmaceutical companies often deal with high-volume production of standardized products (such as tablets, capsules) where cost control is critical due to competitive pricing pressures and regulatory scrutiny.
  3. Benefits: Standard costing provides benchmarks for evaluating performance, facilitates variance analysis to pinpoint cost overruns or savings, and supports decision-making on pricing, production volumes, and resource allocation.
  4. Challenges: Despite its advantages, standard costing may not fully capture the complexity of research and development (R&D) costs in the pharmaceutical sector, which are crucial for new drug development.

In summary, Standard Costing is preferred in the pharmaceutical industry due to its ability to provide detailed cost control and performance evaluation in a production-oriented environment.