STANDARD COSTING

Standard Costing is Irrelevant for a 21st Century Britain

Standard Costing is Irrelevant for a 21st Century Britain

Introduction

The paper aims to establish an argument in favour and against the notion that standard costing is irrelevant for Britain of the 21st century. The paper provides a definition of standard costing leading to established argument in favour and against the use of standard costing, today. The paper creates authentic empirical evidence on the notion from prior literature and academic research studies on the use and relevance of standard costing. Additionally, paper provides modern accounting alternatives to standard costing, which are significantly used by manufacturers and service industry operators.

Moreover, paper develops credibility of the shared information by providing practical world cases from accessed literature on the relevance and irrelevance of standard costing as a modern method of accounting. Finally, a conclusion is drawn in disagreement to the notion that standard costing is irrelevant to modern accounting practices in Britain.

Discussion

Standard costing techniques were primarily developed in accordance with the need of mass scale manufacturing. Production of large scale uniform output is involved in the environment of mass manufacturing, which has been characterized by significantly large fixed investments in the machinery and plants (Rao and , 2011, p. 48).In this system, cost controls are managed by obscuring a cause and effect relationship. However, recent trends in the market and business environment have influenced the widespread use of standard costing systems.

Since last decade, there has been a major shift in cost and budgeting procedures followed by businesses to measure and forecast their business performances. Technological advancements have substantially contributed to this shift in costing standards and practices by introducing innovative and advanced software of accounting and budgeting that allows an organization to keep an equal eye on all of its business functions and the associated costs ranging from a small scale investment to large scale projects. Literature has provided significant empirical results from Malaysia, Dubai and the UK on the use of standard costing and its relevance with today's standards and demands of accounting system.

Defining Standard Costing

According to Law (2009, p. n.d.), standard costing is a system of ascertaining and controlling cost by periodically comparing actual income generated and actual cost incurred with the predetermined standard and income for operations and products. Whereas, standard cost is elaborated as a pre-determined calculation of the extent to which cost must be under given conditions of work (Ogunjuboun, 2009, p. 236).

The main objective of this system is to identify variance in the actual financial performance, if any. This system was designed for traditional systems of manufacturing, in which major portion of the cost was composed of direct material and direct labour. However, there has been a decline in the use of standard costing as most of the firms have shifted this business processes to less labour intensive (Law, 2009, p. n.d.). Figure 1 provides an overview of the system of standard costing.

Figure 1: Overview of the Standard Costing System (Crawford, 2007, ...