Standard Costing System - a management tool by deviations
Standard Costing System nowadays serves as a reliable tool to control and manage production costs. This article studies the theoretical and practical-applied aspects related to its use. The different types of standard cost are examined and a model for applying it is developed. Particular attention i...
Gespeichert in:
| Datum: | 2016 |
|---|---|
| 1. Verfasser: | |
| Format: | Artikel |
| Sprache: | English |
| Veröffentlicht: |
Інститут економіки промисловості НАН України
2016
|
| Schriftenreihe: | Економічний вісник Донбасу |
| Schlagworte: | |
| Online Zugang: | http://dspace.nbuv.gov.ua/handle/123456789/114903 |
| Tags: |
Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
|
| Назва журналу: | Digital Library of Periodicals of National Academy of Sciences of Ukraine |
| Zitieren: | Standard Costing System - a management tool by deviations / R. Simeonova // Економічний вісник Донбасу. — 2016. — № 4 (46). — С. 70–74. — Бібліогр.: 2 назв. — англ. |
Institution
Digital Library of Periodicals of National Academy of Sciences of Ukraine| id |
irk-123456789-114903 |
|---|---|
| record_format |
dspace |
| spelling |
irk-123456789-1149032017-03-20T03:02:15Z Standard Costing System - a management tool by deviations Simeonova, R. Finance Standard Costing System nowadays serves as a reliable tool to control and manage production costs. This article studies the theoretical and practical-applied aspects related to its use. The different types of standard cost are examined and a model for applying it is developed. Particular attention is paid to the deviations in the Standard Costing System, and these are classified according to their nature. Formulas for analysis of the deviations are proposed. Their application is illustrated with suitable examples. The importance of standard prices and some difficulties relating to their use is shown. У сучасних умовах системи Standard costing служать надійним інструментом контролю та управління виробничими витратами. У цій статті аналізуються теоретичні та практико-прикладні аспекти, пов'язані з їх використанням. Розглянуто різні різновиди стандартної собівартості. Розроблена зразкова модель для її застосування. Особлива увага приділяється відхиленням у системі Standard costing, які також були систематизовані залежно від їх природи. Запропоновано формульний апарат для аналізу відхилень. Його застосування ілюструється відповідними прикладами. Зазначено призначення стандартної ціни і деякі труднощі, що стосуються їх використання. В современных условиях системы Standard costing служат надежным инструментом контроля и управления производственными затратами. В настоящей статье анализируются теоретические и практико-прикладные аспекты, связанные с их использованием. Рассмотрены различные разновидности стандартной себестоимости. Разработана примерная модель для ее применения. Особое внимание уделяется отклонениям в системе Standard costing, которые также были систематизированы в зависимости от их природы. Предложен формульный аппарат для анализа отклонений. Его применение иллюстрируется соответствующими примерами. Указано назначение стандартной цены и некоторые трудности, касающиеся их использования. 2016 Article Standard Costing System - a management tool by deviations / R. Simeonova // Економічний вісник Донбасу. — 2016. — № 4 (46). — С. 70–74. — Бібліогр.: 2 назв. — англ. 1817-3772 http://dspace.nbuv.gov.ua/handle/123456789/114903 338.24:657:658.5 en Економічний вісник Донбасу Інститут економіки промисловості НАН України |
| institution |
Digital Library of Periodicals of National Academy of Sciences of Ukraine |
| collection |
DSpace DC |
| language |
English |
| topic |
Finance Finance |
| spellingShingle |
Finance Finance Simeonova, R. Standard Costing System - a management tool by deviations Економічний вісник Донбасу |
| description |
Standard Costing System nowadays serves as a reliable tool to control and manage production costs. This article studies the theoretical and practical-applied aspects related to its use. The different types of standard cost are examined and a model for applying it is developed. Particular attention is paid to the deviations in the Standard Costing System, and these are classified according to their nature. Formulas for analysis of the deviations are proposed. Their application is illustrated with suitable examples. The importance of standard prices and some difficulties relating to their use is shown. |
