Standard Costing For Business Organizations: An Analysis

Discuss about the Business And Social Review In Emerging Economies.

Introduction to Standard Costing

Managerial Accounting is an accounting process which considers the costs aspects of a business and how the same can be used by businesses in decision-making process which is undertaken by the management. The accounting process is closely related to cost accounting process and the main functions of this are to classify, measure, identify, analyze and communicate information to the managers of the business so that appropriate decisions can be taken for the organization. The main techniques which are used in such a field are Activity based costing, standard costing and budgeting (Ojua 2016). This report will be concentrating on standard costing process which can be applied to a business for the purpose of reporting vital information. The first part would be providing a basic introduction to the process of standard costing and the application for the same in a business organization.

The assessment will also be analyzing two articles which are related to standard costing practices in an organization. The journals will shed lights on the application of standard costing techniques in an organization and how the same is useful for the business. In addition to this, a section of the report will be portraying the similarities and difference which arises between the two journal papers which is considered for this assessment (Schäffer 2013). The assessment will finally conclude after showing the benefits which can be achieved if the management professional applies standard costing techniques in Australian businesses.

Standard costing can be identified as a practice of businesses where budgeted costs which are anticipated by the management are compared with the actual results which is achieved by the business. Standard costing techniques are used for the purpose of identifying variances which are used by the most of the business for the purpose of identifying the performance of different components of the business (Popesko 2013). As per Oweler and Brown, method of standard costing is used whereby statistics are used for the preparation of standard costs of the business, actual costs of the business and also comparison between the two. The application of standard costing techniques enables a business organization to measure the costs of each product operations considering the prices of the products and also the volume of the products which the business intends to produce from the operations (Stone 2014). The word standard cost refers to the costs which is estimated or predetermined by the top-level management which is close to the actual costs which is incurred by the business during the year.

Evaluation of Scope and Research Areas of Standard Costing

Standard Costing therefore forms an integral part of the process of management accounting system which includes significant techniques like budgeting and also responsibility accounting. In addition to this, standard costing techniques can also be view from the perspective of marginal costing or absorption costing with relation to the overheads of the business (Ji 2017). Variance analysis are an important part of the standard costing which enables the management to measure the discrepancies which are present in the budgeted figures and the actual results of the business (Kariyawasam 2014). In addition to this, standard costing techniques are used by business for bringing about control in the business with the help of variance analysis of the business. The process of standard costing is applicable for material costs, labour costs as well as overhead costs of the business. In addition to this, the process also plays a significant role in the process of selling prices of the business.

The application of standard costing techniques allows businesses to effectively measure the performance of the business and also the planning process of the business (El-Shishini 2017). The objectives of standard costing of a business are listed below in point form:

• The application of standard costing techniques in a business helps in the implementation of proper budgetary control in the organization.
• The application of standard costing techniques is useful for the purpose of estimating the performance of the business in general terms.
• It helps the business to keep a track record of the materials, labour and overhead costs of the business as per the requirements of the business.
• The standard costing techniques reflects areas of variances that is where the actual performance is not up to the mark as the standard set by the management and therefore the management can analyze the reason for the variances and rectify the same (Mihaela 2016).
• The method requires proper control and performance management which opens the door for performance and also the management can motivate the employees of the business with the help of this method.

The important and application of standard costing system in management accounting practices in a business can be established with the help of two journal articles which are considered in this case study. The journal articles are considered for the purpose of evaluation the usefulness of standard costing practices in a business. The articles which are considered for the purpose of the evaluation are

Article 1: “ Effects of Standard Costing on the Profitability of Telecommunication Companies: Study of MTN Nigeria”

Article 2: “Standard Costing and Cost Control in Nigerian Oil and Gas Industry”

The next few paragraphs contains details discussion about the articles which are considered for this assessment.

