Advantages of standard costing, Cost Accounting

Assignment Help:

Advantages of Standard Costing

1. Management via Exception: the standard costing is an example for management via exception. By studying the variances, management's attention is directed towards those items that are not proceeding as per to the plan. Most of the management's time is saved and can be directed to another value adding activities. Management merely concentrates on the 'few' exceptions reported.

2. Cost Reduction: The process of revising, setting and monitoring standards encourages reappraisal of methods, materials and techniques hence leading to cost reductions.  Analysis of unfavourable variances directs cost analysis to factors such are making costs to exceed the budgeted costs hence these factors can be controlled as well as leading to cost reduction.

3. Pricing Standard costs serve like a reliable base of calculating net cost of producing a good or service, to that a margin can be added to find out the selling price.

4. Inventory Valuation Standard costing makes inventory valuation much easier, whether the real number of physical units in the inventory is identified, then the inventory value is simply determined via multiplying the standard cot per unit via the physical units.

5. Motivation: An appropriately developed standard costing system needs the full participation of all management levels upper, lower and middle levels and the employees. This creates motivation for the employees like they feel part of the system.

6. Cost Control:  A well implemented standard costing system acts like a yardstick against all costs are measured to verify whether the variance from the standard is favourable or unfavourable. It creates cost consciousness in the organization and in the end enables the organization to control costs.

7. Budgeting is made easier: One of the greatest benefits of standard costing is to be found in setting budgets for the organization and its departments.  As before illustrated one time the desired output units are identified, after that the budgeted cost is merely the output units desired multiplied via the standard cost per unit.

That is: Budgeted Cost = Output units x Standard Cost per unit

8. Performance Evaluation is simplified like already noted, standard costing creates a cost consciousness in the organization with that any cost can be easily evaluated whether it has favourable or un-favourable variance, hence appropriate corrective measures can be taken.  Once budgets are prepared and agreed on anticipatively, and employee's performance can be acceptably measure against the set standards to verify whether the performance is acceptable or not:  suitable corrective measures punishment or reward can then be acceptably taken through the management.


Related Discussions:- Advantages of standard costing

Cost Estimation, On a New product development process of making a new S3 ST...

On a New product development process of making a new S3 STORAGE SIM card phone storage device for end users, forecast the following With full working and tabulations; a) With fu

Factory overhead, Why do we separate factory overhead from materials and la...

Why do we separate factory overhead from materials and labor?

MARGINAL AND ABSORPTION COSTING, MARGINAL COSTING IS PREFERRED TO ABSORPTIO...

MARGINAL COSTING IS PREFERRED TO ABSORPTION COSTING IN DECISION MAKING WHY

Evaluate the relevant cost, Question PART A A company manufactur...

Question PART A A company manufactures a single product and the data concerning the product is as follows: - Sales price of $10 - Marginal cost of $6. - Fixed

Find the amount capitalized for the patent account, Gomez incurred $350,000...

Gomez incurred $350,000 of research and development costs to develop a product for which a patent was granted on January 2, 2008. Legal fees and other costs associated with the re

Describe the concept of full cost recovery with illustrative, Describe the ...

Describe the concept of full cost recovery with illustrative examples.

Compute depreciation for each year, A machine costing $210,400 with a four-...

A machine costing $210,400 with a four-year life and an estimated $20,000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the mac

Calculate the fixed costs to the two products, Herrestad Company does produ...

Herrestad Company does produce and sell two products and the details below will be used to prepare a segmented income statement (showing the income for each product and the total)

Changes in variable cost and selling price per unit, Changes in Variable Co...

Changes in Variable Cost and Selling Price per Unit The contribution sales ratio is affected by any change in variable cost or selling price per unit. This ratio is a mea

Manufacturing Overhead, Does Manufacturing Overhead include the following:1...

Does Manufacturing Overhead include the following:1)Material Handling - labour for Purchasing Material, Shipping (inbound for raw materials and outbound for finished product - also

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd