HA2011 Managerial Accounting: Standard Costing at Smith's Snackfood

This report assesses the suitability of standard costing for Smith's Snackfood Company, a British manufacturing firm specializing in snack foods and owned by PepsiCo. The report defines standard costing, highlighting its features such as predetermined costs, performance checking, and budgeting. It explores the need for standard costing in predicting future costs and facilitating performance evaluation. The analysis emphasizes how standard costing can aid Smith's Snackfood in planning and control activities, enhancing operational efficiency. Ultimately, the report concludes that standard costing is a suitable approach for Smith's Snackfood Company, offering valuable insights for cost management and strategic decision-making. Desklib provides access to similar solved assignments and study resources for students.

Accounting
[ P i c k t h e d a t e ]

Accounting 1
Executive Summary
In the present era, the use of standard costing is increasing across the world which is considered
as one of the effective costing methods. The method of standard costing is used with the motive
to compare the standard revenue and cost with the actual results revealed by the company. This
shows the variance that is present within the country and the measures that are required to be
taken for bringing the improvement in productivity. This report is prepared with the motive to
identify the suitability of standard costing for Smith’s Snackfood company. Standard costing and
its features are defined which shows the need for standard accounting. This has been found that
standard costing can facilitate planning and control activities within the Smith’s Snackfood
Company. In the end, this has been found that standard costing is suitable for the selected
company.

Accounting 2
Contents
Introduction......................................................................................................................................3
Smith’s Snackfood Company..........................................................................................................4
Standard Costing..............................................................................................................................5
Need for standard costing............................................................................................................6
Features of standard costing........................................................................................................7
Standard costing can facilitate planning and control activities in Smith’s Snackfood Company...9
Planning activity..........................................................................................................................9
Control activity..........................................................................................................................10
Standard costing is suitable to Smith’s Snackfood Company.......................................................12
Conclusion.....................................................................................................................................14
References......................................................................................................................................15

Accounting 3
Introduction
The aim of the report is to comment on the suitability of the standard costing for a manufacturing
company of the group that has been selected for the analysis. The company that has been
selected is Smith’s Snackfood Company. The background of the report says that the finance
director of the company had recently attended a seminar on standard costing and would like to a
task force was formed to explore the possibility of implementing standard costing. The paper
includes the description related to the company which include the establishment and other
important details related to the company. Further, it includes the description related to the
standard costing and its features in terms of accounting. The features will help in analysing the
fact due to which the company should make use of standard costing. Standard costing can
facilitate planning and control activities within the Smith’s Snackfood Company. In end, the
report includes the discussion of whether the standard costing is appropriate for the company or
not.

Accounting 4
Smith’s Snackfood Company
Smith’s Snackfood Company is one of the well-known British manufacturing Companies who is
known for its crisps that is majorly potato chips. The company is owned by the Pesico, American
Multinational Corporation. This company majorly produce and markets the different types of
snack foods in the market with the motive to meet the needs of the customers. Along with this,
the company has its branch with the name of Smith's Snackvend Stand which is branch who
majorly operates the vending machines business. Smith’s company majorly manufacture its
products in the factors that are located in Australia (Smith’s, 2018). Further, the sourcing of most
of the raw materials which include potatoes and corn are sourced from the growers across
Australia. The company work to improve the nutritional profile of products and to provide a
wide range of selection of nutritious products which the company want to market and sell
responsibly (Smith’s, 2018).
The company generally provide the snacks which are prepared from potatoes, for which the
company follow the steps and process. This is discussed below: -
 Plant a potato seed that is majorly selected for “The Original and the Best” chips of
potato.
 Pick the potato and double check it with the top quality of spud which shows that only
the best potatoes will be selected by the company for making the Smith’s potato chips.
 In the very next steps, the company deliver the product to Australian manufacturing
plants in the special trucks. This has been found that the company make use of more than
110,000 tonnes of the potatoes every year that remain equal to the 3,000 truckloads of
spuds (Smith’s, 2018).

