According with According for Management, standard cost is a planned or forecast unit cost for a product or service, which is assumed to hold good given expected efficiency and cost levels. It represents a target cost and is useful for planning, controlling and motivating within an organisation. In order to be able to apply standard costing it must be possible to identify a measurable cost unit. This can be a unit of product or service but it must be capable of standardising, for example: standardised tasks must be involved in its creation. The cost units themselves do not necessarily have to be identical, for example: standard costing can be applied in situations such as costing plumbing jobs for customers where every cost unit is …show more content…
This information is also used to improve performance through control action, for example: correcting problems. This budgetary control process can be useful. But it can be a costly waste of time to explore those variances which are outside the control of the organisation, are based on out of date standards, and those which are irrelevant in size. Finally, an organisation’s decision to use standard costing depends on its effectiveness in helping managers to make the correct decisions. It can be used in areas of most organisations, whether they are involved with manufacturing, or with services such as hospitals or insurance. To conclude, CIMA (2008) reported that over 70% of UK manufacturing companies used standard costing and variance analysis set standards for material costs, while 90% set standards for labour costs and nearly 70% set standards for overheads. Standard costing and variance analysis may still be useful even where the final product or service is not standardised. In addition, the use of demanding performance levels in standard cost may help to encourage continuous improvement. Explain the features of the Just in Time system. Discuss its alleged advantages and disadvantages Just in Time (JIT) is a philosophy from Japan, it was developed in the
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 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.
A cost of goods is what it should spend to make products. At the start of each period budget of production will be ready, using cost of goods and predicted production quantities. At the end of each period a variance report is prepared to compare the budget costs with the actual costs.
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.
The traditional costing method is a distribution of manufacturing overhead costs to the actual products manufactured. By using this
The costing approach should be based on per Transaction Basis rather than on per kit or per pound basis because of the following reasons:
Standardizing the cost management system companywide is an important step in improving the link between cost management and
Understanding how costs behave is vitally important when making production decisions, preparing budgets, and so on. A unit cost is the total expenditure incurred by a company to produce, store and sell one unit of a product or service. Unit costs include all fixed costs, or overhead costs, and all variable costs, or direct material costs and direct labour costs, involved in production.
Businesses – from manufacturing, merchandising and service industries alike – take careful considerations for their costing systems. Setting-up competitive prices in the market can be a result of proper costing methods. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods Zauner Ornaments are currently using and upon conclusion, it will enable us to distinguish the advantages and disadvantages of each costing method.
Process costing is an easier system to use when costing homogenous products compared to other cost allocation methods. Each process applies direct materials, labor and manufacturing overhead to the production cost total. Management accountants take the total number of goods leaving the process and divide the total process cost by this number. This creates a simple average cost for each item produced. Another advantage is that business owners use process costing because it creates a flexible production process. Companies needing to refine their process can simply add or remove a process as necessary. This also allows companies to lower their production cost for each good. Adding a process allows companies to produce slightly different goods or improve product quality. This flexibility ensures companies can produce at the most competitive cost in the economic marketplace. Also process costing provides an approach to allocate costs to
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.
With this costing technique , a Manager can easily determine if there is a weak link in production chain by keeping an eye on the cost per unit each day. Using the accounting programs involved in process costing, a manager can figure out where in the process the item 's per unit cost is going up. This way a single manager or a team of managers can monitor millions of units being produced without needing to check on each department unless a problem comes up. By the same token, these numbers need to be watched diligently, as a change of even a fraction of a cent can cost thousands of dollars quite quickly.
Under the new cost system, two broad sources of costs were identified: manufacturing and SM&A. All costs within these categories were reclassified as either volume driven or order driven. Hence, four cost pools were set up.
During the 1980s the limitations of traditional product costing systems began to be widely publicised. These systems were designed decades ago when most companies manufactured a narrow range of products, and direct labour and materials were the dominant factory costs. Overhead costs were relatively small, and the distortions arising from inappropriate overhead allocations were not significant. Information processing costs were high, and it was therefore difficult to justify more sophisticated overhead allocation methods.