Page 162 - DCOM302_MANAGEMENT_ACCOUNTING

Unit 8: Standard Costing

3. Even for valuation of inventory, standard cost should be the proper basis. If actual costs Notes
are high only because there has been a wastage of resources, it is not proper to capitalise
those losses by including them in the value of inventory. Nothing becomes more valuable
simply because of wastage and, therefore, inventory values should better be determined on
the basis of standard costs.
4. In short, one can say that if a firm practices standard costing on proper lines, i.e., standards
are themselves determined in a way that will not impose too great a burden on the worker
or other employees or the firm, it may infuse in the minds of the staff a desire to achieve the
standards and thus show greater efficiency.
5. At every stage of setting the standards, simplification and standardisation of productions,
methods and operations are effected and waste of time and material is eliminated. This
assists in managerial planning for efficient operation and benefits all the divisions of the
concern.
6. Costing procedure is simplified. There is a reduction in paperwork in accounting and less
number of forms and records are required. There is considerable saving in clerical time and
expenditure, leading to reduction in the cost of the costing system.

7. This system facilitates delegation of authority and fixation of responsibility for each
department or individual.
8. Where constantly reviewed, the standards provides means for achieving cost reduction.
This is attained through improved quality of products, better materials and men, effective
selection and use of capital resources, etc.
9. Standard costs assist in performance analysis by providing ready means for preparation
and interpretation of information.
10. This facilitates the integration of accounts so that reconciliation between cost accounts and
financial accounts may be eliminated.
11. Standards serve as yardsticks against which actual costs are compared. Whenever variances
occur, reasons are studied and immediate corrective measures are undertaken. Thus,
it facilitates effective cost control and provides necessary information for cost reduction.
12. It creates an atmosphere of cost consciousness among executives, foremen and workers.
It also provides incentives to employees for efficient work.
13. Standard costing facilitates management by exception. It helps the management in
concentrating its attention on cases which are below the standards set.
14. Standard costing helps in effective delegation of authority and responsibility. As a result,
the management can control the affairs of various departments effectively.
15. Setting of standard involves effective utilisation of men, material and machines. It leads to
economy and increased productivity in all business activities.

16. It simplifies costing procedures and reporting. It reduces clerical work since standard rates
are fixed for material pricing, overhead allocation apportionment, etc.
17. It makes the work of valuation of inventory easier. This is because inventory is valued at
predetermined costs.

Self Assessment

State whether the following statements are true or false
12. Standard costing helps in effective delegation of authority and responsibility.

LOVELY PROFESSIONAL UNIVERSITY 157