Accounting 5
 The next step which is followed by the company includes wash, peel and slice the potato.
 Further, the company cook the potato slices in the canola oil or in the sunflower oil.
 In the end, the company sprinkle the smith’s magic salt on the chips which is prepared by
them.
Standard Costing
Standard costing is considered as the practice of accounting in which substituted an expected the
cost for an actual cost in the accounting records is done by the company. In other words, it can
be said that standard costing is the cost that has occurred for the actual good output which is
known as the costs of the standard (Accounting tools, 2018).
According to Wheldon, Standard costing is the method of establishing the cost whereby the
statistics are prepared to show: - Standard cost, actual cost, the difference between these costs
which is termed the variance.
The variance in the standard costing is recorded with the motive to reflect the difference that
actually lies between the expected and the actual costs. This has been found that standard costing
includes the creating of the expected cost for all activities that take place within the company.
The major reason for making the use of the standard costs is that there is a various application
which takes a lot of time to actually collect the actual cost due to which the company make use
of the standard cost for the estimation of the actual costs (Karmakar, 2018).
This has been found that standard costing is likely to be integrated with the budgets of the
manufacturer’s and also include the different costs which include direct materials, direct labour
and manufacturing overhead. This has been found that with the standard costing, the accounts for

Accounting 6
the cost of goods sold and inventories include the standard costs of the inputs that are majorly
used by the company with the motive to make the actual good output. The calculation of the
standard costing is done after considering the management standard for the efficient operations
that can be performed by the company. Thus, the standard cost gets fixed on the possibility of
80% efficiency which will be not alike from what it will be if the supposition is of 90%
efficiency of the product that is introduced by the company (Trotman and Carson, 2018).
Standard costing and it linked variances together work as the valuable management tool. If a
variance takes place that the management becomes aware of the cost of manufacturing which
varies from the standard costs.
 This has been found that if the actual cost of the company is greater than the standard
cost then the variance of the product is unfavourable. This has been found that the
unfavourable variance majorly discloses to the manufacturer that if other things remain
constant then the profit of the company will be less than the amount it was planned earlier
(Standard costs, 2018).
 If this has been found that the actual cost incurred by the company is less than the
variance of the standard cost then the situation remains favourable. The favourable
situation tells the company’s management that if everything else is constant then the
actual profit of the company will likely exceed the profit which is already planned by the
company.
Need for standard costing
The reason due to which standard costing is required within the company is discussed below: -

Accounting 7
 Future cost prediction: - Standard costs are identified after considering all the possibilities
that can arise in the near future. This is required for the company for the future estimation
of the project and its profitability for the company. According to this, the companies
decide that they should indulge in the project or should leave it.
 Checking the performance: - Standard cost acts as a target to the cost centre which is not
required to be transcended. Thus, the company check the performance of the company by
comparing it with the actual results. After analysing the actual results in past, the
company prepare the standards for the future (Business jargons, 2018).
 Budgeting: - Standard costing is majorly required for forming the budgets and for
evaluating the performance of the executive staff majorly on the basis of these budgets.
Thus, this is the reason due to which the standard costing is required within the company.
Features of standard costing
This section of the report includes the features of the standard costing which are discussed
below: -
 Standard costing has one of the effective features which show that it is the pre-
determined or pre-planned cost. It has been found that standard cost is decided before the
beginning of the production of the product by the company (Agarwal, 2018). For
example; if in case the company is willing to launch the product in the year 2009, then
the standard cost of the product will be estimated by the company before the launch that
is 2008.
 One of the major features of standard costing is that it is not an estimated cost but there is
the variation among the saying for what would be the cost and what should be the cost.

Accounting 8
Standard cost is considered as the scheduled cost and it is the cost that should be the
actual cost of production.
 Standard cost can be employed as a basis for the price that is fixed and also for exercising
control over the cost of the products. It is considered one of the effective methods rather
than the technique of cost accounting.
 The major feature of standard costing is that it includes the setting of the standards for the
different elements of the cost. Thus, the standards of the cost are set for the labour cost,
material costs and overhead costs (Wilkinson, 2013).
 Standard costing majorly includes the setting of the standards effectively and ensure that
the work is completed in the set timeframe. Further, this has been found that setting of the
incorrect standards will overthrow which is the aim of the standard costing for the
company.
 Standards are not only set for the costs but they are also set for the sales and profit of the
company.
 The standard costing feature of setting the standard because it helps the company to
compare in between the standard performance and the actual performance (Gitman,
Juchau and Flanagan, 2015).
 Standard costing another feature that it is majorly used to incessantly record the actual
performance against the standards so that it will be easy to compare the cost.
 Standard costing ensures that there is a constant comparison among the actual as well as
in the standard with the dissimilarity among the two which is worked out.
 The variance is determined in the standard costing with the motive to analyse them and
go over the reason which is there for the variance. Further, the variances are also