The journal article focuses on the applicability of standard costing techniques in businesses of MTN telecommunication organization and also the impact of the standard costing techniques on the profit generating capacity of the business. As per the author, there is a direct link between standard costing practices in the business of MTN telecommunication organization and the profits which is generated by the business (Abdullahj et al. 2015). The author of the of the journal also specifies the meaning of standard costing which is as per the author is a method of performance measurement which is done by comparing the actual performance of the business with the standard set in the budget by the business (Askarany 2015). Moreover, the difference between the actual results and the standards which are set by the management are considered to be variances for the business.

Analysis of Article 1

The company which is considered for the research in the journal article is MTN telecommunication organization which is considered to be a big organization in South Africa and is considered to be a leading business in telecommunications sector. The company also has a number of subsidiary organization in global countries. The journal paper recognizes the importance of profits in developing the business and also the importance of standard costing practices in maintain the level of profits as anticipated by the management of the company(Fatah 2013).

The research paper shows that in order to acquire the operational efficiency in the business of telecommunication sector is to invest in infrastructure, operational equipment and software development programs. The company at present level has a significant level of efficiency in terms of software which is used by the business and also has significant internal control system which also covers management accounting practices. Standard costing techniques are used by the management for setting of goals with the help of budgeting practices and also variance analysis which is used by the business for the purpose of identifying the areas of underperformance and also communicating the same to the top-level management of the business.

Thus, the discussion the journal article mostly deals with the profitability aspects of a business in Nigerian economy and how the profits of the business are affected by the standard costing practices which is applied by the management of the company. The assets and liabilities of the business are influenced by the trends of profit generating capacity of the business. On the basis of the journal paper, the following research questions can be identified which are related to the topic of the assessment:

1. What role does standard costing practices play in deciding the impact on profit generating capacity of the telecommunication sector in Nigeria?
2. What current practices of the business are followed by the management of MTN which are contribute to the profitability trend of the business.?
3. What steps can be taken by the management of the company for the purpose of bettering the operational structure of the business and thereby increase the profit generating capacity of the business?

In this journal article the author considers an oil and gas industry which has its operation in Nigeria and the relationship of the cost control and standard costing techniques which is used by the management of the company. The analysis which is shown in the research paper mainly accommodates research on the basis of hypothesis considering several businesses operating in Oil and Gas Industry in Nigeria (Akenbor and Agwor 2015). Moreover, the research paper considers the profit factor which the management of a company must consider in the cost control and management policies of the business which has a significant role to play in any managerial decisions.

The profitability of the business is one of the principle objectives of the management and the two most common methods which are applied by the management to increase the profit-making capacity of a business are increasing the volume of sales of the business or reducing the overall costs of operations which is associated with the business. However, in most of the business, it is not always possible to increase the sales volume of the business instantly but controlling of costs of the business is very much possible. The author stresses the major components of costs which can be minimized by the business are related to material costs and labour costs which affect the business.  In this respect an appropriate cost control technique which considers such areas is necessary which is fulfilled by standard costing practices in a business. As per Akenbor and Agwor, Standard costing forms an internal costing system which can be applied by the business for setting a standard cost which is to be compared on a periodic basis with the actual costs of the business. The journal article also specifies that the difference between the standard costs and actual results are known as variances of the business (Sachchidanand 2014). Such variances are crucial not only to measure the underperformance of an area but also the magnitude of underperformance of an area (Kaur 2014). The standards which are set by the management are based on actual experience of the management with a level of forecasting in order to get close to the accurate estimates.

Analysis of Article 2

The journal article considers sample analysis of seven oil and gas company which are engaged in the same operation in Nigeria. The research is analyzed with the help of quantitative and qualitative analysis of information which can gather by the researcher from the seven oil and gas companies and also from the oil and gas industry in Nigeria.  The data which is used in the analysis is collected with the help of a questionnaire. The research successfully shows that implementation of standard costing practices in Oil and Gas Corporation in Nigeria has significant impact and the same can result in better monitoring and control practices in such organization.

On the basis of the analysis which is conducted in the research paper, the following research question can be brought forward in connection to the topic of this assessment:

• What ae the impacts of Standard costing practices in a oil and gas based company?
• How can the management improve the cost control practices of a business by adopting standard costing practice as a management policy?
• How can adoption of standard costing affect the profitability of the business?

