Process of Setting Standards in Standard Costing
Establishing correct a standard is extremely important due to the accuracy of the standards usually finds out the success of the standard cost system. As we will look later, the standard cost system has extremely serious behavioral implications for the staff whose performance will be measured against the standards. The staff feels such the standards are too high, or unachievable, they will be frustrated and will be greatly de-motivated. If a disciplinary action is taken also on employees who fail to achieve the standards, however the worker feel that it is unfair like the standard was not accurate, this will bring to resentment, sabotage and de-motivation to the employees.On another hand, if the standards are too low, they will be simply achieved via employees and they will not be challenged to work hard.
In finding out standard cost, every cost should be carefully analyzed to ensure each factors affecting the cost level in the period the cots are to be utilized have been considered. In addition, managers in charge of the departments responsible for meeting the standards must approve the bases for the standards. For the standard setting procedure and standards implementation to be successful, the employees responsible for meeting the standards must have the chance to participate in the Standard Setting Process. They are the best positioned in pinpointing not any accuracies in the set standards. It is simple to enforce standards once their acceptance is solicited via participation in the setting process. The manager overseeing the setting of standards should contain an honest desire also to set achievable targets and to assist their employees lower and managers achieve them also. Also, standards should only be set after there has been interaction between all the individuals involved. Last, and very significant, the top management must fully help the standard costing process from Standards Setting to standards implementation. This help gives the standards the enforcement they require to be effected in the complete organization.