A paper that outlines the various defects of the standard based costing method and how it does not effectively measure the manufacturing environment of today.
Written in 2002; 1,650 words; 8 sources; APA; $ 53.95
Paper Summary:
The paper explains that in production organizations, the basic concern of the management is to have smooth operations with the least cost possible. There the existence of cost is measured by the tangible output each component of the department produces and income is compared to the cost incurred. The paper shows that a system that is set for measuring the performance level of the tangible assets is known as a standard based cost. The production level is measured periodically and compared with the actual costs incurred. Any deviation from the original cost is considered as variance and hence they are measured separately. The paper discusses that the overall costing structure is dependent on the standard costing method and performance is also evaluated on this basis. The paper shows how, in the recent years, the structure of the manufacturing environment has changed the way management view standard costs. Since most of the work is performed on a large scale and depends on highly innovative technology, many argue that the concept of standard costing has become redundant and ineffective. The paper analyzes this concept.
From the Paper:
"Standard based costing allows the business to plan its cost according to the level that favors the management in optimal usage of resources and minimum cost price. There are two types of standard that could be used to measure. One is ideal standard where the price is planned to the minimum compared to manufacturing capacity. Second attainable standard where the overall lowest price is noted for costing and a considerable level of efficiency is noted. The costing system does not expect 100% capacity but it does try to minimize spoilage percentage. Thirdly, direct material and labor standards where per unit material and labor is noted for production of per unit of the product. Through these methods it is clear that the standard based costing system is not usually attainable and hence subject to criticism. The reason being that direct labor and direct material cannot be accounted for if the products are lying idle at warehouses in case of emergencies."
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