Difference Between Standard Cost and Target Cost

Running head: MANAGERIAL ACCOUNTING
MANAGERIAL ACCOUNTING
Name of Students
Name of University
Author’s Note

MANAGERIAL ACCOUNTING
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EXECUTIVE SUMMARY:
The complete overview of the target costing method and standard costing method are
being discussed in this report. In this report the two articles based on standard costing
and target costing are being considered for evaluating the differences between the two
costing method. Based on this articles the comparison has been drawn between the
standard costing method and target costing method. The report also portrays the most
feasible costing method that the company can use in this competitive business
environment.

MANAGERIAL ACCOUNTING
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Table of Contents
EXECUTIVE SUMMARY:................................................................................................1
INTRODUCTION:..............................................................................................................3
CHARACTERISTICS OF STANDARD COSTING:.........................................................3
LITERATURE REVIEW OF STANDARD COSTING:....................................................4
TARGET COSTING:..........................................................................................................5
COMPARISON BETWEEN STANDARD COSTING AND TARGET COSTING:........6
LITERATURE REVIEW OF TARGET COSTING:..........................................................6
CONCLUSION:..................................................................................................................7
REFERENCING:.................................................................................................................9

MANAGERIAL ACCOUNTING
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INTRODUCTION:
This report tried to differentiate the two costing method and tried to analyse
which costing method is more beneficial for the organization in this competitive business
environment. To analyses the differences, the report uses two articles written by Paul
Eisenberg and David Alvarez. The explanation of the two costing method has also been
considered.
CHARACTERISTICS OF STANDARD COSTING:
Standard costing can be termed as the cost that is an estimation of expenses,
which normally occurs during the production process of the manufacturing company. It
can also be termed as the amount of money that company needs to spend during the
production process of the company. The standard costing can also be termed as the
pretest cost because the manager of the company needs to estimate the costing that
the company required for the production process. The management of the company
needs to calculate the production cost depending on the number of steps involves in the
process of production (Groenewald et al 2015). The management of the company also
needs to estimate the number of employees present in the production process and also
the wages that are involved with the production process. The utility rates also need to
estimate by the management of the company while calculating the standard costing of
the company. These total expenses round up to become the standard cost that required
by the company in a single production process. The management of the company
usually considers these three variances for calculating the standard costing of the
company. The standard cost is also being developed from historical data analysis. The
effects of the standard cost can be measured while calculating the budgeting plan for
the company.
In standard costing the management of the company decides the cost at the
beginning of the production process. The cost remains fixed even after the
commencement of the production process. For example, if the management of the
company wants to launch new products in 2020 then the management usually
calculates the cost in 2018, which is before the starting of the production process of that
product.
The efficient operation of the company always decides the availability of
implementing the standard costing method in the system. It is the management of the
company who are responsible for maintaining the efficiency of the company by
implementing new rules and regulations in the company. The management of the
company is responsible for selecting the standard cost. If the selected standard cost is
closer to the actual cost then the company will earn comparatively high sales revenue.
For example, if the management of the company selects the standard cost at 90% and if
the actual cost rises to 85% then the company can enjoy 5% of cost reduction, which
ultimately assists the company to experience more revenue in that financial year.