1 Standard And Target Costing Table of Contents Answer to the Question 1...........................................................................................................2 Standard Costing....................................................................................................................2 Answer to the Question 2...........................................................................................................4 Answer to the Question 3...........................................................................................................5 Target costing.........................................................................................................................5 Standard And Target Costing.................................................................................................6 Answer to the Question 4...........................................................................................................6 Answer to the Question 5...........................................................................................................8 References................................................................................................................................11
2 Standard And Target Costing Answer to the Question 1 Standard Costing Standard costing is the system of accounting, which helps to identify the variances between the actual cost for the purpose of production of goods and the cost that should have incurred for the production of such goods(Tsai, Lan, & Huang, 2019). However, the cost that should have incurred for the production of the actual goods is considered to be the standard cost. Standard costing is the predetermined cost which have a supposedly link or integration with the expected cost, or with the budget. When calculating the cost for the manufacturing of goods the direct materials, direct labor, and manufacturing overhead are considered, which is the budget for the fixed overhead and they also consider the fixed and variable cost as per the methods of standard costing(Kianian, Kurdve & Andersson,2019). Standard costing is an important management tool. If there is any variances arises, it alarms the management that there is a difference between the manufacturing cost and the standard cost, which has been predicted. Therefore, if the actual cost is more than the standard cost then the variances are considered to be unfavorable(Cooper,2017). Hence, the unfavorable variances indicate the management, that if no changes are made in order to change or rectify this, then they should expect least profit than what they have expected to receive. Similarly, if the estimated cost are lesser than the actual cost, then it ultimately leads to make the outcome favorable. The Favorable outcome indicates that the management can expect more profit then expected if the things went the way it has been planned (Tsai, Lan, & Huang, (2019). Standard costing as already mentioned is one of the most important tools in the management that helps the management to have a check over their expenses and if required,
3 Standard And Target Costing takesnecessarystepsforimprovement.Standardcostingdoserveasa guidetothe management in different managerial functions in times of formulating of prices and policies (Kianian, Kurdve, & Andersson,2019).Effective cost control can be ensured if the standard costing is realized and reviewed periodically to improvement and if required, quick actions and measures can be taken in time to avoid the deviation and differences that has appeared on the papers. Standard costing leads to the identification of the variance, which ultimately leads to the detection of inefficiencies and mistakes over which further investigation can be carried on by the management. For budgeting and planning purposes also it proves to be the most helpfultool.Ithelpsinfindingtheestimationofchangesinthecost-price-volume relationship. Management do get notify about the valuation of inventory they get all updates regarding the work-in-progress, semi-finished and finished goods. Since the standard is fixed for the product and its component its process and its materials, it helps in the improvement of efficiency which ultimately contribute to the reduction of cost thereby, leading to increase profit (Steyn, 2019). It has been noted that once the standard costing is implemented, this implementation will lead to the savings in cost as most of the costing work and procedures will get eliminated. It becomes easier to delegate responsibilities and authority as the standard is set for each cost-centre for each product and even for certain sections, which enable the executives and the supervisors to understand what kind of standard they have to maintain. Standard costing has an important role in drafting the profit and loss account on the short term basis, which helps the management to take prompt decisions. This system promotes labor efficiency and cost-consciousness among the employees, supervisors, executives and top management, which ultimately helps in the management planning and controlling and increases efficiency and productivity as well(KocakulahMC, Stott, & Manyoky, 2017)
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