| format |
Article |
| author |
Simeonova, R. |
| author_facet |
Simeonova, R. |
| author_sort |
Simeonova, R. |
| title |
Standard Costing System - a management tool by deviations |
| title_short |
Standard Costing System - a management tool by deviations |
| title_full |
Standard Costing System - a management tool by deviations |
| title_fullStr |
Standard Costing System - a management tool by deviations |
| title_full_unstemmed |
Standard Costing System - a management tool by deviations |
| title_sort |
standard costing system - a management tool by deviations |
| publisher |
Інститут економіки промисловості НАН України |
| publishDate |
2016 |
| topic_facet |
Finance |
| url |
http://dspace.nbuv.gov.ua/handle/123456789/114903 |
| citation_txt |
Standard Costing System - a management tool by deviations / R. Simeonova // Економічний вісник Донбасу. — 2016. — № 4 (46). — С. 70–74. — Бібліогр.: 2 назв. — англ. |
| series |
Економічний вісник Донбасу |
| work_keys_str_mv |
AT simeonovar standardcostingsystemamanagementtoolbydeviations |
| first_indexed |
2025-07-08T07:58:41Z |
| last_indexed |
2025-07-08T07:58:41Z |
| _version_ |
1837064804759502848 |
| fulltext |
R. Simeonova
70
Економічний вісник Донбасу № 4(46), 2016
UDC 338.24:657:658.5
R. Simeonova,
PhD (Economics), Assoc. Prof.,
D. A. Tsenov Academy of Economics, Svishtov, Bulgaria
STANDARD COSTING SYSTEM – A MANAGEMENT TOOL BY DEVIATIONS
At present Standard Costing System is an effective
tool to manage costs. It is based on the principle of re-
porting and controlling costs within established norms
and standards and the deviations from them.
The method of determining costs normatively
emerged in the early 20th century in the United States.
Taylor, Emerson, etc. contributed to that by applying
standards to find out the best way of using labour and
materials.
The development of the theoretical foundations of
this method is associated with the name of Charles Har-
rison. Harrison’s idea of standard cost is expressed in
the following formulations:
all incurred costs have to be referred and com-
pared to standards;
the deviations established in comparing actual
costs and standard costs have to be analyzed according
to causes.
Standard Costing System serves as an instrument
for controlling production costs. Based on the estab-
lished standards it is possible to determine in advance
the amount of the expected production costs, to calculate
the unit cost with the aim of determining its selling price
and to predict expected revenues. The information on
the deviations is used for making operational manage-
ment decisions.
The essence of the method is expressed by the
equation:
Actual cost = Standard cost ± Deviations
According to J. Bourdin (Bourdin, 1972, p. 97)
standard cost (standard price) is a special case of pre-
determined price. Pre-determined cost (price) manifests
itself in the form of:
standard cost (price);
budgeted cost;
estimated cost.
Standard prices are worked out after a precise tech-
nical and economic analysis. These are prices relating to
a future period, calculated on the basis of a higher effi-
ciency and hypotheses relating to market conditions
both at the entry and at the exit of the enterprise.
As already pointed out the normative method of re-
porting production costs and calculating the cost of
goods manufactured is used in a planned economy.
The principles on which the normative method is
built are:
calculating the normative unit cost at the begin-
ning of the reporting period;
identifying the deviations from the current con-
sumption rates and the accounts for additional costs;
entering the changes in consumption rates in the
cost of goods manufactured.
When comparing the Standard Costing System and
the normative method the following differences are
identified:
First, compared to working out and applying the
normative cost, when working out the standard cost the
impact of the market is largely taken into account both
at the entry and at the exit of the enterprise seen as an
economic system.
Second, which is related to the above stated, when
working out standard prices there is multivariance ac-
cording to the criteria used in setting them.
