INTRODUCTION Standard Costing became increasingly widespread at the beginning of the 20th century as a system for determining the manufacturing unit cost of a product, by setting standard rates and required material quantities for various production processes (Hyer & Wemmerlöv, 2002). Drury (2008) state that "Product standard costs are derived by listing and adding the standard cost of operations required to produce a particular product." The popularity of this technique increased significantly in the manufacturing industry, mainly because it could be used as a mechanism for managing cost, which could then be used to set product prices. Over the years, standard costing systems have become more than just cost control tools by helping …show more content…
Lucas (1997) contends that the scientific management engineers, who support standard costing, divide production operation into a number of simple repetitive tasks, so as to gain the benefit of specialisation and also minimize time wastage from workers switching from one task to another. By identifying key tasks within the production system, standard costing allows management to pinpoint the specific production areas that might be accountable for those variances. The idea of accountability and dividing the production system into repetitive tasks makes standard costing ideal for manufacturing businesses. However, standard costing can also be applied to service providing organisations, where output can be clearly translated into some unit of measurement. BENEFITS OF USING STANDARD COSTING Standard Costing gained widespread popularity since its invention due to the useful information it provides managers, which can then be used to make informed decisions. Different organisations use standard costing for various purposes; however researchers have generally outlined five main reasons for adopting standard costing. _CONTROL TOOL_ The use of standard costing as a control tool is seen by many as one of its most important feature, because
Standard costs are “a predetermined cost which is calculated from management’s standards of efficient operations and the relevant necessary expenditure” Chartered
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).
Managerial accounting is essential for decision making. Making the best choice depends on the manager's goals, the anticipated results from each alternative, and the information available when the decision is made (Schneider, 2012). The different techniques associated with managerial accounting are very helpful in the decisions that need to be made. In order to truly understand decision making with managerial accounting one must first discern exactly what managerial accounting means and some of the techniques associated with it. The definition of managerial accounting will be discussed along with the techniques of cost management techniques, budgeting, and quality control.
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.
Overall Theme We will explore fundamental assumptions of cost functions and discuss the relationships between cost behaviour, cost estimation and cost prediction. The concept of cost driver analysis and its application to cost estimation and cost management will also be discussed. We will also describe how to estimate cost behaviour using managerial judgment, engineering methods and other quantitative techniques.
3. Activity-based costing is commonly used with standard costing. Using more activity drivers increases the potential for managers to
Standardizing the cost management system companywide is an important step in improving the link between cost management and
The business is currently using a traditional or standard costing method which management are not confident in the product cost generated by the accounting system and are also using the current costing data extensively for other decision-making within the firm.
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.
It is extremely important for management to know the unit cost, but also the full breakdown of cost for each unit or service. There are many reasons for management to understand the unit cost.
We will examine the given data from the case and compare the unit costs from the company’s current costing system (traditional costing) and from activity-based costing. We will also highlight other qualitative data in consideration with the numerical factors that may result to a significant change on our recommendation.
INTRODUCTION Businesses – from manufacturing, merchandising and service industries alike – take careful consideration in the analysis of their costing systems in order to be able to set up competitive prices in the market. 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 which Zauner Ornaments have used or is currently using and, in conclusion, be able to distinguish the advantages and disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs. In addition we also aim 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.
The keen competition requires companies to consider the cost variable. But traditional budgeting method separates the cost into variable and fixed, put the emphasis on the variable cost and consider the fixed cost implacable.
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.