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Chapter 10

Chapter 10 - Standard Costing A Managerial Control Tool

4 Pages
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Department
Accounting
Course Code
ACC 406
Professor
Vincent Cappelli

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thWednesday March 14 2012Chapter 10 Standard Costing A Managerial Control Tool Unit Standards most managers recognize the need to control costs cost control often means the difference between success and failure or between above average profits and lesser profits cost control means that managers must be cost conscious and assume responsibility for important objectives by comparing the actual costs and actual experiences with the corresponding budget amounts at the same level of activity a measure of managerial efficiency emerges the process described provides significant information for control developing standards for unit amounts as well as for total amounts which can enhance control in order to determine the unit standard cost for a particular input 2 decisions must be made Amount of input that should be used per unit of output quantity decisionAmount that should be paid for the quantity of the input to be used pricing decision quantity decision produces quantity standards pricing decision produces price standards unit standard cost can be computed by multiplying these 2 standardsQuantity Standard X Price StandardHow Standards Are Developed historical experiences engineering studies and input from operating personnel are 3 potential sources of quantitative standardshistorical experiences many provide an initial guideline for setting standards should are used with caution usually processes are operating inefficiently adopting inputoutput relationships from the past thus perpetuates these inefficienciesengineering studies determine the most efficient way to operate and can provide rigorous guidelines however standards are often too rigorousoperating personnel are accountable for meeting standards they should have significant input in setting standards same principles governing participative budgeting pertain to setting unit standardsType of Standards standards are generally classified as either ideal or currently attainableIdeal Standards demand maximum efficiency and can be achieved only if everything operates perfectly no machine breakdown slack or lack of skill is allowedCurrently Attainable Standards can be achieved under efficient operating conditions allowance is made for normal breakdowns interruptions less than perfect skill if standards are too tight and never achievable workers become frustrated and performance level declines challenging but achievable standards tend to be extract higher performance levels particularly when the individual subjects to the standards have participated in their creationWhy Standard Costs Are Adopted there are 2 reasons for adopting a standard cost system1 Improve planning and control 2 Facilitate product costing
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