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Cost Standards – Technical problem

Posted on | May 25, 2010 | No Comments

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Standard cost control is a valuable method to help improve operational efficiency and effectiveness in production. Although there are several advantages of using this technique, there officers cons to consider when using a control mechanism. These self-limiting model, disagreement on how to use and the potential impact on the workplace.

Disputes on the appropriate performance measures and tools

Using a cost accounting standard, management must decide which of the four main standard they use as a benchmark. Since management can use the best available basis, the applicable standard or achieved, there may be disputes where the best fit. Another challenge is the ratio of costs and resources. For example, expensive tools, which will increase costs, but is expected to improve quality or reduce wastage. Determining the trade-off can be a problem, too.

Accounting fluctuations

In a dynamic business environment, complex, easy to understand how the estimated value is difficult to construct. There may be seasonal direct material prices, the impact of inflation and factoring may be difficult to blame the impact of trade discount may not be wise or practical.

Behavior problems and moral

Sometimes, adherence to standards can cause problems if managers do not use it properly. For example, when the variance is not profitable, some managers may think that this is due to a lack of effort or an effective part of the staff if it could be another reason. One of the aspects related to the technique using a standard form that the employee may try to “game”, such as quality systems, which support the production could suffer. Work-to-rule and the resistance of other problems related to the introduction of standard fees.

Timeliness

Management information is useful when the exact time. Variance reports can take a long time to process, which can significantly reduce the value of the standard cost. Timeliness is a big problem, because the variance would be easier to make a similar economic environment. Trying to get very precise data on actual costs could stall the report. To avoid this disadvantage, the standard cost variance reports should be more frequently and without detail.

Time and cost

Standard cost techniques that can be costly and time consuming. Setting standards, implementing systems to maintain standards and combine different forms of measurement can be used considerable resources – especially time.

Assumptions about the importance of labor

Direct labor costs are an important aspect of the standard model. This control technique assumes that labor is more efficient, more products will emerge. But the manufacturing process, which depends on other factors, such as delivery or processing engines, belies this assumption. Of the standard cost of labor is usually treated as a variable when it can be fixed, or semi-variable. Labor and equipment parts are sometimes overlooked using this technique.

Differences may be less favorable

Just as the tools used in production costs and lower than estimated costs should not automatically imply that the variance is favorable – although this term. Discount tolerance can mean that the quality is at risk of making some of its products or services. The inability to account the cost of quality and other proprietary rights is limited to techniques which should be treated with caution, multivariate analysis of variance.

Although the standard cost of a few bad sides, some are able to overcome or reduce the exercise prudence in using this technique, and acknowledge its limitations.

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