Implementing Standard Costing in Adelaide Brighton Cement: A Management Trainee's Perspective

In this report we will discuss about managerial accounting and below are the summaries point:- The report focuses on implementing standard costing in Adelaide Brighton Cement, a leading cement manufacturer in Australia. Standard costing serves as a benchmark for comparing costs and facilitates performance measurement and financial planning. The analysis concludes that implementing a standard costing system would be beneficial for Adelaide Brighton Cement.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Executive Summary:
The current report has focused from the perspective of a management trainee in a
manufacturing organisation. Therefore, the organisation that has been chosen in this paper is
Adelaide Brighton Cement, which is one of the leading manufacturers of cement in Australia
operating under Adelaide Brighton Limited. As the Finance Director of the organisation has
attended a seminar recently on standard costing, the individual intends to explore the
possibility of standard costing within the organisation. The standard costing serves as a
benchmark, which could be utilised for comparing with various standard costs. Hence,
standard costing could be considered as a base for performance measurement. This would
help in gauging performance and depending on the same; it is possible to carry out the
hypothetical financial planning. Finally, it has been analysed that the implementation of
standard costing system is deemed to be favourable for Adelaide Brighton Cement.

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Table of Contents
Introduction:...............................................................................................................................3
a. Description of Adelaide Brighton Cement:............................................................................3
b. Description of standard costing and its features:...................................................................4
c. Role of standard costing in facilitating controlling and planning activities in Adelaide
Brighton Cement:.......................................................................................................................8
d. Suitability of standard costing in Adelaide Brighton Cement:............................................10
Conclusion:..............................................................................................................................13
References:...............................................................................................................................14

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Introduction:
The current report would focus from the perspective of a management trainee in a
manufacturing organisation. Therefore, the organisation that has been chosen in this paper is
Adelaide Brighton Cement, which is one of the leading manufacturers of cement in Australia
operating under Adelaide Brighton Limited. The first section would provide an overview of
the concerned organisation. Moreover, as the Finance Director of the organisation has
attended a seminar recently on standard costing, the individual intends to explore the
possibility of standard costing within the organisation. Therefore, a brief overview of
standard costing and its features would be discussed in this paper. The next section would
emphasise on the role of standard costing to facilitate planning and controlling activities in
Adelaide Brighton Cement. Finally, the report would shed light on analysing the suitability of
standard costing within the organisation by considering all the possible aspects.
a. Description of Adelaide Brighton Cement:
Adelaide Brighton Cement is involved in manufacturing and supplying cement, lime
along with pre-packaged dry blended products. The other offerings of the organisation
include mortar, concrete, render and sand products in bulk and packaged forms. The products
of the firm are sold via the stockists in Australia. The former name of the organisation has
been The S.A. Portland Cement Company, which is changed later to the current name in
1971. Adelaide Brighton Cement is established in 1911 and the head office of the
organisation is situated at Birkenhead in Australia having factory locations in Birkenhead and
Angaston. It functions as a subsidiary of Adelaide Brighton Limited (Adelaide Brighton
Cement 2019).

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The vast operating base facilities of the organisation provide prompt supply to its
customers and it enables for the strategic balance of production capacity in meeting demands
throughout the nation. As a result, it enables the firm in offering a supply package, which is
supported flexibly with storage, transportation and supply logistics for areas across Australia
and Asia. The expanded operating ability of Adelaide Brighton Cement helps in providing
turn-key solutions, which assure the primary objective of going beyond the expectations of
the customers. The organisation operates within the lime and cement division of Adelaide
Brighton Limited having above 1,600 staffs with operations in all territories and states of
Australia. Moreover, it is $&P/ASX 100 organisation having major activities in manufacture
of lime products and clinker cement, concrete masonry products and premixed concrete and
aggregates (Adelaide Brighton Cement 2019).
b. Description of standard costing and its features:
In the words of Ahmad and Leftesi (2014), standard costing is a method that uses
standards for revenues and costs in order to ensure control with the help of variance analysis.
A standard is a predetermined measurable quantity set in explained conditions in opposition
to which it is possible to contrast the actual performance, normally for a work, activity or
operating element.
Standard cost could be described as a predetermined computation of the expected
amount of costs in accordance with particular working conditions (Dale and Plunkett 2017).
This is developed from an analysis of the values related to cost components along with
correlating technical specifications as well as the qualification of labour, materials and other
expenses to the prices or usage rates estimated to apply in the period where standard costing
has to be used. The primary purpose of standard costing is to offer the basis for control with

