Preview

Analysis of Standard Costing System and Decision Making Essay Example

Best Essays
Open Document
Open Document
4967 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Analysis of Standard Costing System and Decision Making Essay Example
Content

1. Introduction 4
2. Part Ⅰ--Standard Costing System and Variance Analysis 5
2.1. Definition 5
2.2. Scenarios of Standard Costing System and Variance Analysis 5
2.2.1 Scenario Ⅰ Manufacturing Companies—Auto-making Firms 6
2.2.2 Scenario Ⅱ Service Industries—Banks 7
2.2.3 Scenario Ⅲ Other Industries That Have not Repetitve Processes—AdvertisingFirms 8
2.3. Standard Costing System on Different SIzes 9
2.4. Variance Analysis 9
2.4.1 Total Production Cost Variance 9
2.4.2 Marterials Variances 10
2.4.3 Fixed overhead Variance 11
2.5. Summary 12
3. Part Ⅱ—Relevant and Irrelevant Costs and Incomes 13
3.1. Definition 13
3.2. Scenario Ⅰ—Shutting Down or Keeping Open Part of the Business 13
3.2.1 Relevant and Irrelevant Costs andIncomes in Scenario Ⅰ 16
3.2.2 Qualitative Factors in Scenario Ⅰ 16
3.3. Scenario Ⅱ—Pricing Products or Services 16
3.3.1 Pricing Customized Produccts/Services 17
3.3.2 Pricing Non-customized Products/Services 17
3.3.3 Relevant and Irrelevant Costs andIncomes in Scenario Ⅱ 18
3.3.4 Qualitative Factors in Scenario Ⅱ 19
3.4. Scenario Ⅲ—Product Mix and Limiting Factor Analysis 19
3.4.1 Relevant and Irrelevant Costs andIncomes in Scenario Ⅲ 21
3.4.2 Qualitative Factors in Scenario Ⅲ 21
3.5. Scenario Ⅳ—Make or Buy Decisions 21
3.5.1 Relevant and Irrelevant Costs andIncomes in Scenario Ⅳ 24
3.5.2 Qualitative Factors in Scenario Ⅳ 24
4. Conclusion 25
Reference 26
Appendix 28
I. The Learning-Curve Effect 28
II. Variance Analysis for A Variable Costing System 28
III. Formula for Variance Analysis 29

8

1. Introduction

With more and more competitive in global market, costs of companies’ products become more and more important. In this assignment, the definitions of standard costing and variance analysis are introduced. This assignment refers that whether or not standard costing system and variance analysis are appropriate to any type and size of organization, and analyzes four

You May Also Find These Documents Helpful

  • Powerful Essays

    regardless of the actual amount of care used. The amount of the payment is based on the value…

    • 2261 Words
    • 9 Pages
    Powerful Essays
  • Satisfactory Essays

    Toddler Treasures

    • 264 Words
    • 2 Pages

    Adopting a standard costing system helps identify performance standards and also helps a company’s managers in preparing budgets and setting performance target levels. In this case, the company needed to find out if the new material it was using was providing any benefits. These favorable variances indicate that the quality of this new material did not have any detrimental effects on production…

    • 264 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Principles of Accounting II Cost Accounting Accounting is the accumulation and aggregation of info for decision makers including administrators, traders, authorities, loan providers, as well as the general public. Accounting systems impact behavior and administration and have effects across divisions, companies, and even nations. This report will provide the reader a knowledge regarding cost accounting. This report will talk about: Why is cost accounting so essential to the achievement of the company; what are the different ways of cost accounting and how are they utilized; how does an operating budget work in order to control a firms administration; what are the factors of a financial budget; how are financial budgets developed; what is variance analysis and the way its utilized. Cost accounting can be defined as the procedure of gathering, computing, assessing, interpreting as well as reporting cost info which is both helpful and related to the internal and external stakeholders of a business. Among the many advantages of cost accounting is that it converts data into info, knowledge and wisdom regarding a business entitys functions which is helpful for: gauging efficiency, decreasing or controlling expenses, deciding the charges or rates for services and goods, determining to approve, change or stop a plan or activity. One more advantage is that info on the costs programs as well as activities can be used as a foundation in order to approximate future expenses in organizing as well as analyzing budget requests. As soon as budgets are authorized as well as executed, cost info serves as a helpful comment on efficiency. In addition to that, costs might be compared to known or supposed advantages in order to identify value-added and non-value added actions.…

    • 673 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Bridgeton Paper

    • 1658 Words
    • 7 Pages

    4. Are the product costs reported by the cost system appropriate for use in the strategic analysis?…

    • 1658 Words
    • 7 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Week 3 Acct2522

    • 1205 Words
    • 5 Pages

    TOPIC 3 COST BASICS After completing this topic, you should be able to: 1. 2. 3. 4. 5. 6. 7. 8. Why are costs important? What does ‘different costs for different purposes’ mean? Understand and apply various classifications of costs. Understand cost drivers and the role of cost driver analysis. Describe and apply the activity hierarchy of costs and cost drivers. Explain the relationships between cost estimation, cost behaviour and cost prediction. Understand and apply various methods for cost estimation. Understand some practical issues faced in estimating cost functions.…

    • 1205 Words
    • 5 Pages
    Satisfactory Essays
  • Good Essays

    halo

    • 1102 Words
    • 5 Pages

    4. Analyze problems pertaining to cost variances and standards used by management in controlling costs in manufacturing…

    • 1102 Words
    • 5 Pages
    Good Essays
  • Better Essays

    For a business to grow and survive in today 's dynamic environment where profit margins are squeezed and businesses are forced to operate with lower costs, budgeting and forecasting are important financial disciplines for business success. The challenge not only lies in drafting the budget, but also in operating within the constraints of…