There are different types of standard prices:
Theoretical standard cost. It is determined on the
basis of the best possible use of the production factors
in the enterprise. This is, so to speak, the ideal situation
that has to be reached.
Standard cost. It is worked out taking into ac-
count the situation in the competitors’ enterprises. In
that price, market conditions are taken into account.
Prices thus worked out are not considered to always re-
flect the level of technical efficiency and to specify the
consumption rates.
Historical standard cost. It is the cost, which the
enterprise has already achieved in previous reporting pe-
riods and is updated at the same time.
Normal standard cost. It is calculated based on
forecasts in normal conditions of production.
Standard cost. It is determined during inflation
and hyperinflation. In such periods it is difficult to cost
the quantitative parameters of production factors. There-
fore, this cost is worked out taking into account that con-
sumption rates as quantity are determined for normal op-
erating conditions (as is with normal standard cost), or
on the basis of the best possible combination of produc-
tion factors (theoretical standard cost). The prices ap-
plied to costing the consumption rates are those which
operate at the time of establishing the standard.
There are three types of standards used in the USA:
average current standard cost, which corresponds
to the trends in the current situation;
normal standard cost, which is determined by ex-
amining the internal technical conditions and the devel-
opment of economy;
Finance
R. Simeonova
71
Економічний вісник Донбасу № 4(46), 2016
ideal standard cost, which is consistent with the
best possible performance, stimulating the diligence and
efforts of staff at all levels.
According to IAS 2 Inventories, the content of the
standard cost is formed by “taking into account normal
levels of consumption of materials and supplies, labour,
efficiency and capacity. They are regularly reviewed
and, if necessary, revised in the light of current condi-
tions” (International Financial Reporting Standards.
Part A, 2012, p. 576).
It should be noted that in countries that apply this
system there are no normative acts related to its norma-
tive regulation. There is no unified methodology for es-
tablishing the standards, either.
Cost planning in the Standard Costing System is
similar to engineering design, as costs must be closely
tied to technological processes. Currently in certain en-
terprises (Japan, etc.) the reverse situation is gaining
grounds – already during the stage of developing new
products (items) engineers set firm limits on the future
cost of the new product (Target Costing System).
In a market economy the prices of materials are
subjected to continuous fluctuations depending on sup-
ply and demand. Therefore, the standards for the mate-
rials are developed primarily taking into account the
prices prevailing at the time of their establishment.
The other possible approach is to use average
prices that are prevalent during the use of standards.
The average rates by technological operations are
used to standardize labour costs.
The standards for the cost of materials and wages
for the production staff are established for a single item.
In order to control the (fixed, indirect) costs, rates are
developed for the period, which comply with the quan-
tity of output that will be produced. They are constant,
however, flexible standards are developed for this type
of costs in case of fluctuations in the volume of produc-
tion.
The motivation for developing the standards and
their adoption must be taken into account. Standards
should be optimal, i.e. to motivate the staff to achieve
certain goals, neither too high and unattainable nor too
low and insufficiently mobilizing. Using standard cost
makes it possible to compare what is achieved with what
could be achieved.
The following model can be used in developing
standard cost:
Standard cost of a
product …
Date of the standard: ………
І. Direct materials
Technological operations Components of the product Quantity per unit Standard unit cost
Cost centres
Total
А B C
1.
2.
…
n.
ІІ. Direct labour
Technological operations Standard time (hours) Standard rate
Cost centres
Total
А B C
1.
2.
…
n.
ІІІ. Indirect costs
Cost centres Standard time (hours) Standard costs (per hour)
Cost centres
Total
А B C
One of the most important moments in the applica-
tion of Standard Costing System is the analysis of devi-
ations from standard prices. It is namely this analysis
that differs significantly Standard Costing from the nor-
mative method.
In the normative method the primary reporting and
accounting for the deviations and variations from the
norms should be very well organized. The main aim of
the normative method is the establishment of the actual
cost.
The main aim of the Standard Costing method is to
control the deviations, which helps to improve the cost
standards themselves.
