Unit
it iii 04
80
l : Standard
si te sa Costing
i i liii c&
e
it
Variance
it Analysis
i it I i
StandardCosting
Standard Costing is a method predetermining costs
of forproducts services based on th
control technicals pecifications expectedprices Inperformancemanagement standardcosting is used
T.sindadstatinagIneid1tjy
set a benchmarkforwhatcostsshould be
measureefficiencythroughvariances
identifyproblemssomanagerscan
fixthem
Et imagineyourun a bakery
before baking afterbaking
Hour 1kg 1 11 Hour 1.2kg 1
labour 1hr 10 labour 1.5hr 10 i variance 5.2
i standardcost 11 actualc ost 10.2
standardcosting Vs Budgetary Control
Basis StandardCosting Budgetary Control
focus determinescost
of a singleproduct or sets monitorsfinancialgoals targets
servicebasedon predetermined standards entireorganisation through budgets
purpose atoolforcostmanagement efficiency a toolforfinancialplanning coordinati
measurement internald ecisionmaking ofoperations
control
usedprimarily in and usedin alltypes organisations
usage manufacturing of
production industries
technicaldatatoset
ofdatauseshistorical
types usesprojected forecasteddata
for
realisticcosttargets futureplanning
variance comparesactualc ost to standardcost compares actualresults ofthe entire
, analysis tofindcostvariance organisation to budgeted results
timeframe usedforbothshortterm longterm typically usedforshort term planning
planning
flexibility lessflexible moreflexible flexible budgeting
BehaviouralAspects
ofstandardCosting
StaticBehaviour Resistance to Improvement may
employees become staticandresis
anychanges orimprovements of a standardissetthey maybelieve it is the perfect w
I refuseto innovateforfearof notmeeting improved standard Dueto thisfirms
fin
it difficult to improve on standards
Undueimportance toTraditionalVariances in modernmanufacturing JIT TQM th
goalsare different Thefocusis on quality reducing inventory flexible production
Thisoftenmeansbuying smaller quantities Pricevariance notrunningmachines a
100 capacity leadsto adverse
usagevariance A strictfocuson traditional
variancesunfairly punishesmanagersforactionsbeneficial to companys overall
strategy
traditionalstandardcostingoftenincludes allocation
Unsuitable
forPricingDecisions of
fixedOHto productcost This canmake the product seemmore expensive than it
isforshorttermdecisions Managersmightbemisled intoquotinghigherprices based
fullstandardcostwhena lowermore competitive price would win the contract
stillcontributetocoveringfixedcosts A Relevant costing approach is betterfor
decisions
pricing
it iii 04
80
l : Standard
si te sa Costing
i i liii c&
e
it
Variance
it Analysis
i it I i
StandardCosting
Standard Costing is a method predetermining costs
of forproducts services based on th
control technicals pecifications expectedprices Inperformancemanagement standardcosting is used
T.sindadstatinagIneid1tjy
set a benchmarkforwhatcostsshould be
measureefficiencythroughvariances
identifyproblemssomanagerscan
fixthem
Et imagineyourun a bakery
before baking afterbaking
Hour 1kg 1 11 Hour 1.2kg 1
labour 1hr 10 labour 1.5hr 10 i variance 5.2
i standardcost 11 actualc ost 10.2
standardcosting Vs Budgetary Control
Basis StandardCosting Budgetary Control
focus determinescost
of a singleproduct or sets monitorsfinancialgoals targets
servicebasedon predetermined standards entireorganisation through budgets
purpose atoolforcostmanagement efficiency a toolforfinancialplanning coordinati
measurement internald ecisionmaking ofoperations
control
usedprimarily in and usedin alltypes organisations
usage manufacturing of
production industries
technicaldatatoset
ofdatauseshistorical
types usesprojected forecasteddata
for
realisticcosttargets futureplanning
variance comparesactualc ost to standardcost compares actualresults ofthe entire
, analysis tofindcostvariance organisation to budgeted results
timeframe usedforbothshortterm longterm typically usedforshort term planning
planning
flexibility lessflexible moreflexible flexible budgeting
BehaviouralAspects
ofstandardCosting
StaticBehaviour Resistance to Improvement may
employees become staticandresis
anychanges orimprovements of a standardissetthey maybelieve it is the perfect w
I refuseto innovateforfearof notmeeting improved standard Dueto thisfirms
fin
it difficult to improve on standards
Undueimportance toTraditionalVariances in modernmanufacturing JIT TQM th
goalsare different Thefocusis on quality reducing inventory flexible production
Thisoftenmeansbuying smaller quantities Pricevariance notrunningmachines a
100 capacity leadsto adverse
usagevariance A strictfocuson traditional
variancesunfairly punishesmanagersforactionsbeneficial to companys overall
strategy
traditionalstandardcostingoftenincludes allocation
Unsuitable
forPricingDecisions of
fixedOHto productcost This canmake the product seemmore expensive than it
isforshorttermdecisions Managersmightbemisled intoquotinghigherprices based
fullstandardcostwhena lowermore competitive price would win the contract
stillcontributetocoveringfixedcosts A Relevant costing approach is betterfor
decisions
pricing