Accounting 9
calculated with the motive to take the right steps in order to ensure that variance will not
take place in the near future. Thus, these shows that standard costing contributes
effectively in evaluating the performance of the company.
Standard costing can facilitate planning and control activities in Smith’s
Snackfood Company
Standard costing is considered as the technique of planning and controlling the cost that is based
on the scientific analysis of the elements that are related to the cost in the terms of the standard
output/input norms and standard rates/price per unit of input (Maher, Stickney and Weil, 2012).
Smith’s Snackfood Company makes use of the standard costing majorly for the purpose of
planning and control activities that help the operations of the company.
Smith’s Snackfood Company make use of standard costing with the motive to plan the standards
cost for each output which is part of the operations of the company. The planning activity in the
manufacturing of the crisp will help the company in identifying the gap that is lacking between
the actual and standard (Hilton and Platt, 2013).
Planning activity
Planning and pricing are considered as two most important aspects of the long-term decisions
making which need the strategic outlook on the problems related to the business operations. The
planning and prices issues which are majorly faced by the company need the proper evaluation
so that these can be resolved by proper planning of the costing and acquiring the resources.
Smith’s Snackfood Company makes the pricing usually for being the forwards looking activity
that is majorly based on the estimation of the out turns and estimated costs (Standard costs,

Accounting 10
2018). Standard costing method offers a benchmark to the company for evaluating the success of
the pricing policy in terms of the recovering the cost which is majorly incurred by the company.
This helps the company in making the planning of the budgets in the way so that they can
effectively meet the same. Moreover, the pricing contributes effectively at the time of planning
the budgets for the company. Smith’s Snackfood Company found that standard costing is
enabling the company to do effective planning for their operations of the snacks that can lead to
an increase in profit. The effective planning of the cost is the only way through which the
company can make themselves prepare for the future obligations that are required to complete
which is possible because of standard costing (Weygandt, Kimmel and Kieso, 2015).
Control activity
The process of the calculating and making the use of standard costs majorly for controlling the
purposes helps the Smith’s Snackfood Company. The calculation of the standards majorly
includes technical specialist who can actually specify the standard input of the resources which
are used by the company. The management accountant of the company takes the information for
preparing the specification for the standard cost with the motive to convert cost per unit of output
or input (Narayanaswamy, 2017). In the operations of the Smith’s Snackfood Company, the
crisps snack is produced by them which need the control of the cost. This requires the
management accountant set the standard cost and then measure the actual cost. The comparison
of the actual cost and the standard cost will help the Smith’s manager to control the elements
which create an impact on the working of the organisation and their production activities
(Warren, Reeve and Duchac, 2013).

Accounting 11
(Source: Standard costs, 2018)
This is the control process is followed by the company so that they can implement the control
measures with the motive to control the costs effectively. The company make use of the statistics
of the past for preparing the standards and then they summarise the standards according to the
past data of the Smith’s Snackfood Company in the Australian market. Further, the company
compare the standard cost with the actual results. This helps them in analysing the differences in
the cost so that they can take the right steps to eliminate the same in the near future.
This has been found that the existence of the different type of the variance could be an
investigation which includes the production cost, maintenance cost variance, transportation cost
variance, and many different operations which are performed by the company (Simkin, Norman
and Rose, 2014). All these components of cost must be investigated separately which makes then
to analyse and interpret. Thus, this can be said that standard costing can facilitate planning and
control activities in Smith’s Snackfood Company.

