Managerial Accounting: Standard Costing Practices in Businesses

This assessment analyzes standard costing as a management accounting tool through two journal articles on its applicability in Nigerian businesses. The similarities and differences between the articles are discussed, and four outcomes are suggested for Australian firms. The report concludes that standard costing techniques can help businesses monitor and control costs, plan and make decisions, and measure inventory.

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

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Executive Summary
The main purpose of this assessment is to analyze standard costing as a management accounting
tool which can be used in businesses. The assessment shows two different journal papers which
are on applicability of standard costing practices in a business. The journal papers which are
selected considers companies which are engaged in different businesses in Nigeria. The
assessment considers the similarities and difference which can be identified after comparing the
journal articles of the two businesses. Based on the findings and outcomes, four outcomes are to
be suggested to Australian firms which they can achieve by following standard costing
techniques.

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Table of Contents
Introduction......................................................................................................................................3
Introduction to Standard Costing.....................................................................................................3
Evaluation of Scope and Research Areas of Standard Costing.......................................................5
Analysis of Article 1....................................................................................................................6
Analysis of Article 2....................................................................................................................7
Similarities and Differences between the Two Articles..................................................................9
Similarities...................................................................................................................................9
Dissimilarities............................................................................................................................10
Four Specific Outcomes from the Research Papers which can Help Australian Management
Accountants...................................................................................................................................11
Increasing the Profits.................................................................................................................11
Monitoring and Control.............................................................................................................12
Planning and Decision-Making Process....................................................................................12
Measurement of Inventory.........................................................................................................12
Conclusion.....................................................................................................................................13
Reference.......................................................................................................................................14

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Introduction
Managerial Accounting is an accounting process which considers the costs aspects of a
business and how the same can be used by businesses in decision-making process which is
undertaken by the management. The accounting process is closely related to cost accounting
process and the main functions of this are to classify, measure, identify, analyze and
communicate information to the managers of the business so that appropriate decisions can be
taken for the organization. The main techniques which are used in such a field are Activity based
costing, standard costing and budgeting (Ojua 2016). This report will be concentrating on
standard costing process which can be applied to a business for the purpose of reporting vital
information. The first part would be providing a basic introduction to the process of standard
costing and the application for the same in a business organization.
The assessment will also be analyzing two articles which are related to standard costing
practices in an organization. The journals will shed lights on the application of standard costing
techniques in an organization and how the same is useful for the business. In addition to this, a
section of the report will be portraying the similarities and difference which arises between the
two journal papers which is considered for this assessment (Schäffer 2013). The assessment will
finally conclude after showing the benefits which can be achieved if the management
professional applies standard costing techniques in Australian businesses.
Introduction to Standard Costing
Standard costing can be identified as a practice of businesses where budgeted costs which
are anticipated by the management are compared with the actual results which is achieved by the
business. Standard costing techniques are used for the purpose of identifying variances which are

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used by the most of the business for the purpose of identifying the performance of different
components of the business (Popesko 2013). As per Oweler and Brown, method of standard
costing is used whereby statistics are used for the preparation of standard costs of the business,
actual costs of the business and also comparison between the two. The application of standard
costing techniques enables a business organization to measure the costs of each product
operations considering the prices of the products and also the volume of the products which the
business intends to produce from the operations (Stone 2014). The word standard cost refers to
the costs which is estimated or predetermined by the top-level management which is close to the
actual costs which is incurred by the business during the year.
Standard Costing therefore forms an integral part of the process of management
accounting system which includes significant techniques like budgeting and also responsibility
accounting. In addition to this, standard costing techniques can also be view from the perspective
of marginal costing or absorption costing with relation to the overheads of the business (Ji 2017).
Variance analysis are an important part of the standard costing which enables the management to
measure the discrepancies which are present in the budgeted figures and the actual results of the
business (Kariyawasam 2014). In addition to this, standard costing techniques are used by
business for bringing about control in the business with the help of variance analysis of the
business. The process of standard costing is applicable for material costs, labour costs as well as
overhead costs of the business. In addition to this, the process also plays a significant role in the
process of selling prices of the business.
The application of standard costing techniques allows businesses to effectively measure
the performance of the business and also the planning process of the business (El-Shishini 2017).
The objectives of standard costing of a business are listed below in point form:

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 The application of standard costing techniques in a business helps in the implementation
of proper budgetary control in the organization.
 The application of standard costing techniques is useful for the purpose of estimating the
performance of the business in general terms.
 It helps the business to keep a track record of the materials, labour and overhead costs of
the business as per the requirements of the business.
 The standard costing techniques reflects areas of variances that is where the actual
performance is not up to the mark as the standard set by the management and therefore
the management can analyze the reason for the variances and rectify the same (Mihaela
2016).
 The method requires proper control and performance management which opens the door
for performance and also the management can motivate the employees of the business
with the help of this method.
Evaluation of Scope and Research Areas of Standard Costing
The important and application of standard costing system in management accounting
practices in a business can be established with the help of two journal articles which are
considered in this case study. The journal articles are considered for the purpose of evaluation
the usefulness of standard costing practices in a business. The articles which are considered for
the purpose of the evaluation are
Article 1: “ Effects of Standard Costing on the Profitability of Telecommunication Companies:
Study of MTN Nigeria”
Article 2: “Standard Costing and Cost Control in Nigerian Oil and Gas Industry”

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The next few paragraphs contains details discussion about the articles which are
considered for this assessment.
Analysis of Article 1
The journal article focuses on the applicability of standard costing techniques in
businesses of MTN telecommunication organization and also the impact of the standard costing
techniques on the profit generating capacity of the business. As per the author, there is a direct
link between standard costing practices in the business of MTN telecommunication organization
and the profits which is generated by the business (Abdullahj et al. 2015). The author of the of
the journal also specifies the meaning of standard costing which is as per the author is a method
of performance measurement which is done by comparing the actual performance of the business
with the standard set in the budget by the business (Askarany 2015). Moreover, the difference
between the actual results and the standards which are set by the management are considered to
be variances for the business.
The company which is considered for the research in the journal article is MTN
telecommunication organization which is considered to be a big organization in South Africa and
is considered to be a leading business in telecommunications sector. The company also has a
number of subsidiary organization in global countries. The journal paper recognizes the
importance of profits in developing the business and also the importance of standard costing
practices in maintain the level of profits as anticipated by the management of the company(Fatah
2013).
The research paper shows that in order to acquire the operational efficiency in the
business of telecommunication sector is to invest in infrastructure, operational equipment and

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software development programs. The company at present level has a significant level of
efficiency in terms of software which is used by the business and also has significant internal
control system which also covers management accounting practices. Standard costing techniques
are used by the management for setting of goals with the help of budgeting practices and also
variance analysis which is used by the business for the purpose of identifying the areas of
underperformance and also communicating the same to the top-level management of the
business.
Thus, the discussion the journal article mostly deals with the profitability aspects of a
business in Nigerian economy and how the profits of the business are affected by the standard
costing practices which is applied by the management of the company. The assets and liabilities
of the business are influenced by the trends of profit generating capacity of the business. On the
basis of the journal paper, the following research questions can be identified which are related to
the topic of the assessment:
1. What role does standard costing practices play in deciding the impact on profit generating
capacity of the telecommunication sector in Nigeria?
2. What current practices of the business are followed by the management of MTN which
are contribute to the profitability trend of the business.?
3. What steps can be taken by the management of the company for the purpose of bettering
the operational structure of the business and thereby increase the profit generating
capacity of the business?

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Analysis of Article 2
In this journal article the author considers an oil and gas industry which has its operation
in Nigeria and the relationship of the cost control and standard costing techniques which is used
by the management of the company. The analysis which is shown in the research paper mainly
accommodates research on the basis of hypothesis considering several businesses operating in
Oil and Gas Industry in Nigeria (Akenbor and Agwor 2015). Moreover, the research paper
considers the profit factor which the management of a company must consider in the cost control
and management policies of the business which has a significant role to play in any managerial
decisions.
The profitability of the business is one of the principle objectives of the management and
the two most common methods which are applied by the management to increase the profit-
making capacity of a business are increasing the volume of sales of the business or reducing the
overall costs of operations which is associated with the business. However, in most of the
business, it is not always possible to increase the sales volume of the business instantly but
controlling of costs of the business is very much possible. The author stresses the major
components of costs which can be minimized by the business are related to material costs and
labour costs which affect the business. In this respect an appropriate cost control technique
which considers such areas is necessary which is fulfilled by standard costing practices in a
business. As per Akenbor and Agwor, Standard costing forms an internal costing system which
can be applied by the business for setting a standard cost which is to be compared on a periodic
basis with the actual costs of the business. The journal article also specifies that the difference
between the standard costs and actual results are known as variances of the business
(Sachchidanand 2014). Such variances are crucial not only to measure the underperformance of

