Cost Control: The Definition of Standard Cost Essay

Standard costs are “a predetermined cost which is calculated from management’s standards of efficient operations and the relevant necessary expenditure” Chartered

Finally, the overhead numbers, from Table 2, were added to the direct material and direct labor to arrive at the ABC cost for each product in Table 3:

According to Epstein and Buhovac, (2014), costing system is a process designed to monitor the costs incurred in a certain business. Costing systems are meant to advise the management on how to choose the most appropriate course of action with cost efficiency and capability. According to Cardinaels and Labro (2009) costing system provides detailed cost information needed by management needs to control current operations with the aim of improving the future. Below are some of the costing systems that are common to many organizations (Epstein & Buhovac, 2014).

Standard costing cannot be used in companies that produce heterogeneous products since it works only where the components and processes are the same and repeat themselves and this result in production of identical goods and services. This does not take into account customer preferences since customers need diverse types of goods. This makes it difficult to be applied in many accounting

Standard prices allow us to set the expected value of the goods and from this we can then calculate variances such as price and quantity variances which allow us to do responsibility accounting.

Traditional costing methods is the process of determining a unit cost by lumping indirect costs of manufacturing together and then parceling out by volume, number of units, machine hours or direct labor hours. Indirect costs

Actual costing is rarely used because managers can’t wait until the end of the year to obtain product costs. Information about product costs is needed as the year goes for planning, control, and decision making.

Number of skus was considered driver for Technical Support. The product weight was considered driver of resource consumption only for General & Administrative costs. Moreover, materials and direct labor were allocated based on the bill of materials and routings (exactly the way they were allocated in Standard Costing system). Finally, Material Handling & Setup, Order Processing and Production Planning were driven to products using number of orders. Consequently, ABC solves the major issue regarding the Standard Costing system: the assumption that all overhead costs can be included into one cost pool. All the drivers are summarized in exhibit 3. Exhibits 4 and 5 present respectively the ABC drivers and allocation rates.

This article discussed variable costing, what is primarily used for and applicability in manufacturing situations. Cost accounting supplies management with the necessary information for decision making (Hasan, 2016). The appropriate costing of a product is essential in taking appropriate managerial decisions (Hasan, 2016).

The term cost can be defined as the amount to be paid for products or services or a required payment for purchasing products and services used as a constant during a period. Costs can have different definitions, based on what kind of use it is required. They can be considered fixed

2. What is the term that describes the rate companies frequently use to apply fixed overhead costs to units produced?

Costing systems are components of a broader accounting system used by a given company or organization. Their main function is to keep a focused eye on expenditures made by the company in question. Synthesis of Existing Cost Models to Meet System of System Needs, p.86. G.G. Toy's production process for dolls started with the basic raw materials needed for the bodies of the dolls, wool and things for the hair and clothing and all of these things were consist in production initially. Then, in its modern Chicago manufacturing facility, the company machine-molded the vinyl and resin into doll bodies and even had varies different styles and designs for the

Standardizing the cost management system companywide is an important step in improving the link between cost management and

Although this system is preferable, it has some disadvantages. First, refined costing systems require more information about the nature of the costs involved, and often gathering this information results in additional costs for the firm. Second, even with a broad range of data available, some averaging and estimations are still necessary. So, without outside motivation, such as the MFMPA, small firms retain simple costing systems.

14-1: “Standard Costing Is Alive and Well at Parker Brass” by D. Johnsen and P. Sopariwala, Management Accounting Quarterly (Winter 2000), pp. 12-20.