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the help of variance accounting for stock valuation and work-in-process and in some cases, to
fix selling prices (ElGammal et al. 2016).
With the assistance of standard costing, it becomes easy to set the predetermined
estimates of cost so that a comparison could be made with actual costs. A standard cost could
be defined as an estimated cost for a unit or product sold or service rendered. There is
universal acceptance of standard costing as an effective instrument so that costs could be
controlled in industries. Despite the fact that the budgeted and standard costs are utilised
interchangeably, the budgeted costs generally explain the overall estimated costs for various
products. Normally, a budgetary control is operated with a standard costing system, since
these two systems are interrelated; however, they do not depend on each other (Fullerton,
Kennedy and Widener 2014). By considering all the above-stated aspects, the meaning of
standard could be explained as follows:
 Predetermined forecasts
 Development for outputs and inputs
 Applicable to all the routine aspects of the operations of an organisation
 Accounting for standard costs along with having variances
 Management reporting so that appropriate actions could be undertaken, when required
By using standard costing, the organisation accomplishes the goals by working in a
systematic and planned manner. Moreover, it is possible to use standard costing in absorption
costing, standard costing, process costing or job costing. It is not a costing method; however,
it is possible to fit this system in any method (Kaplan and Atkinson 2015).
The following are the main features of standard costing:
Predetermined cost:

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Standard costing could be defined as pre-planned or pre-determined cost, which
implies that the standard cost is ascertained even before the initiation of production. For
instance, if an organisation is intending to launch a product in 2020, the standard cost of
identical product would be ascertained in 2019.
Non-estimated cost:
Standard cost could not be defined as a projected cost. There has always been a
variation between the estimated cost and the expected cost. Thus, standard cost could be
defined as a planned cost and this cost must be the actual cost of production (Keel et al.
2017).
Standard of the management:
Standard cost is calculated after taking into account the standard of the management
in relation to effective operations. Therefore, the standard cost that has been fixed on the
assumption of efficiency level of 80% would not be identical from the outcome when the
assumption is of 90% level of efficiency (Kerfai, Bejar Ghadhab and Malouche 2016).
Base for fixing prices:
It is possible to employ standard cost as a basis so that prices could be fixed along
with exercise of control on the overall cost. Thus, standard costing could be identified as a
costing system instead of a technique.
Standard setting:
With the help of standard costing, it becomes possible to set standards for various
components of cost. Therefore, standards are set mainly for costs of labour, cost of materials
and expenses related to overheads (Klychova, Faskhutdinova and Sadrieva 2014). The

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development of standard is the core of standard costing and thus, this work needs to be
completed with utmost care. When inaccurate standards are set, the primary aim of standard
costing could not be fulfilled. Moreover, it is noteworthy to mention that standards are set for
costs, profits and sales. The primary intention that standards are set is to include a
comparison basis between the actual performance and the standard performance.
Comparison of actual performance and planned performance:
Standard costing has a significant unique feature, which is to record incessantly the
actual performance in opposition to the set standards. This is because it becomes easy to
compare the actual performance with the established standards and accordingly, corrective
measures could be undertaken, if deficiencies are found in the departments, divisions or units
(Kutáč et al. 2014).
Variance analysis:
With the help of standard costing, it becomes possible to assure a constant contrast
between the standards and actual performance and accordingly, any dissimilarity between the
two could be worked out. The dissimilarity could be explained in the form of variance and
additional investigations need to be made for identifying the reasons behind such variance.
Performance evaluation:
After the ascertainment of variances, it is necessary to assess the same for observing
the reasons behind the variances along with undertaking corrective measures for ensuring that
there is non-repetition of such variances in future. These are identified as the two major
actions of the management. Thus, with the help of standard costing, it becomes possible to
assist significantly in performance analysis of the organisation (Langfield-Smith et al. 2017).

