Standard Cost Accounting System as Aid to Management Control and Planning
OBJECTIVES OF STUDY
The aim of this study is to,
- Examine how effective and efficient the standard cost accounting system has helped organization to achieve the judicious utilization of resource.
- The contribution of the system towards the survival o-f the manufacturing industry in the economic recession.
- It also examine the reaction of both management and junior staff to this effect
- It also provide a production of the future cost to be used in decision making situation.
REVIEW OF RELATED LITERATURE
THE HISTORY OF STANDARD COSTING
The typical standard costing system was developed in the early 1900s. According to Drury (1992) it was the scientific management principles recommended by F.W. Taylor and other prominent engineers who provided the basis for the development of a standard costing system. Scientific management engineers developed information about standards in order to establish ‘the best way’ to use labour and material resources within manufacturing. The standards that the engineers arrived at provided information for planning the flow of work so that the waste of materials and labour was kept to a minimum. One interesting fact is that the engineers did not view standards as a tool to control financial cost at this point in time (Drury, 1992). One of the first thoughts of using standards as a tool to control costs came from G. Charter Harrison, who designed and installed the first complete standard costing system known to exist. Harrison worked at this point for the Boss Manufacturing Company, Illinois, in USA – makers of work gloves. This was in 1911, but it took him a few years before he published the first set of equations for the analysis of cost variances (Solomons, 1968). Harrison was, however, not alone on the standard costing scene. In a series of articles in 1908 and 1909 Harrington Emerson advocated the development of an information system specifically directed towards the achievement of efficiency objectives. Emerson stressed that information about standards permit managers to differentiate variances that are due to controllable conditions and variances that are caused by conditions beyond management’s control (Solomons, 1968). Today standard costing is widely used by manufacturing companies through out the world. A survey undertaken by Ask and Ax (1997) reported that 73 percent of the companies in the Swedish manufacturing industry operated a standard costing system. Noteworthy is that 12.6 percent of the companies investigated stated that it was urgent to abandon standards but at the same time 9.9 percent stated the urgency of converting to a standard costing system.
STANDARD COSTING SYSTEM
Standard costing is most suitable in operations, where activities consist of a series of common or repetitive operations. In manufacturing organisations the processes often are of a repetitive nature and therefore standard costing is relevant in these kinds of organisations. Standard costing procedures can be applied to non-manufacturing activities where operations are of a repetitive nature. However, it cannot be easily applied to activities of a non-repetitive nature, as there is no basis for observing repetitive operations and therefore standards cannot be set. In organisations that produce many different products and the production consist of series of common operations it is possible to apply a standard costing system (Drury, 1992). In a standard costing system the standard costs for the actual output for a particular period are traced to the managers of responsibility centres who are responsible for the various operations. When it comes to the actual costs for the same period they are also charged to the responsibility centres. The two costs, the standard and the actual, are then compared and the variance between the two is reported (Drury, 1992). Managers need help in order to analyse where the variances have arisen. Accountants may assist managers in doing this, but it is important they do this together with the responsible managers in order to undertake an appropriate investigation. By doing this together the reason for the variance will easily be identified. An example of the importance of co-operation in investigation of variances is that the accountant might identify the reason for a direct material variance as being due to excessive usage of a certain material. On the other hand, the responsibility centre manager must investigate this process and identify the reason for the excessive usage. In the accounting literature there is an argument that there is little point in comparing actual performance with standard performance. The argument is that such comparisons can only be made after an event and the usefulness of the result is questioned. However, Drury (1992) argues that if people know in advance that their performance is going to be measured it is more likely that they will perform better.
TYPES OF STANDARD COSTS
The determination of standard costs raises the problem of how demanding the standards should be. Should they represent an ideal of faultless performance or should they represent easily attainable performance? Standards are normally classified into three broad categories:
- Basic costs standards.
- Ideal standards.
- Currently attainable standards.
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to standard cost accounting system as aid to management control and planning
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information standard cost accounting system as aid to management control and planning. 200 staff of dangote group of company, Lagos state was selected randomly by the researcher as the population of the study.
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
SUMMARY, CONCLUSION AND RECOMMENDATION
It is important to ascertain that the objective of this study was to ascertain standard cost accounting system as aid to management control and planning
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of standard cost accounting system as aid to management control and planning
This study was on standard cost accounting system as aid to management control and planning. Four objectives were raised which included: Examine how effective and efficient the standard cost accounting system has helped organization to achieve the judicious utilization of resource, the contribution of the system towards the survival o-f the manufacturing industry in the economic recession, it also examine the reaction of both management and junior staff to this effect and it also provide a production of the future cost to be used in decision making situation. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of Dangote group of company. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up human resource managers, accountants, production managers and marketers were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Goals must not only be set but also achieved. Budget is a combination of the goal-setting and goals achieving machine. The goal-setting machine set goals that are to increase profit and the goal achieving machine endeavour to achieve the set goals. In order to facilitate coordination and planning, the critical steps between the setting of goal and its achievements are the acceptance of goal by goal-achieving machine, that is the budget individual. If the budget individual can be persuaded or convinced to accept the set goal, his behaviour can be relied upon to achieve the goals. Evidence showed that goals significantly affect performance, that participation in goal setting has discernable direct effect on performance and on the goal level set. Accounting can act as a motivating factor and can induce better performance if information is promptly given to managers/employees. Also a successful participative budget induces motivation and goal acceptance. It provides information to associate rewards or punishment with performance, which leads to a new aspiration level and motivation that set the stage for the next participation budget.
- If accounting is to assist in the development of better managerial accounting techniques, greater effort must be made to utilize findings from behavioural sciences. The implementation of accounting techniques requires proper consideration of human element how the individual interact with the system.
Management should encourage participative management in budgeting in the organization. It can benefit from participation effects since participation can be grafted into existing procedures or changes where necessary. It also changes efficiency, motivation and productivity.
- The impact of the form of feedback of cost accounting reports and the behavioural resolution of its dissonance is clear. Therefore, it is recommended that accounting reports should be designed to provide positive reinforcement to the employees as well as make management aware of poor performance. The process of reporting in order to avoid/change a situation where dissonance may be present should take into account not only the need for information for decision making but also the clues signs for decision making.
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