Introduction:
Definition of standard cost according to the CIMA London, “predetermined cost which is calculated from management’s standards of efficient operations and relevant necessary expenditure.” They are the predetermined costs on technical estimate of material labor and overhead for a selected period of time and for prescribed set of working conditions. In other words, a standard cost is a planned cost for a unit of product or service rendered. (Langfield- Smith, 2009)
The technique of using standard cost for the purposes of cost control is known as standard costing. It is a system of cost accounting which is designed to find out how much should be the cost of a product under the existing conditions. The actual cost can be ascertained only when production is undertaken. The predetermined cost is compared to actual cost and the variance between the two, enables the management to take necessary measures.
Standard costing is a vital sub topic of costing accounting .Standard costing is generally related with cost of direct material, direct labor and manufacturing overhead of manufacturing company. Rather than assigning actual cost of direct material, direct labor and manufacturing overhead to a product. Many manufacturers assign the expected or standard cost. This means that manufacturer’s inventories and cost of goods sold will begin with standard cost, not the actual costs. As a result there are almost always differences between the actual cost and the standard costs, and those differences are known as variances. (Langfield- Smith, 2009). The two underlying principles of standard costing are:
1. A standard set before a period is a satisfactory measure throughout the
Period.
2. The performance is acceptable if it meets th...
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...ieved May 18, 2014, from Insidebusiness360.com: ttp://www.insidebusiness360.com/index.php/disadvantages-of-standard-costing-12846/
Denis Caplan (2014), management accounting: concepts and techniques. Retrieved May 18, 2014, http://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%2010.htm
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[5] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 17, Standard costing and variance analysis, p. 425-436
John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.
Cost-plus pricing, it the industry pricing standard, and is a method to determine a price of the product by finding the cost per unit and then including a mark-up
The costing system is a system that is used throughout businesses that offer a service. “A standard costing system uses standard costs and quantities of all three types of manufacturing costs: direct materials, direct labor, and factory overhead” (Blocher 2016 p. 97). Companies utilize the costing system to monitor the actual product usage compared to prior usage. Contractor use this system when bidding on jobs; once they collect specific instruction for the requested job they factor in the amount of material, labor, and other overhead costs then provide a quote for the assignment. “Strategic cost management is deliberate decision-making aimed at aligning the firm's cost structure” (Anderson & Sedatole 2003). Red Lobster and Kroger are examples
Improving health is in the best interest of everyone, including non health professionals. Health mangers need to be constantly looking for ways to improve access to health, the quality of the care, and cost containment.
The 'Standard' of the 'Standard'. Dictionary.com http://dictionary.reference.com>. Marklein, Mary Beth. Are college degrees still worth it in this economy?” News.
Process costing System is an accounting expression which describes one method to determine the manufacturing costs to the units manufactured . Processing is typically used when similar units are mass produced. Also process costing system is a type of accounting process costing which is used to determine the cost of a produced inventory. Chartered Institute of Management Accountants (CIMA) defines process costing as " The costing method applicable where goods or services result from a sequence of continuous or repetitive operations or processes. Costs are average over the units produced during the period, being initially charged to the operation or process "( College Accounting Coach, 2007). Process costing is more important and appropriate for all businesses producing identical products during which production is an ongoing flow. Toyota is on the of the major companies in the world that used well-known new philosophic management to produce identical products using process costing system.
Zoysa, A. D. & Herath, S. K., 2007. Standard costing in Japanese firms: Reexamination of its significance in the new manufacturing environment. Industrial Management & Data Systems, 107(2), pp. 271-283.
g is an important tool that can help management in making informed decision. Though it is not legally required but still it is necessary to run an entity effectively. Cost accounting is turned toward the future. There are different methods of costing in Cost Accounting: Absorption costing and Variable costing. Both have some merits over the other.
Total quality management believes that it is more expensive to rework products than it is to do them right the first time (Chartered Quality Institute, 2016). In other words, with total quality management a product’s quality cannot be compromised for the sake of saving money. This is well illustrated by budget variances and how accountants must look at them under total quality management. One may believe that a favorable price variance is automatically a good thing; however, this drop in price is often a result of a lesser quality product. The same idea can be applied to the rate variance, while not always the case a favorable rate variance can mean unskilled workers. The unskilled workers increase the chance of errors which ultimately lowers the quality of a product. Accountants must look at variances carefully and not take everything at face value when making product
According to Heisinger and Hoyle (2012), job costing is used to record all the incomes and expenses relating to that special product, the unit cost information is derived from the job cost sheet and it involves only one work-in-process inventory account. It is also used for small production jobs, entails detailed record keeping due to the fact that time and materials used for a particular job must be charged directly to the job and the record kept might be used as billing to customers. On the other hand, process costing system is the approach used to
Cost accounting system has two types, job order costing, and process cost system. These two cost systems are very different, almost every company uses order costing or process costing. Starbucks, is a coffee shop where citizens congregate to drink there morning coffee, study, and or socialize. Starbucks is one of the oldest and largest privately held specialty coffee retailer in the United States. (Starbucks) Their passion is to discover the flavors you love and always bring it home, delivering the look, taste and aroma of the world’s best coffee and teas. Job order costing is a very easy way in order to help Starbucks managers to know how much profit their company (Starbucks) made.
The second way is to achieve low direct and indirect operating costs is gained by offering high volumes of standard products and offering basic no-frills products. Production costs are kept low by using less parts and using standard components. Limiting the number of models produced to ensure larger producti...
Activity-based costing (ABC) is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” as well as variable costs. Activity-based costing is mostly used for internal decision making and managing activities while traditional costing method is used to provide data for external financial reports. Most organization uses activity-based costing as an addition system for using traditional absorption costing as sometimes the traditional cost system misleads the product’s profitability. In a company, there are many products on sale, if one product is sold at a high price with low product margin and a product with high product margin at a low price, it may result in a loss. In addition, due to the reason that cost drivers and enterprises business may change, activity-based costing analysis also needs to be revised periodically. This amendment should be prompted to change pricing, product, customer focus and market share strategy to improve corporate profitability.
I understand the term customer value to define how customers weigh the benefits of individual purchasing decision against the costs of these products.