Question

Discuss what role Standard Costs play in effectively and efficiently managing businesses. What is the relationship between Standard Costs and Budgets? Do you have any business experiences that suggested that the standard costing system was working very well or perhaps not working well?-

Answer 1

The standard costing is mostly used in companies which involve in manufacturing processes, and have a high value of direct labor, direct material, and overheads costs.

Using predetermined or standard rates for production and raw material, can help management in forecasting their costs for the future period and compare the standard costs with actual cost after completion of job.

With a standard costing system, the employees are also well aware of the set standards, so they always try to meet the standards. This helps the employees to meet the set standards.In the course of all these processes, the efficiency of the company’s will increase automatically.

Budgetary control and standard costing systems are two essential tools frequentlyused by business executives for the purpose of planning and control. In the caseof budgetary control, the entire exercise starts with the setting up of budgets ortargets and ends with the taking of an action, in case the actual figures differ with the budgetary ones.It creates suitable conditions for the implementation of standard costing system in a business organisation.

Actually i have not any business experiences but one of my friend have small business where standard costing is not working properly because standard costing for big manufacturing units but he has small business, may be this is the reason of implementation of standard cost not worked properly