Standard Costing and Target Costing

Running head: MANAGERIAL ACCOUNTING
MANAGERIAL ACCOUNTING
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Author’s Note

MANAGERIAL ACCOUNTING1
EXECUTIVE SUMMARY:
This report provides complete insight about the standard costing and target costing method. The
report also discusses about the presence of vast difference between the standard costing and
target costing. Two articles are being compared to see which costing method is feasiable and
useful in this competitive business environment.

MANAGERIAL ACCOUNTING2
Table of Contents
EXECUTIVE SUMMARY:................................................................................................1
INTRODUCTION:..............................................................................................................3
CHARACTERISTICS OF STANDARD COSTING:.........................................................3
LITERATURE REVIEW OF STANDARD COSTING ARTICLE:..................................4
TARGET COSTING:..........................................................................................................5
COMPARISON BETWEEN STANDARD COSTING AND TARGET COSTING:........6
LITERATURE REVIEW OF TARGET COSTING:..........................................................7
CONCLUSION:..................................................................................................................8
REFERENCING:.................................................................................................................9

MANAGERIAL ACCOUNTING3
INTRODUCTION:
This report discusses about the standard costing and target costing methods.
This report also sheds light on the existing difference between the standard costing and
target costing. The analysis is further being supported using the two articles.
CHARACTERISTICS OF STANDARD COSTING:
Standard costing can be termed as an accounting system that assists the
management of the company to identify the differences between the actual price of the
company’s manufactured products and the costs that should have associated with the
actual goods produced. The costs that are associated with the actual goods produced
are known as standard costs. This cost is one of the integral parts of the company’s
budgets and profit plan. The attributes of the standard costs includes direct material,
direct labor and manufacturing overhead. The general ledger accounts of the company
and cost of goods sold part of the company includes standard costs. The importance of
the standard costs is immense as it includes actual good output. If in any situation the
company spends more in direct materials or direct labor or any kind of manufacturing
overhead then the company may experience loss or may not reach the desirable net
income. To tackle such problems the management of the company needs to take care
about the production inefficiencies or the higher input costs. The standard costs needs
to be adjusted for the variances because as per the historical costs principle the
presence of the standard costs in the inventories and the cost of goods sold needs to be
adjusted. (Aman et al 2016) Thus, it can be determined that the importance of the
standard costs is immense especially for the manufacturing companies.
The main characteristics of the standard costing are that the cost is a pre-
determined or pre-planned cost decides by the management of the company. The
standard costing is being fixed even before the commencement of the production. For
example, if the company is determined to start production cycle in 2019, then the
company calculates the standard cost in 2018.
The standard cost always depends on efficient operation of the company. The
efficient operation of the company depends on the management, as they set the
operational rules that determine the degree of management skills. The management
needs to select the standard cost, which is much closer to the actual cost of production.
For example, if the capability of the company is to provide 80% efficiency and the
management fixed the standard cost at 90% efficiency rate then the company may face
problems.
Standard cost can be used as the base for the price fixation. It can also be used
as the tool to exercise control over the overall cost and production process of the
company. Thus, management uses the standard cost to keep control over the
production process of the company.
Standard costing also includes the standard setting arrangement for other
elements of cost. This is the reason that the standard costing are being set for labor
costs, material costs and overhead costs. The management needs to be very careful
about the setting of the standard for standard costing. If the management of the
company sets a different standard than it is expected then sales and profits of the