    • 3548 Words
    • 15 Pages
    Better Essays
  • Powerful Essays

    Costing Systems

    • 8321 Words
    • 34 Pages

    MULTIPLE CHOICE QUESTIONS 1. Consider the following statements regarding traditional costing systems: I.Overhead costs are applied to products on the basis of volume-related measures. II.All manufacturing costs are easily traceable to the goods produced. III.Traditional costing systems tend to distort unit manufacturing costs when numerous goods are made that have widely varying production requirements. Which of the above statements is (are) true? A. I only. B. II only. C. III only. D. I and III. E. II and III. Answer: D LO: 1 Type: N 2. Many traditional costing systems: A. trace manufacturing overhead to individual activities and require the development of numerous activity-costing rates. B. write off manufacturing overhead as an expense of the current period. C. combine widely varying elements of overhead into a single cost pool. D. use a host of different cost drivers (e.g., number of production setups, inspection hours, orders processed) to improve the accuracy of product costing. E. produce results far superior to those achieved with activity-based costing. Answer: C LO: 1 Type: N 3. The following tasks are associated with an activity-based costing system: 1—Calculation of cost application rates 2—Identification of cost drivers 3—Assignment of cost to products 4—Identification of cost pools Which of the following choices correctly expresses the proper order of the preceding tasks? A. 1, 2, 3, 4. B. 2, 4, 1, 3. C. 3, 4, 2, 1. D. 4, 2, 1, 3. E. 4, 2, 3, 1. Answer: D LO: 2, 4 Type: RC…

    • 8321 Words
    • 34 Pages
    Powerful Essays
  • Better Essays

    Products Costing System

    • 1686 Words
    • 7 Pages

    We acknowledge that Sunflower Ltd is a large public company, reputable for its diverse range of flowers and large customer base. At present, we have identified that there is no formal product costing system implemented in the company – with the exception of the calculation of product costs imperative for external financial reporting purposes, prepared by your company’s accountant. In order to reduce cost pressures upon Sunflower Ltd, in the highly competitive flower sector, this report recommends the introduction of management accounting into the company, in particular the use of product costing systems. The purpose of this report is to identify an appropriate product costing system that will enable Sunflower Ltd to reach optimal efficiency as well as to justify each costing system that may be applicable to your company. We will additional outline the potential benefits that your company may gain as a result from adopting an suitable product costing system.…

    • 1686 Words
    • 7 Pages
    Better Essays
  • Good Essays

    cost accounting reviewer

    • 14992 Words
    • 60 Pages

    When computing variances from standard costs, the difference between actual and standard price multiplied by actual quantity used yields a…

    • 14992 Words
    • 60 Pages
    Good Essays
  • Satisfactory Essays

    Kanthal 90

    • 612 Words
    • 3 Pages

    As mentioned earlier, our current costing system treats most production costs and selling costs as fixed while treating some administrative costs as period expensies. With 80% of sales being attributed to our in-stock product line, the current costing system makes sense intuitively. However, our invoiced sales have increased and our current system indicates growth in profit, our return on capital is stagnant and our employees have decreased. Certainly, our costing system is not accounting for our true costs. With our in-stock items comprising only 20% of our product line, the sales of non-stocked items must be a major driver in the total cost to sell items. It is proposed that the non-stock item costs be isolated and evaluated differently than the costs for in-stock items so that the true cost of completing a transaction can be accurately captured.…

    • 612 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    Standard Costing

    • 10455 Words
    • 42 Pages

    Standard costing is a very practical and therefore widely used costing system, in businesses that make a range of products which, although different, pass through standard and repetitive processes and machinery. Standard cost is the estimated cost of material, labor, overheads and other costs for each unit of production or purchase in a given accounting period. It is used as the benchmark against which cost variances and financial performance are measured, the valuation for inventory and a basis for pricing.…

    • 10455 Words
    • 42 Pages
    Good Essays
  • Powerful Essays

    Cost of Production

    • 2730 Words
    • 11 Pages

    Measuring Cost: Which Costs Matter? How do Cost Curves Behave? – Cost in the Short Run – Cost in the Long Run How to Minimize Cost? How to draw Implications for Business Strategy?…

    • 2730 Words
    • 11 Pages
    Powerful Essays
  • Powerful Essays

    Cost Management Case2

    • 3318 Words
    • 46 Pages

    was used to repeat to his father that bigger dimensions were necessary to offer to the market a wide…

    • 3318 Words
    • 46 Pages
    Powerful Essays
  • Powerful Essays

    In the previous unit we learnt about Marginal Costing. Marginal costing is the ascertainment of marginal cost and of the effect on profit of changes in volume by differentiating between fixed costs and variable costs. Marginal cost is the amount at any given volume of output by which aggregate costs are changed if the volume of output is increased or decreased by one unit. Marginal costing is a very useful tool for management because of its applications. It is used in providing assistance to the management in vital decision-making both short term and long term. Differential analysis is the process of estimating the consequences of alternative actions that a decision maker may take. It is used both for short term and long term decisions. Short term decisions relates to fixing price for the product, selecting a suitable product mix, diversification of the product etc while long term deals with capital budgeting decisions.…

    • 4031 Words
    • 17 Pages
    Powerful Essays