Standard and Target Costing

Running Head: STANDARD AND TARGET COSTING
STANDARD AND TARGET COSTING
NAME OF THE STUDENT
NAME OF THE UNIVERSITY
AUTHORS NOTE

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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

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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,

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Standard And Target Costing
takes necessary steps for improvement. Standard costing do serve as a guide to the
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
helpful tool. It helps in finding the estimation of changes in the cost-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)