Managerial Accounting Report: South East Toyota Cost Analysis

This report examines standard costing within the framework of managerial accounting, focusing on its application for planning, control, and decision-making, specifically referencing South East Toyota (Pvt) Ltd. It explores the features of standard costing, its role in planning and control, and the challenges organizations face in cost management. The report contrasts standard costing with target costing, evaluating their relevance in contemporary business environments. It further recommends two standard costing systems for South East Toyota to improve cost control and operational efficiency. The report also covers the importance of variance analysis, employee involvement, and the implementation of effective cost management techniques. It emphasizes the need for continuous improvement and highlights the link between effective cost control and achieving organizational objectives. The analysis includes the challenges faced by organizations in cost management, such as employee resistance and the need for proper education and training. The report concludes with a discussion of the targeted costing method and its importance for companies aiming for profit maximization.

Running head: MANAGERIAL ACCOUNTING
MANAGERIAL ACCOUNTING
Name of the Student
Name of the University
Author Note

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Abstract
The report that has been presented is related to the standard costing and the challenges that
are faced by South East Toyota (Pvt) Ltd. An article has been reviewed upon the standard
costing which includes the planning and control system of the organization. In the later part,
target costing is being discussed in comparison to the standard costing and lastly two process
is being recommended for the help of the contemporary organization and also for the control
purpose.

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Table of Contents
Introduction................................................................................................................................3
Standard Costing in Planning and Control System....................................................................3
Standard Costing System...........................................................................................................5
Challenges faced in Cost Management......................................................................................7
Targeted Costing Method...........................................................................................................8
Recommendations....................................................................................................................10
Job Costing...........................................................................................................................10
Process Costing....................................................................................................................11
Conclusion................................................................................................................................11
References................................................................................................................................12

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Introduction
In this report, the features of the standard costing have been explained of the planning
and control system. Upon a standard costing article, the relevance of standard costing has
been explained upon this article and the control system will be discussed with South East
Toyota (Pvt) Ltd. All the features that are used by the South East Toyota (Pvt) Ltd. are
evaluated and discussed with the standard costing article. In the next part, the target costing is
being compared with the standard costing and if the target costing is being relevant or not in
today’s world is being evaluated and lastly, the two systems of standard costing is being
recommended for the South East Toyota (Pvt) Ltd.
Standard Costing in Planning and Control System
Standard Costing is one of the tools that is used by the organizations for the planning
of the budget, help in managing and controlling all the costs which benefits in the evaluation
of the cost management performance. This system of standards costing involves the
estimation of the cost that is being required for the production process (Christian, 2018). All
the standards that has been determined are being set before the beginning of the accounting
period and has been set related to the amount and the assumption of the payment of direct
labor that is required for the production process is being mentioned (Tsai, Lan, & Huang,
2019). Additionally, the standards that has been considered are used for the planning of the
budget and also for the production purpose.
The actual amounts and the cost of direct material is being used at the end of the
accounting period. The actual amount is being utilized and the direct labor pay rates is being
compared to the standards that has been previously set. At the time of comparing the actual
costs and standard costs, the variances are being examined between them and this helped the

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managers to take a looks at the way of costing that has been implemented and also help in the
cost management and also helped in improving the operational efficiency. The standard
costing helps in the cost of deviations that is happened form the standards and it helps in the
clarification of the causes (Steyn, 2017). The management will be informed immediately all
the information about the operations, through which if necessary remedial action will be
taken. There is certain involvement which is clear in the standard costing, they are discussed
below:
 There is ascertainment and the use of standard costing.
 Help in recording the actual costs.
 To find out the variance, it will help in comparison of the actual costs with the standard
costs.
 It does help in the analysis of the variance.
 After the variance is being analyzed, an appropriate action is being taken by the
management of the organization which is necessary.
The objective of the standard costing that are being implemented are discussed below:
 It does helps in the implementation of the budgetary control in operation.
 It also helps in the evaluating the performance of the organization.
 It suggests the way through which the material is being used properly and also the labor
which is also overloaded which will help in the economic character.
 The costing also helps in the motivating the employees in the organization so that the
performance of the organization will improve and help in setting up a standard.
 The management of the organization is provided for supplying the necessary data and
also help in relating the cost element for submitting the quotations so that it will help in
fixing the selling price of the products of the organization.

