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Standard Costing And Budgetary Cost

Standard costs enable the managerial accountant to compute the standard allowed cost, given the actual output, which then serves as a sensible benchmark to compare with the actual cost.
             2. Computation of standard costs and cost variances enables managers to employ.
             management by exception. This approach conserves valuable management time.
             3. Variances provide a means of performance evaluation and rewards for employees.
             4. Since the variances are used in performance evaluation they provide motivation to the employees to adhere to standards.
             5. Use of standard costs in product costing results in more stable product costs then if actual production costs are used. Actual costs often fluctuate erratically. Whereas standard costs are changed only periodically.
             6. A standard costing system is usually less expensive than an actual or normal product costing systems.
             .
             Disadvantages Of Standard Costing.
             The rise of global competition, the goal of continuous process improvement, and the emphasis on product quality are dramatically changing the manufacturing environment. Like any tool, a standard costing system can be misused. When employees are criticized for every cost variance the positive motivational effect will vanish. Moreover if standards are not revised often enough they will become outdated. Listed below are several drawbacks attributed to standard costing in an advanced manufacturing setting:.
             1. The variances calculated under standard costing are at too aggregate level and come too late to be useful. A production process comprises many activities. These activities result in cost. By focusing on the activities that causes costs to be incurred, by eliminating non-value added activities cost will be minimized and profit maximized. What is needed are performance measures that focus directly on performance in the activities that management wants to improve. .
             2. Traditional cost variances are also too aggregate in the sense that they are not tied to specific product lines, production batches or FMS cells.


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