4 Standard And Target Costing Answer to the Question 2 Efficiency of the management can be said to be the key factor for the survival of the manufacturing concerns in Nigeria. It has to be noted that the managerial efficiency can be measured in many ways including the profitability of the company or the reported profit, which can be achieved only if there are proper implementation of the adequate policies to reduce the operating cost. One of the ways to reduce the production cost in manufacturing concern is proper utilisation of standard costing. It happens due to the fact that it enables the firm to preset the target cost and processes and the cost obliges the employees. Therefore, it enables the company to enhance its productivity, minimisation of costs and efficiency of the employees (Radović, 2017). However, besides the benefits that are rendered by the standard costing technique, there are different drawbacks which are related with this technique of cost control. There is the problem of identifying the specific needs of the consumers. Also, it has been noted that there are persistently increase in the general price level, which added up to the problem of the proper application of this standard costing technique. Managers negative attitude towards the standards and constant changes in the policies of the government and political instability creates issues. Along with that, changes in the technology and inadequacy of the accurate estimation of normal loss during the production courses (Egger, Strecker., & Zoller-Rydzek,2020). This study further illustrates the effect of standard costing on the profitability of the selected manufacturing companies in the Edo state of Nigeria. The result of profitability has achieved after examining the effect of the standard costing technique on the reduction of cost, normal loss and the gross profit out of production. There have been three hypotheses that have been tested and developed. The formulated hypotheses were tested using Z-Test statistics and at 5% Alpha level. The outcome generated from this study has revealed that
5 Standard And Target Costing there is a significant increase in cost reduction after the application of standard costing. It has also been observed that more the company practices the standard costing, the more it will increase their profitability. Therefore, it has been observed that to increase the profitability of the company and to make sure of the efficient utilisation of the resources for the effective control over the cost, manufacturing companies need to adopt the standard costing and apply them consistently.(Ventreetal,2020) Answer to the Question 3 Target costing Target costing is not just a costing method; however, it is also a managerial technique where the company initially decide and plan in advance the price points, project cost and the margins it want to achieve. A management team can have continuous monitoring over the product from its initial phase starting from its design to its entire product life-cycle by using this effective tool of target costing. In the manufacturing industries, it is considered to be the most important tool in maintaining the consistency of profit. In certain industries like FMCG or health care, energy and construction, the competition stays so intense that the prices get determined by the demand and supply of the product. Therefore, selling prices gets very difficult to control by the producers and thereby, they try to control their cost. Therefore, a management focuses on influencing every aspect of product, service or operating cost. (Simshauser & Gilmore, 2020) The main objective of target costing is to have a complete check on the cost of the product and to take proactive decisions of cost planning, cost reduction and management of cost as they plan and calculatethe cost of the product early during the design and development cycle and not during the product development and production. Though the price of the product is determined by the market forces, hence, the company are the price taker and
6 Standard And Target Costing not the price maker. The expected and estimated price margin is already included in the selling price of the product. The difference between the target and the current cost is termed as the cost reduction which is the goal of management. Separate team for the purpose of integrating activities of designing, purchasing, manufacturing, marketing in order to find and achieve the target cost (Masola,2020). Standard And Target Costing Standard costing is the predetermined costs which are based on estimates of labour, material and overhead for the period of time and under the specific state of working conditions. These are basically the actual condition and therefore, the standard would reflect which would be achieved in the existing working condition. Whereas, the target costing is the desired cost, which may or may not be achieved in the present working conditions as it is the expectation that is prepared before any production going on and therefore, it might require somechangesduringtheproductionmethodsinordertoachievethedesiredcost (Căpușneanu, 2020). The focus of standard cost is inwardly focused and does not include prices or profits while on the other hand target cost begin with selling prices and therefore move backwards in order to calculate the target cost by deducting the required profit. Standard cost is usually calculated on the existing product while on the other hand target cost can be calculated for the planned products so that the designed process can be changed in order to achieve the target cost. Target cost is the new method of costing to control cost developed by Japanese while the standard costing is not so old. Therefore, both the costing method have their own advantages and are applied to the various time of product cycle (Labro, 2020).
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
7 Standard And Target Costing Answer to the Question 4 Thetargetcostingisasimpleunderstandingoftheprocess;however,they significantly affect the activity of the organizational activity and survival of the company in the highly competitive market. It, therefore, requires a continuous effort of specialist and professionals and might also require the installation of large-scale software (Marhoon, Salim & Kadhim, 2019).In the market, where the number of sellers are limited and the demand gets exceeded by the supply. In this situation seller can mark the prices of the product in such a way that will lead them to achieve more profits, which means they might opt for cost plus approachtopricing.Sincemanycompaniesfacedtheglobalmarketsandincreased competitions, thus they opt for precluding of such historical cost-based pricing practices. Similarly, when the supply is exceeded by the demand then the prices are driven by the market forces in a competitive