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an area but also the magnitude of underperformance of an area (Kaur 2014). The standards which
are set by the management are based on actual experience of the management with a level of
forecasting in order to get close to the accurate estimates.
The journal article considers sample analysis of seven oil and gas company which are
engaged in the same operation in Nigeria. The research is analyzed with the help of quantitative
and qualitative analysis of information which can gather by the researcher from the seven oil and
gas companies and also from the oil and gas industry in Nigeria. The data which is used in the
analysis is collected with the help of a questionnaire. The research successfully shows that
implementation of standard costing practices in Oil and Gas Corporation in Nigeria has
significant impact and the same can result in better monitoring and control practices in such
organization.
On the basis of the analysis which is conducted in the research paper, the following
research question can be brought forward in connection to the topic of this assessment:
 What ae the impacts of Standard costing practices in a oil and gas based company?
 How can the management improve the cost control practices of a business by adopting
standard costing practice as a management policy?
 How can adoption of standard costing affect the profitability of the business?
Similarities and Differences between the Two Articles
The similarities and difference which can identified from the two journal research papers
are listed below in details:

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Similarities
 On the analysis of both the research journals which are considered for this journal are
based on standard costing practices and both the journal provides adequate description of
standard costing techniques which can be used as a monitoring tool as well as a
performance management practice applied by the management.
 In case of the analysis, both the organization which is considered operate in Nigeria and
are considering to opt for standard costing practice in order to maintain and initiate
proper control of the business organization.
 Both the research papers which are considered in the assessment consider that the
application of standard costing procedure in a business organization can bring about
improvement in the profitability aspect of the business. Moreover, the both papers show
the necessity of proper control policies in order to achieve the desired results as required
by the management of the companies.
Dissimilarities
 The point of difference which can be identified from the analysis of the two research
papers is the approach which is applied by the researcher in analyzing and researching the
information. In the research work of Abdullahj et al. (2015), the data which are portrayed
in the research papers are mainly qualitative in nature and the research which is
conducted by Akenbor and Agwor (2015), shows application of both qualitative and
quantitative analysis for the purpose of establishing a result. Moreover, the authors has
applied hypothesis practices in a the research for the purpose of establishing the findings
of the research paper.

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 Both the researches are conducted on companies which belong to the same country but
the industries of these companies are different. Therefore, the nature of business
operation of both the companies are different (Abdelrahman, Abdullah and Abas 2017).
The practices of the business and also the approach of the businesses is also different and
therefore, it can be estimated that both the companies apply standard costing practices
under different scenario.
 The first article which is considered for this assessment is based on a business which is
engaged in telecommunication sector while second article is related to oil and gas
business sector. The second article collects data considering a sample of seven oil and gas
businesses which are operating in Nigeria and for this purpose uses questionnaire for
collecting relevant information for the research. The first article considers a single
company and applied the techniques of benchmarking for the purpose of comparison and
also establishing relevant information for the research.
Four Specific Outcomes from the Research Papers which can Help Australian
Management Accountants
The analysis of the two research papers which are shown in the discussion above shows
significant analysis of the information regarding the use and scope of standard costing practices
in a business organization. The outcomes which can be used by management accountants in
Australia are given below:
Increasing the Profits
The profitability capability of the business can be affected by management control and
monitoring practices of the management. The research papers of the companies which are

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considered by the assessment are Nigerian business and both the research paper shows that
application of standard costing practices in a business can be beneficial for the business.
Standard costing practices can bring about improvements in the business organization by
establishing effective control policies and analyzing the areas which are significant for the
business.
Monitoring and Control
One of the major benefits of standard costing practices in an organization is to bring
about a proper implementation of Budgetary control in the business. Another benefit of
budgeting practices which can bring about in Australian entities is that proper implementation of
plans and also identify the areas of underperformance. Standard costing practice allows a
business to identify variances which is difference between actual results and standard results.
Australian entities can bring about development proper control practices by following standard
costing techniques.
Planning and Decision-Making Process
The planning and decision-making process of the business can be effectively improved
following standard costing techniques. It allows the management too set targets and also monitor
the same. The targets are set following budgeting techniques and also forecasting the revenue
and expenses of the business. Standard costing techniques helps management to make
comparison between standard set and the actual performance of the business. The difference is
known as variance which can be further investigated by the management of the company and
decisions can be taken accordingly based on variance analysis which is acquired through
standard costing techniques.

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Measurement of Inventory
The inventory management of the business can be made improved following standard
costing techniques for material perspective. The material usage variance analysis of the business
computes the standard material which was supposed to be used and the actual material
consumption which is used by the business. The inventory management system in Australia
entities will improve significantly if the businesses in Australia started following standard
costing practices.
Conclusion
The above discussion shows two different journal articles which are emphasizes on the
application of standard costing practices in business. The above discussion shows the relevance
of standard costing in improving control practices, decision-making process of the business,
profit generating ability of the business. The practices of standard costing is also useful in
identifing areas of underperformance with the help of variance analysis. On the basis of
variances computed investigation can be conducted as to the reasons for the variances and
appropriate decisions can be taken regarding the matter. Thus from the analysis it is clear that
standard costing can be effectively used as a management accounting tool for measuring costs,
improving controls and overall increasing the profits of the business.

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Reference
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