MANAGEMENT ACCOUNTING

Management Accounting

Management Accounting

Introduction

Standard costing is one of the main sub-topics of cost accounting. This costing is linked with manufacturing companies with respect of their direct material cost, direct labour cost and manufacturing cost. Hence, in this paper, the focus would be on preparing a standard cost operating statement along with different variances.

Discussion

Standard Costing

Standard cost refers to pre determined cost that is computed for management's from standard of efficient operations and also with relevant essential expenditure. This might be employ as a source for fixing a price and to control cost for variance analysis (Bhavesh, 2012, p. 226).

Beside this, standard costing is very useful when valuing inventories and for material charges, resources, period close, overhead and job close along with schedule of complete transactions. The differences that are obtained from standard cost and actual cost are termed as variance. The main purpose of standard costing is to control cost and to increase performance of the company. Companies, instead of assigning actual cost to direct labour, direct material and manufacturing overhead, majority of the manufacturing companies assigned standard or expect cost to such items. This further indicates that manufacturing company's inventories and cost of goods sold would commence with amount that will reflect standard costs not actual product cost (Motilal Banarsidass Publisher, 2012, p. 346).

Standard Costs are developed based on direct and indirect costs budgeted. For example, the standard cost of a leather jacket includes:

Cost of materials (stationeries, furniture, student equipments and subject related products such as computers, software and other important materials.)

Cost of Labour (the time required to teach students, assist them, etc. At the rate of production employees who influence the process), and

Indirect costs related to manufacturing or product (depreciation of leather cutting machine, electricity, rent of factory, etc).

Once the standard cost is set, this provides the basis for decision making, to analyze and control costs, and to measure the inventory and cost of goods sold. The standard costs serve as a benchmark against which actual costs are compared. The differences between actual costs and standard costs are called variances. The actual costs may differ from standard costs due to price differences, differences in quantity, errors, or other conditions less than ideal. Establishing the reasons for the variances can suggest a corrective action or to demonstrate that products are currently costing more or less than anticipated (Weygandt, Kimmel, Kieso, 2012, p.492).

Benefit of Standard Costing

The benefits obtained with the implementation and proper uses of a standard cost system are:

Having more timely and even anticipated production costs.

Standard costs imply a scientific planning of the company, as it is needed to implement them have a pre-production planning, which product shall be considered, such as where, when and how.

The fact initiate the implementation of this system implies the need to practice a previous study of the sequence of operations, timing, balance and the rate of production, during which very often are discovered inefficiencies are corrected ...