Accounting 12
Standard costing is suitable to Smith’s Snackfood Company
From the above analysis, this has been found that standard costing method is suitable for the
Smith’s Snackfood Company as this method offer different advantages which are discussed
below: -
 Standard costing can be used by the company for the effective management of the
different functions majorly at the time of formulating the prices and production policies.
 Standard costing is suitable for the company as it allows the company to analyse the
variance that takes place between the actual as well as the standard cost of the company.
This variance includes the inefficiencies and mistakes of the company that allows the
Smith’s management accountants to identify the reasons due to which they are lacking
behind so that this can be improved by them for the effective formation of the strategy in
the present time as well as in the future aspects (Noreen, Brewer and Garrison, 2014).
 The implementation of the standard costing will help the company to save the cost as it
eliminates the costing work that was performed by the Smith’s Snackfood Company.
The cost which was saved by the company will be utilized in other projects so that they
can get the returns out of it. This shows that the use of standard costing will be effective
for the company.
 Standard costing is not limited to the guidance in the costing but it will contribute to the
development of the employees. The costing method can be used for delegating the
authority and responsibilities which will effective by setting up the standards for each
and every cost centre as the executive of each cost centre will know the standard that
they have to maintain in the work that will be done by them (Warren and Jones, 2018).

Accounting 13
The employees of Smith’s Snackfood Company will be able to develop the skills which
will be utilized by them for the future operations of the company.
 The implementation of the standard costing is suitable for the company as it provides the
benefit to fix the standard for every component which includes material, components of
business and operations. These standards help the company in improving the total
productivity efficiency of the company at the time of manufacturing the products. This
will reduce the cost of the company because the production efficiency will make the use
of resources in an effective manner (Kaplan and Atkinson, 2015). The use of the
resources will reduce the cost of the Smith’s Snackfood Company which will make them
to improve their prices in the market and to improve the profit by offering the quality
products to the customers present in the market.
All these advantages reflect the suitability of the standard costing method to the Smith’s
Snackfood Company for their business as this will improve their business operations in terms of
cost which is considered as one of the biggest players for the company in the market.

Accounting 14
Conclusion
In the end, it can be concluded that standard costing method is considered as one of the effective
methods of accounting which is majorly used by the company for analysing the gap between the
actual cost and the standard cost. This gap is represented as the variance which shows the issues
due to which the company is not able to meet the standard costs. The company on which the
standard costing implication is applied is Smith’s Snackfood Company who majorly offers crisps
in the market. The concept of standard costing is discussed in the report which shows its
importance and needs in the company. Along with this, the features of standard costing are
defined for the deep understanding of the concept. Standard costing can facilitate planning and
control activities in Smith’s Snackfood Company which include the advantages of standard
costing in the planning and controlling of the operations. This has been found that standard
costing is considered as the suitable option for the Smith’s Snackfood Company which is clear
from the advantage that is attained by the company through this method.

Accounting 15
References
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https://www.accountingtools.com/articles/2017/5/14/standard-costing [Accessed on 23rd January
2018]
Agarwal, R. (2018) Standard Costing: Problems, Characteristics and Limitations [Online].
Available from: http://www.yourarticlelibrary.com/accounting/standard-costing/standard-
costing-problems-characteristics-and-limitations/52834 Accessed on 23rd January 2018]
Business jargons (2018) Standard Costing [Online]. Available from:
https://businessjargons.com/standard-costing.html [Accessed on 23rd January 2018]
Gitman, L. J., Juchau, R., and Flanagan, J. (2015). Principles of managerial finance. AU:
Pearson Higher Education.
Hilton, R.W. and Platt, D.E. (2013) Managerial accounting: creating value in a dynamic
business environment. New York: McGraw-Hill Education.
Kaplan, R.S. and Atkinson, A.A. (2015) Advanced management accounting. PHI Learning.
Karmakar, R. (2018) Standard Costing: Meaning, Objectives, Advantages and Disadvantages
[Online]. Available from:
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objectives-advantages-and-disadvantages/66374 [Accessed on 23rd January 2018]
Maher, M.W., Stickney, C.P. and Weil, R.L. (2012) Managerial accounting: An introduction to
concepts, methods and uses. Boston: Cengage Learning.

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Narayanaswamy, R. (2017) Financial Accounting: A Managerial Perspective. PHI Learning Pvt.
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Smith’s (2018) Heritage [Online]. Available from: https://www.smiths.com.au/pages/heritage
[Accessed on 23rd January 2018]
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Warren, C. and Jones, J. (2018) Corporate financial accounting. Boston: Cengage Learning.

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Warren, C., Reeve, J.M. and Duchac, J. (2013) Financial & managerial accounting. Boston:
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Weygandt, J.J., Kimmel, P.D. and Kieso, D.E. (2015) Financial & managerial accounting. New
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