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c. Role of standard costing in facilitating controlling and planning activities in Adelaide
Brighton Cement:
Standard costing system is observed to play a significant role in planning operations
and obtaining insights into the likely effect of managerial decisions on levels of cost and
profits. The main reasons that standard costing is used include the formulation of budgets,
cost control, motivation and gauging efficiency, promotion of probable cost minimisation,
simplification of costing processes and expediting cost reports, allocation of costs to work-in-
progress, materials and ending goods inventories and development of a base to establish bids
and contracts.
The effectiveness of cost control relies largely on the knowledge of expected costs.
The standards function in the form of measurements, which urge the need for changing costs.
With the help of such information, the supervisors as well as the executives could be aware of
the costs, as soon as they develop an idea of the outcomes (Lavia López and Hiebl 2014).
This cost awareness aims to minimise costs along with encouraging economies in all business
stages.
When standard costing is used for accounting purposes, it becomes easy to simplify
the procedures of accounting by minimising clerical labour and expenses. The standardisation
of productive operations generally accompanies the complete standard cost system. It is
possible to prepare manufacturing orders or standard production requiring for standard
product quantities and particular labour operations in advance of the actual level of
production. In order to compile the standard costs, it is crucial to prepare requisitions of
materials, operation cards and labour time tickets in advance of production (McLaughlin et
al. 2014). Hence, with the rise in standardisation of the manufacturing process, the clerks
could carry out their duties easily and effectively. This would help in systematising the

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reports for depicting complete information about actual costs, standards and variances, if any
(Maas, Schaltegger and Crutzen 2016).
A full standard cost file by operations and parts helps in simplifying allocating costs
to work-in-process, materials and ending goods inventories. By using the standard costs, it is
possible to enhance the effects of the costs of materials, ensuring contracts, inserting bids
along with developing selling prices with the help of reliable benchmarks and continual
review of standard costs (Mahal and Hossain 2015). Along with this, it is possible to use the
standard costing system in combination with either job order or process costing accumulation
methods. However, this method is used more in process costing for ensuring continual flow
of units, instead of unique job orders.
The standard costing serves as a benchmark, which could be utilised for comparing
with various standard costs. Hence, standard costing could be considered as a base for
performance measurement. This would help in gauging performance and depending on the
same; it is possible to carry out the hypothetical financial planning. In addition, the system
provides a strong base for regular tracking and expenditure control spent on various items.
Along with this, the standard costing system helps in providing a base for customary check
along with the control related to materials, labour cost, price usage and overhead costs
(Maskell, Baggaley and Grasso 2016). Furthermore, the comparison of actual cost with
standard cost could assist in controlling and minimising cost with the help of constant
tracking system along with comparison of outcomes. As a result, it would assist in effective
financial planning, which would help in recording, tracking and controlling. This would help
in augmenting the entire productivity of the business operations.

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d. Suitability of standard costing in Adelaide Brighton Cement:
By taking into consideration all the above-stated aspects, the manufacturing
organisations like Adelaide Brighton Cement could use standard costing for ensuring better
planning and controlling of costs. This is because with the help of standard costing, the
management of the organisation could ascertain the standard cost of each product unit by
formulating the standard costs related to direct labour, direct materials and factory overhead
crucial to manufacture that unit (Miller-Nobles, Mattison and Matsumura 2016). However,
the managers of Adelaide Brighton Cement have to keep in mind that it is always difficult to
ascertain the standard cost related to factory overhead than the estimation of costs related to
direct labour and direct materials.
As indicated by Noreen, Brewer and Garrison (2014), the stand direct material cost
per unit of a product comprises of the standard amount of material needed to manufacture the
unit multiplied by the standard material price. As a result, this would assist the managers of
Adelaide Brighton Cement in differentiating between standard cost and standard price. The
standard price generally denotes the price per unit of inputs into the manufacturing process
like the price per kilogram of raw materials for Adelaide Brighton Cement.
For instance, if the standard price of cement is $10 per tonne in Australia and the raw
materials needed to produce the product is 3 tonnes, the standard direct material cost of
cement would be $30 (Novák and Popesko 2014). In a similar manner, the managers of
Adelaide Brighton Cement could calculate the standard direct cost of labour per unit for a
product as the standard hours required for manufacturing a single unit multiplied by the wage
rate or standard labour per hour.
Moreover, with the help of standard costing system, it would become relatively easy
for the managers of Adelaide Brighton Cement to ascertain the standard factory cost of