Deviations from standards are mainly caused by:
the quantitative factor (the quantity of goods
manufactured and the consumption rates);
cost factors (prices of resources).
Global deviation is identified as the difference be-
tween the amount of the estimated cost (the product of
the projected quantity and the standard unit cost) and the
R. Simeonova
72
Економічний вісник Донбасу № 4(46), 2016
amount of the actual cost (the product of the quantity
actually produced and the actual unit cost). This devia-
tion is examined in depth as a deviation which derives
from the quantity and as a deviation caused by the re-
source prices.
An attempt can be made to systematize the devia-
tions in the following table (see Table 1):
Table 1
Types of deviations in the Standard Costing System
Type of deviation Identifying the deviation
І. By materials
1. Deviation from the price of materials (Standard unit cost – actual cost) Х quantity of materials
bought
2- Deviation from the quantity of the mate-
rials used
(Standard quantity of materials – actual material consump-
tion) Х standard cost of materials
3. Total deviation of material consumption (Standard unit cost – actual consumption per unit of mate-
rial) Х actual quantity of the materials used
ІІ. For labour
1. Deviation from the wage rate (Standard hour rate – actual hour rate) Х actual hours
worked
2. Total deviation for labour costs (Standard unit labour costs – actual unit labour costs) Х ac-
tual volume of output
ІІІ. For overhead costs
1. For variable costs (Normative rate of variable unit costs – actual rate of varia-
ble overheads per unit) Х actual volume of output
2. For fixed costs (Normative rate of fixed unit costs – actual rate of fixed
overheads per unit) Х actual volume of output
ІV. For gross profit
1. Deviation from the price (Standard selling price per unit – actual selling price) Х ac-
tual volume of sales
2. Deviation from the volume of sales (Projected sales volume – actual sales volume) Х standard
profit per unit
3. Total deviation for gross profit Total standard profit – Total actual profit
Appropriate formulas should be used to analyze the
deviations.
Global deviation can be expressed in the following
way:
P rp r
Е X XQ Qc c= − , where:
Е – global deviation;
r
Q – actual quantity;
p
Q – planned quantity;
cr
– actual unit cost;
cP
– standard unit cost.
If еQ denotes the deviation arising from the quan-
tity, and eV – the deviation from the price, then:
eVeQЕ += , where:
P pp r
eQ X XQ Qc c= −
P rr r
eV X XQ Qc c= −
or
( ) pp r p
eQ XQ Q Qcc Δ= − =
( )p r r r
eV XQ Qcc c Δ= − =
Regarding fixed costs the deviation will depend
primarily on the work done, expressed in certain units of
measure – natural or labour. This can be expressed using
the following designations:
F – amount of fixed costs;
N – activity that normally can be performed, ex-
pressed in appropriate units of measure;
n – the actual work done, expressed in the same
units.
The deviation arising from the fixed costs in this
case can be presented as a dependence of the above in-
dicators:
N n
e F
N
−= .
It can be expected, that deviations are often incon-
sistent.
Example:
In the company ‘Beta’ the standard cost of a basic
material used for the production of item ‘P’ is 14 000
BGN. It is worked out based on the following data:
projected quantity – 10 000 kg;
unit price – 1.40 BGN/kg
According to reporting data the actual quantity de-
livered is 11 000 kg, and the price is 1.20 BGN/kg.
R. Simeonova
73
Економічний вісник Донбасу № 4(46), 2016
Standard cost = 10 000 Х 1.40 = 14 000 BGN
Actual cost = 11 000 Х 1.20 = 13 200 BGN
Total deviation +800 BGN
Item ‘Р’ is manufactured with materials for 13 200
BGN instead of 14 000 BGN, which is economy for the
company.
This deviation is decomposed in the following
way:
deviation, arising from the quantity
(10 000 – 11 000) Х 1.40 = - 1 400 BGN;
deviation, arising from the changes in the price
of the material (1.40 – 1.20) Х 11 000 = + 2 200 BGN.
