Standard Costing Essay Example | Topics and Well Written Essays - 2250 words

Standard be - Essay ExampleThis paper considers the new(prenominal) side or the side in which standard cost has found its in captivateness and unsuitability. Furthermore, the outcome of the critical analysis of how standard costing works is too evaluated in terms of its effectiveness as a means of control in the global industry and the increase in consumer wealth.As a ecumenic idea, standard costing is a system of cost ascertainment and control in which predetermined and preset standard cost and income for products and operations are set. This standard costs and income for products and operations are periodically and from time to time compared with the actual costs incurred and income generated for the purpose of establishing any variances. Standard costing system is used by galore(postnominal) organizations as a management tool in estimating the overall and general cost of production with the assumption of normal operations. While it has standard costing has been widely used by most production and manufacturing companies, the system has found its great importance and appropriate significance in most organizations and firms whose operations involved are common and repetitive.Standard costing generally involves the development of a product or service cost wit the use of estimates of both the resources consumed as tumefy as the prices of those resources. In producing a standard selling price, the standard cost may then be increased by an estimated profit margin. These estimates of cost and revenue enhancement then provide and build up a foundation for additional and supplementary planning and control (Mitchinson 2000 July 1). Traditionally, standard costing is often and frequently associated with manufacturing though it also can be used in other area like the service sector. In support to Drurys (2004) claim that standard costing is appropriate and suitable in common or repetitive operation of an organization, Mitchinson (2000) asserted and alleged that the system, as a method, is essentially apt and fitting to task which is repeat many times. To provide a rationale for this allegation, repeated tasks or operations give organizations and firms the means to estimate the nature of how tasks will be performed in the rising and upcoming operation. Information gained previously in a repetitive operation can be used in predicting the income and expense for any period. 1. Problems with Standard CostingThe reported setbacks and inappropriateness of standard costing have been spotted in the part of prevail companies. Baggaley (2003) strongly argues that the systems measurements motivates and encourage behaviors that are harmful and inappropriate to lean environments. Additionally, standard costing does not provide reliable cost information for decision-making that is important in a lean situation. As a result, Baggaley (2003) suggested an alternative costing approach that goes in line with the goals of lean that also provides the basis f or sound management decisions. There are problems with standard costing when used as a system of control in a lean environment that Baggaley (2003) has identified. First predicament is the problem regarding the people and the workforce. Naturally, standard costing sets standard performance that set out people on the shop floor to do the wrong things when just to meet the preset performance level. In further illustrating his contention, Baggaley (2003) specifies the in-depth reason for