State the steps for standard costing system, Managerial Accounting

Assignment Help:

State the steps for Standard costing system

standard costing system involves the following steps

1) Setting-up of standards for each element of cost: standards should be set up for each element of cost viz., direct material direct labor and overhead. However this is a complex task. Standards must be set up rationally and carefully. They should be neither low nor high. A low standard which every one can achieve dose not bring out the best performance. On the other hand, too high a standard being impossible to achieve, is treated with disdain and indifference setting up right standard being impossible to achieve is treated with disdain and indifference. Setting up right standards requires cooperation of various line managers in the organization. It is not merely an accounting job.

2) Study of the technical aspects of production process: before introducing standard costing system in an organization a complete study of several of various methods of manufacturing and the processes is required. The total production process may be sub-process over a considerable period of time should be examined. The previous production records. The study of previous records ensures the working out of the normal efficiency of labor in each production. this study of the technical aspects of the factors is essential to base the system of standard costing on the technical aspects of the factors is essential to base the system of standard costing on the actual situation in the factory.

3) Review of existing costing and budgetary control system: the existing costing system should be reviewed with special reference to the existing records and forms. For clear definitions of standard costs. The existing costs in general and the method of allocation and apportionment of overheads in particulars should be studied. This is important since the standard costing system is to be built on the basis of the existing system of costing budgeting and internal control procedures. The exiting cost system should be reviewed with special reference to the exiting records and forms. Thad id important since the standard costing system has to be established as an extension to the existing system.

4) Study of the organization chart: the organization chart showing the various line of authority and responsibilities should be studied. It will help in supplying basic data regarding various operation of the undertaking.

5) Determining the type of standard: a study should be conducted to determine the type of standard to be used i.e. whether current basic or normal standard. The choice of the standard depends upon two factor viz., its effectiveness for cost control and as a measure of productive efficiency within or outside the accounting system as statistical data.

6)  Enlisting cooperation of executives: for the success of the standard costing system, cooperation of the factory executives for fixing the quality and efficiency standards is essential. A system of standard costing would be successful only if it receives the full support from various line managers. If line managers view it merely as an imposition by the full support from various line managers will never cooperate with it. To secure the cooperation of executives it is essential to clarify that the system is for overall and would be run only if they find it useful. A standard cost committee comprising important costing system.

7)  Preparation of manual: a detailed manual should be prepared for the guidance of the staff. The manual should briefly describe the system to be followed and the benefits thereof. The responsibilities of various functionaries for different activities and the supply of cost data should be clearly demarcated. Various activities must be clearly detailed and the whole procedure of the system outlined.

8) Training of staff: the office staff required to operate the system should be properly trained. When the system come into force a number of alterations would be required in the scheme of making accounting entries and in the flow of documents.

9) Setting physical standards: the office staff required to operate the system should be properly. The standards of physical activity for various departments should be worked out. For direct materials standards quantity has to be determined with reference to quality and size of material is required for each unit of production. The standard quantities of material are developed by the technical section drawing office or the laboratory after a product study or engineering study which examines the details of materials and plant conditions.

10) Study of labor and machine operations: each item of manufacture should be studied in detail to discover various operations to be performed by labor and machines different grades of labor to be employed. Plant machinery and tools to be needed department in which various operations to be carried out and the standard time required for performance of such operation. This study will enable the setting up of labor and machine cost standards.

11) Study of market conditions: for developing cost standards the study of market condition and the trend of price for a definite period in future are made. This study will be of great help in determining material price standards. The labor cost standards can be set up by studying data regarding the wage rates to be paid. For determining the cost standard for overheads overhead costs and the level of dividing estimated activity in a budget period should be estimated. The standard overhead rate will be arrived at by dividing estimated overheads by the estimated level of activity for the budget period.

 


Related Discussions:- State the steps for standard costing system

Budget costing, Archie Ltd manufactures a product called Gizmo. It uses th...

Archie Ltd manufactures a product called Gizmo. It uses the following direct inputs: Price Quantity Cost per unit of output Direct materials $4 per gram 10 grams per unit $40 per

What are the features of product life cycle costing, Features of product li...

Features of product life cycle costing Product life cycle costing is important due to the following features: 1) product life cycle costing involves tracing of costs and re

Nominal Payback Periods, What would be the Nominal Payback Period for an ac...

What would be the Nominal Payback Period for an account with 4% compounded annually for 5 years.

Interpratation of variance, INTERPRATATION OF VARIANCE Controllability,...

INTERPRATATION OF VARIANCE Controllability, Materiality and Trend are the interpretation of variance. The point of comparing flexed budget and real figures is to see what corre

Moral Law vs. Tax Law, 1. Do you think that the tax minimization scheme ...

1. Do you think that the tax minimization scheme described to Debbie Kishimoto is in harmony with the ethical behavior that should be displayed by top corpo- rate executives? Wh

Sources of working capital, Sources of Working Capital Finance Working ...

Sources of Working Capital Finance Working capital finance may be classified in the subsequent: Spontaneous Source of Finance Finance that naturally arises in

What is budgetary control, What is Budgetary control Budgetary control...

What is Budgetary control Budgetary control is the process of determining various budgeted figures for the enterprises for the future period and then comparing the budgeted fi

Line of credit, It is a commitment by a bank to lend a specific amount of f...

It is a commitment by a bank to lend a specific amount of funds on demand identifies the maximum amount of unsecured credit the bank will allow the customer to borrow at any time.

Explain the methods of pricing, Explain the Methods of pricing The fol...

Explain the Methods of pricing The following methods are used for intra company transfer pricing: 1) Total cost method: transfer is made at absorption cost which is the t

What is cost unit, What is Cost unit While the cost centres assists in ...

What is Cost unit While the cost centres assists in ascertaining costs by location, person, equipment, operation or process, cost unit is a unit of product, service or a combin

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