Page 218 - DMGT403_ACCOUNTING_FOR_MANAGERS

Unit 10: Standard Costing

Notes

Caselet Standard Costing in Jute Industry

ute industry offers scope for implementing standard costing, says Dhruba Kumar Dutt
in Industrial Management in India from Purple Peacock (www.bharatbooks.com). The
Jauthor 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
10.2 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.
(ii) Both techniques are based on the presumption that cost is controllable.
(iii) In both the techniques, results of comparison are analysed and reported to management.

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