Managerial accounting is the method of identifying, gauging, evaluating, interpreting and communicating information to the business managers for meeting the goals of the organisations (Chenhall and Moers 2015). For this report, standard costing is chosen, which is deemed to be one of the significant aspects of managerial accounting. The first section would provide a brief overview of the standard costing in the context of the business organisations. Secondly, two research articles would be chosen that would assist in exploring the various aspects associated with standard costing. Thirdly, the paper would seek to find out the common features and dissimilarities between the two research articles. The last segment of the report would emphasise on finding out four features that might prove to be advantageous for the accountants working in the Australian organisations.
As stated by Armitage, Webb and Glynn (2016), standard costing is an accounting method, which few manufacturers utilise for identifying the variations between the actual costs of products manufactured and the costs, which might have incurred for the products. More specifically, integration of standard costing is made with the budgets of the manufacturers for an accounting period. It is developed from the evaluation of the value related to cost elements along with associating technical requirements and the qualifications pertaining to labour, materials and other costs to the usage rates and prices expected to be applied during the period where standard costing would be used. Thus, with the help of standard costing, the management of an organisation could undertake corrective decisions like price fixation and make-or-buy decisions that would be valuable for the organisation (Bromwich and Scapens 2016).
Standard costing takes into account the fixation of pre-determined estimates of cost for providing a basis to compare with the actual costs. Any predetermined or projected cost of carrying out any operation or manufacturing a product or service under normal situations could be termed as standard cost. This approach is accepted globally in the form of an effective instrument in relation to cost control in industrial sectors (Cleary 2015). Even though standard costs and budgeted costs are used sometimes interchangeably, budgeted costs imply the overall planned costs for various products. Generally, the system of budgetary control is controlled by standard costing due to relationship between them; however, they are not dependent on each other.
By using standard costing, an organisation accomplishes its objective systematically coupled with effective planning. Direct costing, absorption costing, process costing and job costing are the approaches, in which standard costing could be applied (Cuzdriorean 2017). Therefore, it is inherent that standard costing is not a costing method; instead, it could be adjusted to any method. Based on the above discussion, it is noteworthy to list down the different objectives of the standard costing technique and they are enumerated briefly as follows:
In order to evaluate the use of standard costing in the business organisations, two journal articles have been selected for fitting the purpose of this section. The two articles include the following:
Article 1: “Effects of Standard Costing on the Profitability of Telecommunication Companies: Study of MTN Nigeria”
Article 2: “Implications of Standard Costing System in Manufacturing: A Case Study”
The brief explanation of these two studies for the exploration of standard costing is demonstrated briefly as follows:
Article 1:
This article is intended to examine the effect of standard costing on the telecommunication firms of MTN for ascertaining whether standard costing system would have impact on the profitability levels. In the words of Abdullahj et al. (2015), the purpose of the article is to find out the relationship between standard costing system and profit level of the firms and in ascertaining whether these firms have implemented the standard costing system. The researchers have further stated that standard costing is a method of performance appraisal, which is utilised by contrasting actual performance with the standards for all operational areas within the organisation. This is conducted in discussion with the different heads of the organisational segments. At the time the actual performance occurs, it is compared with the standards and when any difference is found, it is evaluated for identifying the reasons behind its occurrence.
This article focuses on MTN Nigeria, which is the biggest member of a South African organisation, MTN Group having a number of global subsidiaries. The vision of the organisation in Nigeria is to become the leading service provider in telecommunication sector and its vision is to deliver the most effective network quality, customer value and service. It has been identified that profit is critical to ensure the success of any business organisation and the telecommunication industry is one of the fastest growing sectors in the world (Dekker 2016).
In order to ensure such growth pattern, it is necessary for the organisations operating in the telecommunication sector to invest in infrastructure, equipment, software and logistics for providing quality services to the customers. The consumer sophistication, rising technological progress and globalisation has left these organisations with a handful of alternatives than to make investments in the above-stated items (Cooper 2017). Even though these investments might not lead to immediate gains for the telecommunication service providers, they need to continue with the same for sustaining in cutthroat competition. Due to this, the managers working in these organisations are confronted with issues regarding cost minimisation so that the overall revenues and profits could be maximised. Some of the significant issues include procurement of the state-of-the-art equipment like raising switching of assets, roaming, transmission and others, concentration on programs yielding greater revenues like marketing services, promotions, coming up with innovative solutions, debt management and cost reduction.
