Page 159 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes
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Caselet Standard Costing in Jute Industry

Jute industry offers scope for implementing standard costing, says Dhruba Kumar Dutt in
Industrial Management in India from Purple Peacock (www.bharatbooks.com). The author
divides jute costing into three: Spun jute yarn, woven jute cloth, and finished jute cloth/
bag. “To arrive at the cost of jute yarn, one has to start from the stage of batching,” explains
Dutt. Jute mills use a ready-reckoner type of table to blend jute of various kinds in fixed
proportions; this is softened and converted into `jute yarn of the required count.’ Costing
department receives daily reports that show `the quantity of each kind of jute consumed
in the batching process.’ Standardised numbers are available of raw jute consumption for
producing one tonne of spun yarn; also known are percentages of waste in each process
stage from batching to spinning.
“Direct and indirect labour costs are carefully split up and charged to the processed
material of each kind,” be it hessian/sacking warp/weft. Winding section has piece-rate
workers winding both cops and beams. “In the weaving stage, costs of warp and weft
yarns (in beams and cops) for producing jute cloth of any particular kind is calculated by
ascertaining the consumption of beams and cops.” Move on then to the sewing department,
where you can compute the cost of jute cloth and jute yarns required to manufacture a bag.
Sack sewers work on piece rate. Successful standardisation hinges on minute observations
and experiments, notes Dutt. “Thus standard costing should be viewed as part of industrial
management,” he argues.
Source: http://www.thehindubusinessline.in

Self Assessment

Fill in the blanks:
1. ………………… facilitates to ascertain the cost of a product which is connected with yester
operations or with past.
2. Standards are classified into two categories, viz. ………………… and Cost standards.
3. Selling Price – Cost = …………………
4. The preparation of standard costs is meaningful only through the completion of
…………………
5. The standard cost is related to ………………… portion of the cost of a product.

8.2 Budgetary Control and Standard Costing

The systems of standard costing and budgetary control have the common objectives of
controlling business operations by establishment of pre-determined targets, measuring the actual
performances and comparing it with the targets, for the purpose of having better efficiency and
of reducing costs. The two systems are said to be inter-related but they are not inter-dependent.
Standard costing is introduced primarily to ascertain efficiency and effectiveness of cost
performance. Budgetary control is introduced to state in figures an approved plan of action
relating to a particular period. Both standard costing and budgetary control have the following
common features:
(i) Both have a common objective of improving managerial control.

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