11MANAGERIAL ACCOUNTING
overhead. For determining the standard factory cost of overhead of a single unit, the
managers of the organisation have to find out the expected output level for the year. This
output level is considered as the standard output level. The next step for the managers would
be to ascertain the overall budgeted factory overhead cost at the standard output level. This
would assist the managers in segregating both variable and fixed components. It is
noteworthy to mention there would be no change in total fixed expenses at all output levels
within a pertinent range (Ojua 2016). After this, the managers would be able to compute the
standard factory overhead cost per unit by dividing the overall budgeted factory overhead
cost at the standard output level, which would help in arriving at the standard cost or rate of
overhead per unit of output.
Hence, by considering all these aspects, Adelaide Brighton Cement could enjoy
certain benefits by implementing standard costing system within the organisation and they are
enumerated as follows:
Enhanced cost control:
By using this system, the management of Adelaide Brighton Cement could control
costs more effectively by formulating standards for each kind of cost and then it could
highlight variances or exceptions, in which the actual performance does not meet the desired
performance. Moreover, the organisation could be able to judge the efficacy of its managers
to control costs, for which they are accountable.
Valuable information for decision-making and managerial planning:
When the management formulates suitable cost standards and it succeeds in
controlling the costs related to production, the likely actual costs need to be near to the
standard (Oseifuah 2014). Hence, the management of Adelaide Brighton Cement could use

12MANAGERIAL ACCOUNTING
stand costs for formulating correct budgets and projecting costs so that accurate bidding for
jobs could be provided. Thus, it would assist the management in conducting planning and
making relevant departmental decisions for the organisation.
Easier and reasonable inventory measurements:
With the help of standard cost system, the management of Adelaide Brighton Cement
would be able conduct better inventory valuation in comparison to actual cost system. In
accordance with the actual cost system, the unit costs for identical product batches might
differ broadly (Otley 2016). For instance, such variation could take place owing to a machine
malfunction during batch production, which might have risen overhead and labour charged to
the batch. Under the standard costing system, Adelaide Brighton Cement would not take into
consideration unusual inventory costs. Instead, the management could charge these additional
expenses to the accounts of variances after the comparison of actual costs with standard costs.
Probable minimisation in cost of production:
With the help of standard costing system, the management of Adelaide Brighton
Cement could save additional costs. With the help of standard costs, it might result in staffs in
becoming aware of the costs along with seeking enhanced methods of finishing their
activities (Ríos-Manríquez, Colomina and Pastor 2014). If the staffs working in Adelaide
Brighton Cement become active to minimise costs, the cost control could be conducted
effectively by the organisation.
Cost savings in keeping records:
Even though a standard cost system might require additional record-keeping
compared to actual cost system, the opposite is true as well. For instance, a method gathering
only actual costs showcases the flows of cost between stock accounts and later into cost of

13MANAGERIAL ACCOUNTING
sales. This records these changing amounts of actual costs of a unit to be computed in the
period. In case of standard costing system, the organisation could represent the cost flows
between stock accounts and into cost of sales at consistent standard values during the year
(Sharaf-Addin, Omar and Sulaiman 2014). This requires special computations for
ascertaining the actual costs of units during the period. Instead, the management of Adelaide
Brighton Cement could print the standard cost sheets in advance representing standard
volumes and standard costs of units for labour, materials and overhead required in
manufacturing a particular product.
Conclusion:
From the above discussion, it could be cited that standard cost could be described as a
predetermined computation of the expected amount of costs in accordance with particular
working conditions. This is developed from an analysis of the values related to cost
components along with correlating technical specifications as well as the qualification of
labour, materials and other expenses to the prices or usage rates estimated to apply in the
period where standard costing has to be used. The standard costing serves as a benchmark,
which could be utilised for comparing with various standard costs. Hence, standard costing
could be considered as a base for performance measurement. This would help in gauging
performance and depending on the same; it is possible to carry out the hypothetical financial
planning. Finally, it has been analysed that the implementation of standard costing system is
deemed to be favourable for Adelaide Brighton Cement.

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