environment. Therefore, sellers are required to take notice of the presence of strong competitions, alternative products and services as well as their prices requires consideration. In the competitive environment, order to achieve higher market penetration, the company needs to decrease their prices without even compromising with the quality of the product. Additional services will provide additional advantage. One of the best benefit of the target costing is that it put focusses on an increased understanding of markets, competition and needs of customer in terms of products, quality and price (Khateeb,2019). Target costing is one of the most important strategic weapon, which has been applied by the number of leading companies around the globe. Managers are mostly attracted by the competitive advantages that the target costing has provided to many auto mobile companies of japan. Contradictorilyas japan has exported their technique to South Korea, the companies like Samsung, Hyundai have started gaining competitive advantage over their Japanese counterparts. In spite of the proven success of the target costing, many managers still under estimate the competitive advantage of this tool (Wu, 2019).Target costing
8 Standard And Target Costing focusses on the satisfaction of the customer and attaining competitive edge. Therefore, target costing focusses on the specific requirements of the customers and the prices they are prepared to pay. The process might include discussion with the customers and to get an idea whether the customer are willing to pay for the design (Alwisy, Bouferguene, & Al- Hussein,2020). Answer to the Question 5 Target costing has been developed in Japan. The main aim of this method is to provide proper planning of profit. This device is usually utilized to control the cost and to manage the profits continuously over the entire product lifecycle. Therefore it can be rightly said that it is the part of the strategically management system and it helped in entering the market and help in taking decision entering the market taking consideration of the market prices of the competitors (Hummel, 2019).Target costing are usually applied at the earliest stages of the development of the product and continue its application throughout the entire product life cycle. Target costing also involves the value chain in the entire application of the process (Zaharova, Sandrykina & Ivanova,2019).When the product gets developed and there comes the need to decide the prices of the product then the product selling price is determined after adding the cost that is targeted and the required profit and this is how it linked the operational strategies gets linked with the long-term strategic plans. Therefore the formula lies in this way:- Target costing = Selling price which is planned – Profit that is required From the above formulae, the target costing can be derived. However if the scene gets created that the required profit becomes unattainable then the product will be designed in such a way that the required profit gets attained (Hint & Şandru, 2017).The use of value engineering and the value analysis can be utilized in order to specify or to bring in more
9 Standard And Target Costing innovative ideas, in order to generate more innovative products and cost effective products and features. This will further help in reduction of the target cost and thereby increase of the profit. Initially target cost will be set for the short period of budget and therefore, all the variable and fixed cost are expected to reduce on the regular basis and therefore target profit is the kind of commitment which is agreed by all and involve everyone who be a part of it. Therefore for the purpose of planning target costing is recommended. Standard costing is the technique to do the planning of cost and control, keeping in mind the technique of the scientific analysis of the elements of the cost and it is measured in terms of standard rate or the price per unit of the input and also the standard output. The process of standard costing goes in the following ways. It first of all establish the cost for the individual output, then there is measurement of the cost for that output. Then the comparison with the actual cost from the expected cost is measured. Then the variances are located and corrective actions are taken for this regard and finally the analysis of the variances happens in order to draw the reason and the conclusion from it (Okpala, 2016). There are different methods that are involved in the standard costing setup and each methods has its own control and therefore everything is as per scientific technique and therefore there are no mishandling. There are standard material cost which are determined by the number of items multiplying by the purchase price of it. Then the standard labor rates are determined in terms of the time rate, piece rate and the premium plan. Standard overheads are further classified in terms of manufacturing, selling, administration and the distribution overhead, which gets further classifies into variables, semi-variable, fixed in order to draw the proper estimates for the specific classes within a budget period. However, standard overhead rates are determined by the records from the past. There is a determination of the standard hour and thus it helps in determining the efficiency ratio and the activity ratio, where the efficiency hour is the number of standard hours that is expressed in terms of percentage of
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
10 Standard And Target Costing the actual hours that are spent in the production of that work. However the activity ratio is the ratio which is also expressed in terms of percentage and it provides the data base of the number of the standard hours which is equal to the work produced and show the percentage of the budgeted standard hours (Alexandra,2017). Therefore, for the purpose of control as per the study it is highly suggested that standard costing can be effectively use for the control purposes, thereby yielding results.
