Managerial Accounting - Answers to Questions

Running head: MANAGERIAL ACCOUNTING
MANAGERIAL ACCOUNTING
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Table of Contents
Answer to Question 1:................................................................................................................2
Answer to Question 2:................................................................................................................4
Answer to Question 3:................................................................................................................6
Difference between target costing and standard costing:.......................................................7
Answer to Question 4:................................................................................................................8
Answer to Question 5:..............................................................................................................10

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Answer to Question 1:
Standard costing is considered as one of the systems of accounting that helps the
managers to quickly identify the variances between the cost and the actual cost for the
production of goods (Kaplan and Atkinson 2015). In other words, the incurred cost of the
production of the actual products is known as standard costing. The standard cost has a link
with the expected value of the product or with the budget. The method of standard costing
involves the auditors mainly consider the calculation of the cost of the manufacturing of the
direct material, direct labor and the manufacturing overhead. The calculation also involves
the fixed overhead of the budget along with the fixed and variable cost of the good.
While taking any management decision regarding the organization, standard costing
acts as one of the essential tools. While calculation, the difference (if any) can be known
between the manufacturing cost and the standard cost as predicted. So, if there is more actual
cost than the predicted standard cost, then that will be considered as unfavourable situation.
Unfavourable situation indicated to the management that different measures should be taken
to eliminate the unfavorable situation and to earn the predicted profit from the production.
Hence, standard costing is essential for the process of planning.
Similarly, when the estimated cost is less than the actual predicted cost, then that will
be a favourable outcome for the organization which shows that the management will earn
more profit than the management has predicted. Standard costing helps the managers to
indicate that when some measures are needed to be taken into the operations and when not to
earn the planned profit (Vasile and Croiteru 2013). This method is helpful for the
organization to formulate and prepare the required policies for the organization.

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The initial adaptation of this process may be quite costly, but after some time the
continual cost will be minimum as many of the extra expenses like costing work as well as
the procedures will be removed by this method. When the standard is set for every section, it
becomes quite easy for the management to execute their work according to the planned
structure and to achieve the standard. Long term as well as for the short term basis standard
costing is helpful for the organization in both ways because to achieve the goal the
management would work to improve the efficiency of the workers and to strategically
utilizing the cost of the materials (Singh and Kumar 2014).
Standard costing requires frequent and continuous reviewing so that there will always
control system in the management, which involves emergency actions to be taken when
needed. Standard costing consists of the calculation of the variances which ultimately clears
out the inefficiency of the administration where emergency action is required. This method
helps in doing the planning process as well as budgeting for the organization. Standard
costing helps to get the estimation of the changes in the cost-price-volume relationship. With
the help of this method, the managers can know about the valuation of the inventory as well
as the work-in-process goods, finished and semi-finished products. Standard for all the
products and for its components, which helps to increase the efficiency level of the
organization and to earn maximum profit.
Planning and utilizing the control system of the organization can be more efficient
when it is summed with the standard costing for setting a minimum limit for the output which
needs to be achieved by the organization at the specified time interval. Proper actions are also
determined, which will be taken into effect when there will be any need for the work.
Standard costing acts as an essential pillar for management (Faraji and Reiszadeh 2013).