Cost Analysis Techniques | Managerial Accounting

Running head: MANAGERIAL ACCOUNTING
MANAGERIAL ACCOUNTING
Name of the Student
Name of the University
Authors note

MANAGERIAL ACCOUNTING1
Executive summary
The objective of the report is to analyze the need of the standard costing and target costing in
the modern business environment. The report contains a brief detail of the concept of
standard costing and target costing. in addition to that the report also consider two journal
articles in which the application of standard costing and target costing in two big
organizations is described in details. The report concludes with the explanation of the use of
the standard costing and target costing techniques either in cost control or in profit planning.

MANAGERIAL ACCOUNTING2
Table of Contents
Introduction....................................................................................................................3
Discussion......................................................................................................................3
Answer 1........................................................................................................................3
Answer 2........................................................................................................................5
Answer 3........................................................................................................................8
Answer 4......................................................................................................................10
Answer 5......................................................................................................................14
Reflective journal.........................................................................................................14
Conclusion....................................................................................................................17
References and bibliography........................................................................................18

MANAGERIAL ACCOUNTING3
Introduction
Standard costing and target costing are two cost analysis techniques that are used by
the managers to bring control in the cost of production and to develop a efficient planning
method in order to enhance the profitability of the company. In the modern days these two
costing methods are largely applied by the management for the purpose of decision making.
Though there are several differences in the basic concept of standard costing and target
costing but both these methods are useful for taking effective decisions that can bring control
in the cost of production and increase the efficiency of the management.
Discussion
Answer 1
The features of standard costing as a planning costing and control system are
discussed below –
 Better cost control – Firms can achieve better cost control by setting standards for all
the costs incurred and afterward can focus on inconsistencies and differences to know
where things did not move as per the plans of the management. Standard costing
techniques assist the manager to ascertain their performance in controlling the
expenditures for which they are held responsible. Additionally, analyzing should be
done to assess whether or not the inconsistencies and differences were arisen by the
less use of materials, market condition, malfunctioning of the machines, or due to
inflation. Standard costs focus on the possible strength and threat for the organization
and acts as a warning to them (Callus 2019).

MANAGERIAL ACCOUNTING4
 Benefits for organizational planning and decision-making - When the organization
sets relevant standard costs and are able to control the production cost then the future
actual cost must be develop keeping in mind these standard cost. As a result, more
relevant budget and estimate cost can be prepared by using the standard cost that will
be beneficial for the management of the organization for decision-making purposes
(Potkányet al 2017).
 Appropriate and simple stock measurement –A standard cost is not that complex stock
valuation compared to the actual cost. Under an actual cost, unit costs for quantity of
similar product may vary. For instance, such variation may occur due to malfunction
of the machine during the production of a givenquantity that can increase the cost for
the labour and overheads of that batch. However, under the standard cost, such
unnecessary costs are included in the stock. These surplus costs are charged under
variances account after comparing it to the actual cost. Thus,all units of a given
products produced at a particular period can be assumed to be same (Hint and Şandru
2017).
 Economy in maintaining the records –Standard cost requires maintaining more
information during the accounting period however, the cost of maintaining the
standard cost is lower compared to that of the actual cost.
 Possibility of reducing the production cost –The standard cost system is cost savings
method. The member of staff becomes more conscious and more serious of
completing their work if standard costing is used. The companies can control costs
only when the employees become alert in reducing the costs.
 Useful in budgeting –Standard costing is used for preparing the budget. Various
budgets, which are prepared based onstandard costing, are useful for the organisation.

MANAGERIAL ACCOUNTING5
 Useful in formulating policies –This method is of high worth to the organisation in
governing the cost and preparing policies for production. The cost of producing new
products can be estimated with the help of standard costing.
 Helping in differentiating activities - With the help of standard costing, skilled and
unskilled activities can be evaluated. Hence, the skilled labour can get the paysnotice
to improving the activities of the unskilled labours.
 Reduces wastages- With the help of the standard costing the certain wastage can be
eliminated such as malfunctioning of machines, wastage of materials etc.
Answer 2
Use of standard costing in south east Toyota Pvt ltd
In the motor industry cost control is very essential as the process of production is very
expensive and complicated. In order to bring more control on the outflow of cash it is
essential to impose standard costing which will help to mitigate the loss that the company
may have to face due to lack of control on the cost of production.The standard costing will
help in reducing the costs of the manufacturing of the cars. In order to understand the
effective usage of the standard costing several questions have been asked to the management
of the company and they replied that the use of the standard costing has bring more control in
their costing system and reduced the cost of the products (Reitmaier and Schultze 2017).