11 Standard And Target Costing References Alexandra, M. L. (2017). Considerations Concerning the Application of Target Costing Method in the Industry of Dairy Products.Ovidius” University Annals, Economic Sciences Series,8(1), 545-550. Alwisy, A., Bouferguene, A., & Al-Hussein, M. (2020). Framework for target cost modelling in construction projects.International Journal of Construction Management,20(2), 89-104. Căpușneanu, S., Topor, D. I., Constantin, D. M. O., & Marin-Pantelescu, A. (2020). ManagementAccountingintheDigitalEconomy:EvolutionandPerspectives. InImproving Business Performance Through Innovation in the Digital Economy(pp. 156-176). IGI Global. Cooper, R. (2017).Target costing and value engineering. Routledge. Duh, R., Xiao, J. Z., & Chow, C. W. (2008). An overview and assessment of contemporary management accounting research in china.Journal of Management Accounting Research, 20, 129-164. Retrieved from https://search.proquest.com/docview/210243710?accountid=30552 Egger, P. H., Strecker, N. M., & Zoller-Rydzek, B. (2020). Estimating bargaining-related tax advantages of multinational firms.Journal of International Economics,122, 103258. Hint,M.,&Şandru,F.L.(2017).ConsiderationsRegardingTargetCostingMethod Application Within The Electric Lighting Industry.The Annals of the University of Oradea Economic Sciences,2, 85-94. Hummel, J., Pagkaliwangan, M., Gjoka, X., Davidovits, T., Stock, R., Ransohoff, T., ... & Schofield, M. (2019). Modeling the downstream processing of monoclonal antibodies reveals cost advantages for continuous methods for a broad range of manufacturing scales.Biotechnology journal,14(2), 1700665
12 Standard And Target Costing Khateeb, A. H. N. M., Imam, S. M. A., Awad, S. S., & Nasir, H. B. (2019). Target costs and theroleofproductdesigninachievingcompetitiveadvantageoftheIraqi companies.International Journal of Economics, Commerce and Management,7(2), 425-440. Kianian, B., Kurdve, M., & Andersson, C. (2019). Comparing Life Cycle Costing and Performance Part Costing in Assessing Acquisition and Operational Cost of New Manufacturing Technologies.Procedia CIRP,80, 428-433. KocakulahMC, F. A., Stott, A., & Manyoky, L. (2017). Activity–Based Costing: Helping SmallandMedium–SizedFirmsAchieveaCompetitiveEdgeintheGlobal Marketplace.J Account Mark,6(245), 2. Krishnan, R., Mistry, J. J., & Narayanan, V. G. (2012). A field study on the acceptance and use of a new accounting system.Journal of Management Accounting Research, 24, 103-133.Retrievedfromhttps://search.proquest.com/docview/1247632230? accountid=30552 Labro, E. (2019). Costing Systems.Foundations and Trends® in Accounting,13(3-4), 267- 404. Marhoon, A., Salim, H., & Kadhim, S. (2019). Integration between open records and target costtoeffectivelymanagesupplychaincosts.UncertainSupplyChain Management,7(2), 329-340. Masola, M. J., Alesso, C. A., Carrizo, M. E., Berhongaray, G., Botta, G. F., Horn, R., & Imhoff, S. (2020). Advantages of the one-wheeled tramline for multiple machinery widthsmethodonsunflower(HelianthusannusL.)andmaize(ZeamaysL.) responses in the Argentinean Flat Pampas.Soil and Tillage Research,196, 104462
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
13 Standard And Target Costing Okpala, K. E. (2016). Target costing implementation and competition: A case study of breweries industry.European Journal of Applied Business and Management,2(2). Radović, N. (2017). KAIZEN COSTING IN SERBIAN SMEs: A CASE STUDY OF PERFORM Ltd. In10th International Scientific Conference “Science and Higher Education in Function of Sustainable Development”. Mećavnik(pp. 8-30). Simshauser, P., & Gilmore, J. (2020). On entry cost dynamics in Australia's National Electricity Market.The Energy Journal,41(1). Steyn, E. (2017).An evaluation of a standard costing framework to manage transport costs for a South African logistics company(Doctoral dissertation, North-West University (South Africa), Potchefstroom Campus). Tsai, W. H., Lan, S. H., & Huang, C. T. (2019). Activity-Based Standard Costing Product- Mix Decision in the Future Digital Era: Green Recycling Steel-Scrap Material for Steel Industry.Sustainability,11(3), 899 Ventre, G., Farhi, B., Szaro, J., & Dunlop, J. (2020). Reducing the costs of grid-connected photovoltaic systems. InSolar Forum(Vol. 2020). Wu, N., Moreira, C., Zhang, Y., Doan, N., Yang, S., Phlips, E., ... & Pullammanappallil, P. (2019). Techno-Economic Analysis of Biogas Production from Microalgae through Anaerobic Digestion. InBiogas. IntechOpen. Zaharova, T. V., Sandrykina, O. S., & Ivanova, O. Y. (2019, January). The Factor that Make Competitive Advantages.(The methods which define the effectiveness of productive activity).InInternationalScientificConference"FarEastCon"(ISCFEC2018). Atlantis Press.