By taking into consideration, the telecommunications sector of Nigeria, the paper is intended to find out the ways through which these issues are managed and the way profit level is influenced by the balance of the levels of different types of assets and liabilities. In addition, the research aimed at finding out the trends in profitability in the sector over the users for informing decision making by policy makers and investors. By taking into account all these aspects, these research questions are formulated for gaining an insight of the topic:
This article is focused on discussing the implications of standard costing system in the manufacturing organisations based on a case study. The case study is involved with addressing a particular scenario. According to the case study, there has been significant decline in sales revenue of ASL between 1st March 2014 and 28th February 2015 due to the failure of standard costing system in addressing the business needs, as stated by the Operations Manager of the organisation. Even though the system assisted in standardising the production processes resulting in cost savings, it has thwarted steady improvement as well as servicing the demands of the individual customers. As a result, it has lead to loss of sales revenue for ASL. In order to address the viewpoint of the manager, the Chief Financial Officer (CFO) of the organisation has asked to provide a critical analysis of the drawbacks and merits of the standard costing system. Therefore, in order to provide the feedback to the CFO, a detailed description of the standard costing system has been included in this article.
According to the researcher, Eisenberg (2016), the standard costs for staffs, materials and other expenses are formulated depending on management estimates of prices, labour usage and materials along with budgeted production volume and overhead costs. This is because the utilisation of these standards could be carried out with valuation of inventory and actual costs (Fullerton, Kennedy and Widener 2014). After this, the paper has explored the merits and loopholes in the standard costing system and the techniques through which standard costing assists in addressing various business needs. The most significant business needs take into consideration continuous improvement, responses to the individual customer requirements, individuality and customer service, growth in sales and cost minimisation (Kotas 2014). Finally, appropriate recommendations have been provided so that the identified issues could be resolved in ASL by keeping in mind the concerns raised by the Operations Manager of the organisation. By considering all the aspects, the following research questions are formulated in order to explore the topic:
The two chosen articles are deemed to have certain features and points in common, which are demonstrated briefly as follows:
In both the articles, a detailed description of the standard costing system has been provided. The researchers of both the articles have stated that the variances obtained by using the standard costing system could be assessed performance evaluation, reasons for cost control and pricing. In this context, it needs to be mentioned that standard costing covers a significant part of the techniques of managerial accounting that take into consideration responsibility accounting statement as well as budgeting system (Langfield-Smith et al. 2017).
In both the articles, the researchers have provided a clear description of the advantages and loopholes inherent in standard costing system. Some of the common merits mentioned in both the articles include the following:
The similar drawbacks that could be identified from both the research papers constitute of the following:
However, it has been identified that these two articles have certain aspects that are different from each other and these are listed down as follows:
The two articles provide relevant outcomes that might prove to be useful for the management accountants working in Australia and they are explained briefly as follows:
It has been identified that MTN could obtain increased cost control, if it sets standards for all the costs incurred and after this; the variances or exceptions could be highlighted in case of instances where there are differences between the planned scenario and the actual scenario. The variances provide a starting base in order to judge the efficacy of managers to control the costs for which they are accountable (Miller-Nobles, Mattison and Matsumura 2016). For instance, in the production centre of MTN, it is assumed that the actual material cost of $52,015 have gone beyond the standard costs by $6,015. It is useful for the management accountants to know that the material costs have exceed by $6,015, instead of knowing that the actual material cost amounted to $52,015.
Based on this information, the managers could examine the reasons behind the excess of actual cost over standard cost and accordingly, actions could be undertaken for rectifying the same (Nørreklit, Raffnsøe-Møller and Mitchell 2016). Additional investigations would disclose whether the variance occurred due to ineffective material usage or higher prices because of inflation or ineffective purchase. In either case, standard costing system provides early signal by shedding light on the potential hazard for assisting the management of the organisation.
According to Abdullahj et al. (2015), if the practices and principles of the standard costing system are adopted and they are practiced in MTN Nigeria, it would act as a tool in order to enhance the overall profit level. This necessitates the need for managerial planning as well as decision-making. Thus, the management needs to formulate effective cost standards along with controlling service costs so that the standard costs become identical with the future actual costs (Nuhu, Baird and Bala Appuhamilage 2017). It would assist the management accountants in formulating more accurate budgets and in projecting costs to bid on jobs.
From the second article of Eisenberg (2016), two significant outcomes chosen to be valuable for the management accountants of the Australian organisations include the following:
The actual cost system measures inventories in a complicated manner, which could be overcome with the help of standard costing system. In case of actual cost system, the unit costs for groups of similar products might not be identical with each other (Parker and Fleischman 2017). For instance, difference could take place due to machine malfunction, which might increase labour and overhead expenses. In standard costing method, these costs would not be taken into consideration in inventory. Instead, such costs would be charged to variance accounts after the contrast between standard costs and actual costs (Pickering and Byrnes 2016).
With the help of standard costing system, it is possible to minimise the costs of production. When the standard costs are used, they would increase the cost consciousness of the employees along with seeking enhanced methods of task completion (Sunarni 2015). If the employees are active in minimising costs, it becomes possible for the business organisations to control cost.
