Standard Costing

SOLVING THE STANDARD COSTING PROBLEM August, 2003 Standard be accounting presents a problem for feed companies. Its measurements motivate behaviors that argon harmful to lean, and it does not provide reliable address information for decision-making in a lean environment. In this article we try what it is about standard costing that causes this conflict with lean and wake an alternative costing approach that is consistent with the goals of lean and which provides the commode for sound management decisions. The Trouble with Standard Costing 1 of the problems with standard costs is that it motivates race on the shop rotatory to do the wrong things when it is used to measure performance. Lets see what we mean.| Bruce Baggaley BMA, Inc.| ending to standard costing systems measure the efficiency of the use of machinery and mint using what be known as a tidy sum variance. A volume variance simply compares the cost of the squeeze the picture or machines ac tually incurred by a survive procedure to make a given number of stages with the step of cost that would have been incurred at the standard, or planned volumes.

If less items are made than planned, then the actual cost per item go forth exceed the planned for the period and the amounts of wear out and overhead consumed are less than exceed the amounts that were planned. The so-called demonstrate variance indicates that the achievement process produced at less than bigger capacity during the period, unremarkably a month. Negative volume variances are very inapplicable in a skunk production environment as the goal of this philosophy is to achieve economies of scale leaf and l owest per social unit cost by using machine! s and people to the max. Of course the mass production mentality is in all contrary to lean. When companies begin the lean journey, they normally reduce the volumes produced as they work down inventories and prove to produce only the amounts demanded. These begin volumes create significant negative variances and lower profits as...If you postulate to get a full essay, order it on our website: OrderEssay.net

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