Total deviation = 2200 + (-1400) = +800 BGN.
The actually consumed quantity of materials has an
adverse effect, while the lower price works in the oppo-
site direction.
Example:
In the company ‘Alpha’ the standard labour costs
for the production of 1000 items of product ‘A’ is 450
hours. The rate per hour is 50 BGN.
According to reporting data 590 hours at 60 BGN
an hour are used for the production of the same quantity.
Standard labour costs = 450 hours Х 50 BGN = 22 500 BGN
Actual cost = 590 hours Х 60 BGN = 35 400 BGN
Total deviation -12 900 BGN
Deviation, caused by the amount of the hours
spent → (450 - 590) Х 50 BGN = -7 000 BGN.
Deviation, caused by changes in the rate →
(50 – 60) Х 590 = -5 900 BGN.
When determining the standard costs for direct ma-
terials and direct labour two components must be taken
into account: price and quantity.
Determining the standard costs by centres is based
on:
the volume of output of the centre;
the productivity of the centre.
To predict the costs of a certain centre the so-called
flexible budgets technique has to be applied.
The flexible budget allows for predicting the costs
of the centre for the different levels of activity that can
be achieved.
Example:
The flexible budget of centre ‘А’ is made in the following way:
Work unit (hour) 2 000 2 250 2 500 3 000
% of normal activity 80 90 100 120
Variable costs 180 000 202 500 225 000 270 000
Fixed costs 150 000 150 000 150 000 150 000
Total standard costs 330 000 352 500 375 000 420 000
375000
tan cos 1 150
2500
S dard t per hour BGN= =
One hour is needed to produce 1 item. Under nor-
mal conditions, the centre produces 2 500 items and the
standard cost per 1 item = 1 hour x 150 BGN = 150
BGN.
In May 2 200 items were produced, for which 3 000
hours were spent. The amount of actual costs incurred
by the centre ‘A’ is 350 000 BGN.
Determining the standard cost for the actually man-
ufactured items:
2 200 items Х 150 BGN = 330 000 BGN
Total deviation = 330 000 – 350 000 = 20 000
BGN, which is unfavourable, having the nature of over-
consumption.
Global deviation is decomposed in the following
way:
а) budget deviation
According to the developed flexible budget, 420
000 BGN are needed for an activity for which 3000
hours are spent.
The deviation = 420 000 – 350 000 = 70 000 BGN,
which has the nature of economy (favourable).
b) deviation due to the volume of activity
Knowing that the standard cost per hour is 150
BGN it can be calculated:
3 000 hours Х 150 BGN = 450 000 BGN
In the flexible budget the value of 3 000 hours is
420 000 BGN.
The deviation = 420 000 – 450 000 BGN = 30 000
BGN, which is favourable in nature. This deviation cor-
responds to 500 hours, in the case when the volume of
activities is 120 per hundred, or 3 000 hours.
в) the cause for the deviation is in the centre
productivity.
The deviation = 3000 hours Х 150 BGN – 2200
hours Х 150 BGN = 120 000 BGN, which is unfavour-
able.
It corresponds to 800 items of product ‘А’, which
are not manufactured (800 Х 150 = 120 000 BGN).
In conclusion the total deviation of 20 000 BGN
(unfavourable) is formed by:
deviation on the budget – 70 000 favourable;
deviation from the activities – 30 000 favourable;
R. Simeonova
74
Економічний вісник Донбасу № 4(46), 2016
deviation from productivity – 120 000 unfavour-
able.
The application of the Standard Costing System is
associated with the idea of personification of the respon-
sibility of deviations.
The standard cost and budgets that are developed
on this basis and the deviations from the adopted stand-
ards are used to evaluate the work of staff and the struc-
tural subdivisions of the enterprise.