Conclusion:
From the above discussion, it is evident that standard costing system is a significant tool of managerial accounting, which assists the managers of the business organisations in minimising cost and identifying variances with the actual cost so that corrective actions could be undertaken. The two articles selected reveal the same scenario, as this costing system proves to be valuable in enhancing the profitability of the organisations. With the help of standard costing system, it is possible to minimise the costs of production. When the standard costs are used, they would increase the cost consciousness of the employees along with seeking enhanced methods of task completion. Thus, the use of standard costing system in all types of business organisations plays a significant role in enhancing their overall profitability.
References:
Abdullahj, S.R., Oni, I., Ahmed, M.D. and Shakur, F.I., 2015. Effects of Standard Costing on the Profitability of Telecommunication Companies: Study of MTN Nigeria. Oman Chapter of Arabian Journal of Business and Management Review, 5(1), pp.1-8.
Armitage, H.M., Webb, A. and Glynn, J., 2016. The use of management accounting techniques by small and medium?sized enterprises: a field study of Canadian and Australian practice. Accounting Perspectives, 15(1), pp.31-69.
Bromwich, M. and Scapens, R.W., 2016. Management accounting research: 25 years on. Management Accounting Research, 31, pp.1-9.
Chenhall, R.H. and Moers, F., 2015. The role of innovation in the evolution of management accounting and its integration into management control. Accounting, Organizations and Society, 47, pp.1-13.
Cleary, P., 2015. An empirical investigation of the impact of management accounting on structural capital and business performance. Journal of Intellectual Capital, 16(3), pp.566-586.
Cooper, R., 2017. Target costing and value engineering. Routledge.
Cuzdriorean, D.D., 2017. The use of management accounting practices by Romanian small and medium-sized enterprises: A field study. Accounting and Management Information Systems, 16(2), pp.291-312.
Dekker, H.C., 2016. On the boundaries between intrafirm and interfirm management accounting research. Management Accounting Research, 31, pp.86-99.
Eisenberg, P., 2016. Implications of Standard Costing System in Manufacturing: A Case Study. Journal of Applied Management and Investments, 5(3), pp. 162-165.
El-Shishini, H.M., 2017. The Use of Management Accounting Techniques at Hotels in Bahrain. Review of Integrative Business and Economics Research, 6(2), p.78.
Farkas, M., Kersting, L. and Stephens, W., 2016. Modern Watch Company: An instructional resource for presenting and learning actual, normal, and standard costing systems, and variable and fixed overhead variance analysis. Journal of Accounting Education, 35, pp.56-68.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices. Journal of Operations Management, 32(7-8), pp.414-428.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Langfield-Smith, K., Smith, D., Andon, P., Hilton, R. and Thorne, H., 2017. Management accounting: Information for creating and managing value. McGraw-Hill Education Australia.
Lasyoud, A.A., Haslam, J. and Roslender, R., 2018. Management accounting change in developing countries: evidence from Libya. Asian Review of Accounting, 26(3), pp.278-313.
Maskell, B.H., Baggaley, B. and Grasso, L., 2016. Practical lean accounting: a proven system for measuring and managing the lean enterprise. Productivity Press.
McLean, T., McGovern, T. and Davie, S., 2015. Management accounting, engineering and the management of company growth: Clarke Chapman, 1864–1914. The British Accounting Review, 47(2), pp.177-190.
McVay, G., Kennedy, F. and Fullerton, R., 2016. Accounting in the lean enterprise: providing simple, practical, and decision-relevant information. Productivity Press.
Miller-Nobles, T.L., Mattison, B. and Matsumura, E.M., 2016. Horngren’s Financial & Managerial Accounting: The Managerial Chapters. Pearson.
Nørreklit, H., Raffnsøe-Møller, M. and Mitchell, F., 2016. A pragmatic constructivist approach to accounting practice and research. Qualitative Research in Accounting & Management, 13(3), pp.266-277.
Nuhu, N.A., Baird, K. and Bala Appuhamilage, A., 2017. The adoption and success of contemporary management accounting practices in the public sector. Asian Review of Accounting, 25(1), pp.106-126.
Parker, L.D. and Fleischman, R.K., 2017. What is Past is Prologue: Cost Accounting in the British Industrial Revolution, 1760-1850. Routledge.
Pickering, M.E. and Byrnes, V.A., 2016. The Changing Role of Management Accountants in a Lean Enterprise–From ‘Bean Counter’to Delivering Customer Value. Cost Management, 32(1), pp.38-47.
Sunarni, C.W., 2015. Management Accounting Practices at Hospitality Business in Yogyakarta, Indonesia. Review of Integrative Business and Economics Research, 4(1), p.380.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download