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 The management gets help from the costing so that it helps in the proper valuation of the
inventory which includes the work-in-progress and finished products.
 It helps the management as it acts a control device.
 The management also gets help at the time of taking any corrective decisions which will
be done with the fixation of the prices, help in taking the make or buy decisions, that will
be more beneficial to the organization.
Standard Costing System
The performance of the organization is usually depending upon an effective and
efficient cost control. In the cost control, there are implementation of several methods
through which all the objectives are curbing related to the operational activities so that it will
not exceed the anticipation levels. It can be further noted that there the relationship between
the standard costing and cost control, it has been seen that the standard costing methods that
has been considered by the organization for the business activity in the future
(KocakulahMC, Stott & Manyoky, 2017). All the standards that has been considered are
being regarded as the measuring instrument in control and management activity. In the
article, it has been argued that there are several features which is which has been seen in
costing system and the organizational control has been comprised with the plans and
structures that helps in consisting of three phases i.e. setting, operation and feedback.
At the time of setting up the system with the control costs, there will be
establishments of the standards that will help in the performance level of the resources of the
organization and the standards will be expressed in the numerical terms. To cost standards
will be set which will help in signifying the cost control. The operational phase is being dealt
with the various strategies through which it will ensure that there are several standards that
has been achieved at the time of setting goal at the time of operation (Radovic, 2017). The

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operational phase relies on the completion and success in the setting stage. Upon the opinion
of the author, it has been stated that the standards which has been implemented by the
organization are not clearly established, even though the strategies that has been applied are
good, but it is very difficult to assume the results as the results are being depend upon the
defined point of the measurement.
In the feedback stage, the results are being reviewed upon the information that has
been pertained and there is also improvement in the decisions makings which will help the
management system. The strategies that has been implemented are being done upon the flaws
the system has and if there are any issues with the standard that has been set (Tomar, 2019).
All the standards that has been set are well documented and some corrective actions are being
taken that are comprehensive. The level of efficiency in the cost control level is being
improved with a continuous measurement of the results that has been desired and also
analyzing the variations if required. At the time the feedback phase elapses, the process of the
starting phase starts again and the standards that has been set will be based upon the results
that has been revised and will be reviewed in the feedback stage (Trusson, 2019). For the
achievement of the effective feedback, the management has been considered as the key and
the helps in organizing and communicating within the entity. Thus, for the effective control,
the cost of the entity has been considered as an established criterion for controlling and
reduction of the costs. For controlling the cost of organization, there is implementation of the
standard costing in the organization. This is usually happened as the standard costing method
is consisted of the stages that includes setting, operation and feedback.
At the time of more competition of the economy, the production efficiency is being
measured related to the standard approach of the costing. The approach of the standard costs,
denotes that the costs are sometimes regarded as the real operational costs which is being
assumed before the operations are completed (Iliemena & Amedu, 2019).. It has been further

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arguing that the calculation of the costing that has been done is been done as per the standard
costs and it is widely used for settling the base prices. There are certain deviations in the
actual costs compared to the standard costs which has provided information that is being very
much useful for making the cost related decisions (Raulinajtys-Grzybek & ŚWIDERSKA,
2016). The cost control is being done by the management so that it will help in managing the
expenses of the organization, that will further help in the comparing the financial results with
the budget and upon the allocation of resources that has been based with the analyzing
variance. The significant deviation helped in helped in calculation of the variance analysis
and that is also based upon the centers that is responsible and is being communicative to the
personnel that will help in taking corrective action.
Challenges faced in Cost Management
The standards that has been implemented in the organizations, are done for the
monitoring and coordinating activities. There are certain challenges, which are faced by the
management to give resistant from the employees. Most of the organizations are successful
upon the level of integration of the people which is involved in the processes that will help in
enabling the profitability of organization (Norreklit, Raffnsoe-Moller & Mitchell, 2016). The
success of the organization can be discouraged if the employees have the resistance power.
The management of organization help in exercising the cost and the expenses are being
managed as per the comparison of the financial results that has can be possible upon the
resource allocation of the budget that has been based upon the analyzing the variance (Dale &
Plunkett, 2017). Moreover, in the journal it has been stated that the variance analysis that has
been done is only done upon certain deviations that is usually based upon the centers that are
responsible and is being communicated for the personnel that are appropriate for taking any
corrective action.

