Features of Standard Costing as a Planning and Control System

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
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MANAGERIAL ACCOUNTING
Abstract
The following report consists of a comparative analysis of Standard and Target Costing and their
usage in the modern day business of the entities. It begins with an introduction explaining the
topics discussed in the report. After which an analysis is conducted on the effectiveness of
standard and target costing as measures of planning and control. Two journal articles are selected
to understand their implementation in real life. The report concludes with a set of
recommendations deemed to be necessary.

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MANAGERIAL ACCOUNTING
Table of Contents
Introduction..................................................................................................................................3
Features of Standard Costing as a Planning and Control System................................................3
Usage of Standard Costing by a real life company......................................................................5
Target Costing as a system of Planning and Control...................................................................7
Standard Costing and Target Costing: A comparative analysis...................................................8
Target Costing as a form of planning and control activity..........................................................9
Recommendations and Conclusion............................................................................................10
References..................................................................................................................................12

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MANAGERIAL ACCOUNTING
Introduction
One of the main objectives of a business is to earn sufficient profits to sustain itself in the
long run. This can be done by generating sufficient revenue from its operations. However, it may
always not be sufficient. Hence, companies also undertake cost reduction and cost controlling
activities to ensure that they earn sufficient profits as a part of the business. As a part of the cost
controlling efforts, sometimes businesses tend to use a variety of methods in calculating the costs
of the business. Some of the most prominent methods of costing used over a long period of time
are Standard Costing and Target Costing (Angelakis et al., 2015). A comparative study is carried
on both these methods to understand their relevance in the modern day businesses and to
understand their suitability in the implementation in modern day businesses.
Features of Standard Costing as a Planning and Control System
Standard Costing can be described as a normative method of costing used mainly in the
accounting related to financial results and expenditure. A common feature of the standard costing
system is the separation of revenue and expenditure on the basis of a previously agreed plan.
These planned figures are also referred to as the standard figured. If the entity tends to deviate
from the standard figures, such a deviation is known as a variance and is a useful measure. The
variance helps in understanding if a business has been able to achieve its previously set standards
or not. The results obtained during the ending period of a financial cycle become useful in the
development of new standards and revising the goals for the next financial period. Budgets are
one of the most used tools in a Standard Costing system and are useful in the process of both
monitoring the performance of the entity and in preparing plans for a future period (Baral, 2016).
Another prominent category of Standard Costing is the Integrated Standard Costing. This method
tends to maintain a record of the business activities by breaking them down into much smaller