Marketing Research paper 2022

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Marketing

Introduction
It is true that standard costing is determined after the consideration of every possibility that
can arise in future. Standard costing also assist in deciding whether a specific project should
be undertaken or not. Standard cost sets the target in any organisation that further helps in
keeping check on the performance through comparing standards with the actual results. In
the paper, discussion has been carried on the standard cost by examining the process of
determining standard costs. Furthermore, discussion has been carried forward how some of
the factors can lead to the favourable and unfavourable effect on the material and labour
variances. In the end, discussion ends by critically analysing the standard costing as control
tool.
Concept of standard costing
Standard costing is the costing method that is used to make the comparison between revenues
and standard cost with the actual output for arriving at the variance with causes. This is done
to inform the management regarding any deviation and taking corrective actions for the
improvement. It is said to be the expected cost every unit that is produced during the period.
In this way, the cost occurring for the actual output is known as standard cost.
Standard costing serves as the management guide in different functions of management at the
time of formulation of production and pricing policies. In addition to this, more effective cost
control is possible under the standard costing of the same is analysed and reviewed
continuously for immediate action and improvement (Marzlin Marzuki and Ismail, 2019).
Standard cost is said to be predetermined costs that prove to be useful for budgeting and
further planning. Due to the fixation of standard cost for every product, it tends to improve
the overall efficiency of the production that ultimately helps in reducing cost.
Process of standard costs:
1. Establishing the standards: it is the first phase where standards that are to be set will
based on the estimation of management. In this step, production engineer tends to anticipate
the cost. At the time of fixing standard cost, major emphasis is given on the previous data,
future trends and existing production plan.
2. Determining actual cost: after setting the standards, actual cost for every element such
as labour, material, and overhead is being set from invoices, wage sheets, and account books.

3. Comparison of standard with actual cost: the next step is the comparison of standard
cost with the real figure.
4. Determining causes: after doing the comparison, the next step is identifying the
reasons for variance in order to take the corrective and right actions and to calculate the
whole performance.
5. Disposition of the variance: the last step in this process is disposing the variance by
moving to the costing in “profit and loss account.”
Factors leading to favourable and adverse material and labour variances
It is true that management tends to set the standards of what quantity will be sued for any
particular job. On the manufacturing production, it is seen that unit cost play an important
role in the final product cost and it also affects the whole profit (Himick and Brivot, 2018).
Several factors are therefore responsible for determining whether direct material variance will
be favourable or not:
1. Upfront standards: It is true that when materials are used exactly the same way it is
planned, then it lead to the favourable variance result. As compare to this, when more
material are used as compare to the need, an unfavourable variance result is seen. A
miscalculation in the material accounting might result in temporary or one time unfavourable
direct material variance.
2. Inferior material: starting the production process with the inferior material is seen to
be the attempt to save money can directly put impact on the direct material variance. Inferior
quality of material might require the use of some more units of any particular material that
results into the unfavourable direct material variance. In this way, inferior or superior product
also determines the favourable or unfavourable material outcome.
3. Equipment and workers: damage and spoilage caused by the worker, theft of material,
error in working, as well as untrained or insufficient worker on production lead to the
unfavourable direct material efficiency variance. In addition to this. Lack of supervision of
the labours can also result in unfavourable variance. Breakdown or failure of equipment also
results in the destroyed or spoilage material (Shank and Churchill, 2017).
Numerical example of favourable and unfavourable variances
1. Assuming that new supplier has entered into the market to purchase around 60,000
sheets of material at 5.90$ each. The standard price that is set by management is 6$ per sheet.