The similarities and difference which can identified from the two journal research papers are listed below in details:

• On the analysis of both the research journals which are considered for this journal are based on standard costing practices and both the journal provides adequate description of standard costing techniques which can be used as a monitoring tool as well as a performance management practice applied by the management.
• In case of the analysis, both the organization which is considered operate in Nigeria and are considering to opt for standard costing practice in order to maintain and initiate proper control of the business organization.
• Both the research papers which are considered in the assessment consider that the application of standard costing procedure in a business organization can bring about improvement in the profitability aspect of the business. Moreover, the both papers show the necessity of proper control policies in order to achieve the desired results as required by the management of the companies.

• The point of difference which can be identified from the analysis of the two research papers is the approach which is applied by the researcher in analyzing and researching the information. In the research work of Abdullahj et al.(2015), the data which are portrayed in the research papers are mainly qualitative in nature and the research which is conducted by Akenbor and Agwor (2015), shows application of both qualitative and quantitative analysis for the purpose of establishing a result. Moreover, the authors has applied hypothesis practices in a the research for the purpose of establishing the findings of the research paper.
• Both the researches are conducted on companies which belong to the same country but the industries of these companies are different. Therefore, the nature of business operation of both the companies are different (Abdelrahman, Abdullah and Abas 2017). The practices of the business and also the approach of the businesses is also different and therefore, it can be estimated that both the companies apply standard costing practices under different scenario.
• The first article which is considered for this assessment is based on a business which is engaged in telecommunication sector while second article is related to oil and gas business sector. The second article collects data considering a sample of seven oil and gas businesses which are operating in Nigeria and for this purpose uses questionnaire for collecting relevant information for the research. The first article considers a single company and applied the techniques of benchmarking for the purpose of comparison and also establishing relevant information for the research.

The analysis of the two research papers which are shown in the discussion above shows significant analysis of the information regarding the use and scope of standard costing practices in a business organization. The outcomes which can be used by management accountants in Australia are given below:

The profitability capability of the business can be affected by management control and monitoring practices of the management. The research papers of the companies which are considered by the assessment are Nigerian business and both the research paper shows that application of standard costing practices in a business can be beneficial for the business. Standard costing practices can bring about improvements in the business organization by establishing effective control policies and analyzing the areas which are significant for the business.

One of the major benefits of standard costing practices in an organization is to bring about a proper implementation of Budgetary control in the business. Another benefit of budgeting practices which can bring about in Australian entities is that proper implementation of plans and also identify the areas of underperformance. Standard costing practice allows a business to identify variances which is difference between actual results and standard results. Australian entities can bring about development proper control practices by following standard costing techniques.

The planning and decision-making process of the business can be effectively improved following standard costing techniques. It allows the management too set targets and also monitor the same. The targets are set following budgeting techniques and also forecasting the revenue and expenses of the business. Standard costing techniques helps management to make comparison between standard set and the actual performance of the business. The difference is known as variance which can be further investigated by the management of the company and decisions can be taken accordingly based on variance analysis which is acquired through standard costing techniques.

The inventory management of the business can be made improved following standard costing techniques for material perspective. The material usage variance analysis of the business computes the standard material which was supposed to be used and the actual material consumption which is used by the business. The inventory management system in Australia entities will improve significantly if the businesses in Australia started following standard costing practices.

Conclusion

The above discussion shows two different journal articles which are emphasizes on the application of standard costing practices in business. The above discussion shows the relevance of standard costing in improving control practices, decision-making process of the business, profit generating ability of the business. The practices of standard costing is also useful in identifing areas of underperformance with the help of variance analysis. On the basis of variances computed investigation can be conducted as to the reasons for the variances and appropriate decisions can be taken regarding the matter. Thus from the analysis it is clear that standard costing can be effectively used as a management accounting tool for measuring costs, improving controls and overall increasing the profits of the business.

Reference

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