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The challenges that are usually faced the cost management, when there is no
implication of the costing technique and so there can be monitoring of the costs and the
effected cost is not being appropriately used (Ganorkar, Lakhe & Agrawal, 2017).
Additionally, if the organization have a desire for the profit maximization, it is important to
implement a cost technique and it will further help in the monitoring and the reduction of the
costs that has been put up by the organization. Thus, the organization do have a motive of
profit maximization and that can only be done with the implementation of the standard
costing. If there is any inappropriate implementation of the costing techniques, then there will
be problems in the cost management (Gokhale & Jadhav, 2018). There is also a need for
educating the employees of the organization at the time of implementing the cost system, and
it will help in producing the desired results. The employees can be providing education with
the help of seminars and various workshops. The management should have a detailed idea
about the costing system that will be implemented in the organization (Sidorova, Nazarov &
Listopad,2019). Through this implementation, there will be a positive reduction of the costs
and will help in overcoming the challenges that the organization was facing at the time of
cost control
Targeted Costing Method
To estimate the costing details, the cost plus approach has been used by the
organizations that is usually known as the traditional method of the costing. This costing is
based upon conducting the market research and by finding the preference of the customer and
also by the determination of the characteristics of the products and also the demand of the
product (Shea et al., 2018). After all this, the designing of the product is being finalized and
thereafter the process of manufacturing is being determined. In this process of costing, the
costs are being recorded at every stage of the process of manufacturing. The components of

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costs are usually summed up for the determination of the selling prices. If the management
usually think if the prices of the selling and costs are much higher than it is predicted, then
there will be certain changes upon the design of the products and also in the manufacturing
processes. The changes are done until the total cost is being reached and after the approval
the production of the products has begun.
In the method of target costing, upon the market research the target cost is being
derived and will help in the prediction of selling price that the consumers are willing to pay
for the specific features. The management helps in the determination of the desired profit
margin (Zahller, 2017). The profit margin that has been determined by the management is
being subtracted by the form targeted selling price that has been predicted so that it will help
in achieving the cost that is being targeted which will be maximum. The difference between
the target costing and the standard costing have different approaches in the area of the
products development. It will help in the finding the costs that has been used for the
designing the products and then finding out how much costs has been incurred (Cardona‐
Arias et al., 2017). The target costs are being first set and after that the products has been
designed so that it helps in attaining the target costs.
If the standard costing is being compared to the target costing, then it will help in the
general administrative, distribution and the marketing costs that are usually taken into the
consideration that will help in the estimating the price of the products, but in the case of the
target costing, the approach that has been taken is more proactive and the pricing that has
been considered of the products is being estimated first for the cost of the manufacturing
costs that will be later taken into the consideration (Wegmann, 2018). The traditional costing
helps in the determination of the costs upon the designing of the products and also
establishing the prices. In the target costing, the selling prices is being set at first and then

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there are some subtractions that will be upon the targeted income and at the time of reaching
the final costs, it is being determined upon the designing of the products. Usually, a cost
figure is being determined and after that it has been implemented and after that if it is found
that if it configured poorly, then the whole costing process is being sent back to the managers
so that there will there will be some changes which is being done upon the production process
and the cost will be cut (Etges et al., 2018). Thus, the targeted costs that has been utilized
upon the information and the process of production will be discussed by the management
related to the production process of the product. Therefore, as per the approach of the target
costing there will be less changes that can be done upon the production process compared to
the standard costing.
Recommendations
There are different types of methods that the organizations can implement so that it
will help the different processes and procedures that is employed and for the determination
and presentation of the costs. There are two types of methods that are used depending upon
the nature of the organization, one is the method that is usually based upon the principles of
job costing and the other is the method that is usually based upon the principles of the process
costing.
Job Costing
The Job Costing is being used by the organization that is helps in analyzing the
different jobs, and each job is being considered upon the separate unit of the cost. The cost of
each job that has been under-taken which helps in founding each job separately. There are
separate accounts that has been opened for each jobs and all the expenses are being incurred
until the date of the commencement and will be done till the date of completion. It helps in
enabling the concern to know the cost of each job and also help in comparing the cost of each

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job which will be the price that will be paid against the job. Thus, the profit and loss that has
been made upon the job is being ascertained.
Process Costing
There is continuous process of production that has been carried by the organization
that are homogenous and the cost of product helps in the ascertaining of this method is known
as Process Costing. Compared to the job costing, there are cost of each process that is being
determined for a period of time. The products use to lose their identity of the individual so
that it helps in manufacturing and there will be a continuous flow. Thus, the production
process is being usually standardized and has a stability. The control can be compared very
easily as the cost per unit can be determined and the total cost of production is being divided
by the total output which will be produced during the period. Thus, this method is being used
in the sector of steel, textiles, chemicals and sugar
Conclusion
As per the above analysis of the standard costing, it can be concluded that the
organization that has been selected should change their process of costing so that there can it
will help in saving more costs and will help in the maximization of profit. two of the costing
process is being recommended one is job costing and other is process costing which will help
the organization to achieve growth. In case of target costing, it is not relative to the recent
business environment as it is more time consuming. With the help of recommendations, the
planning purpose can be fulfilled by the organization and it will also help in the controlling
purpose.

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