The importance of standard prices is expressed in:
the possibility to measure costs and cost with the
aim to control them;
the possibility to influence the increase in
productivity and the decrease in cost;
the possibility to reduce the losses caused by the
unfavourable deviations;
the possibility to personify the costs;
the possibility to make management decisions
which are based on richer information. It is particularly
important when the standard price is decomposed into
standard variable and fixed costs;
the possibility to use standard prices as a starting
point in determining the selling prices;
the possibility for greater efficiency as regards
cost accounting. The reporting work related to calcula-
tion is minimized;
the possibility to stimulate the work of the entire
staff for achieving certain goals.
The Standard Costing System is subject to some
criticisms which most often refer to:
inconveniences associated with standard prices.
As far as they should be ‘firm’, i.e. fixed and unchang-
ing, given that enterprises and their surroundings are
continuously developing and changing. This refers pri-
marily to reporting periods that are longer. In the case of
a short life cycle of products, the standards that have
been developed for them are short-term.
To what extent should standard prices be flexible?
Should they be revised when necessitated by circum-
stances? The problem is how to assess achievements
with prices that often change;
the fact that too much attention is paid to cost
and labour productivity;
the fact that attention is focused on minimizing
the costs rather than improving the quality of goods
manufactured and fulfilling customer orders;
the fact that not all aspects of raising production
efficiency are covered.
The reality in the enterprises in our country allows
for concluding that the stated shortcomings of the Stand-
ard Costing System are not topical at present and do not
make it less significant for cost management.
References
1. Bourdin, J. (1972). Controle de gestion. Paris:
Dalloz. 2. International financial reporting standards.
Part А. (2012) (In Bulgarian). Sofia: IDES.
Симеонова Р. Системи Standard Costing – за-
сіб для керування по відхиленнях
У сучасних умовах системи Standard costing
служать надійним інструментом контролю та управ-
ління виробничими витратами. У цій статті аналізу-
ються теоретичні та практико-прикладні аспекти,
пов'язані з їх використанням. Розглянуто різні різно-
види стандартної собівартості. Розроблена зразкова
модель для її застосування. Особлива увага приділя-
ється відхиленням у системі Standard costing, які та-
кож були систематизовані залежно від їх природи.
Запропоновано формульний апарат для аналізу від-
хилень. Його застосування ілюструється відповід-
ними прикладами. Зазначено призначення стандарт-
ної ціни і деякі труднощі, що стосуються їх викори-
стання.
Ключові слова: система Standard Costing, конт-
роль, управління, виробництво, ціна, собівартість.
Симеонова Р. Системы Standard Costing –
средство для управления по отклонениям
В современных условиях системы Standard
costing служат надежным инструментом контроля и
управления производственными затратами. В насто-
ящей статье анализируются теоретические и прак-
тико-прикладные аспекты, связанные с их использо-
ванием. Рассмотрены различные разновидности
стандартной себестоимости. Разработана примерная
модель для ее применения. Особое внимание уделя-
ется отклонениям в системе Standard costing, кото-
рые также были систематизированы в зависимости
от их природы. Предложен формульный аппарат для
анализа отклонений. Его применение иллюстриру-
ется соответствующими примерами. Указано назна-
чение стандартной цены и некоторые трудности, ка-
сающиеся их использования.
Ключевые слова: система Standard Costing, кон-
троль, управление, производство, цена, себестои-
мость.
Simeonova R. Standard Costing System –
a management tool by deviations
Standard Costing System nowadays serves as a re-
liable tool to control and manage production costs. This
article studies the theoretical and practical-applied as-
pects related to its use. The different types of standard
cost are examined and a model for applying it is devel-
oped. Particular attention is paid to the deviations in the
Standard Costing System, and these are classified ac-
cording to their nature. Formulas for analysis of the de-
viations are proposed. Their application is illustrated
with suitable examples. The importance of standard
prices and some difficulties relating to their use is
shown.
Keywords: system of Standard Costing, control,
management, administration, production, price, cost.
Received by the editors: 08.11.2016
and final form 28.12.2016
|