STANDARD COSTING IN MODERN BUSINESS

Role of Standard Costing in a Modern Business Environment

Role of Standard Costing in a Modern Business Environment

Introduction

Since, the introduction of benchmark costing in early 1900s, it has been broadly utilised by businesses round the world for diverse reasons such as cost control; valuation of stocks; budgeting; cost decrease; etc. Standard costing profited attractiveness amidst managers as a mighty control tool as it permitted them to provide work administration by exception, an approach that investigated only the most important deviations from fixed grades of presentation and to assign their energies to those localities that could advantage most from their attention.

Over the past decade, manufacturing businesses have faced both increasing technological discovery and more competitive markets (Chang et al., 2005,p. 116). With the drastic alterations happening in the constructing natural environment, where standard costing is performed, particularly be obliged to the increase in use of sophisticated manufacturing technologies such as automation, just-in-time (JIT) constructing, total value command schemes, etc. the applicability of benchmark costing as a control device has begun to decline. Traditional administration accounting methods such as benchmark costing and variance investigation, traditional budgeting and cost capacity profit investigation are said to be less helpful in the present manufacturing environment (Sulaiman et al., 2004,p. 493).

The manufacturing environment in Britain particularly has changed drastically as it has the influence of these new technologies more than any other country in the world. These alterations in the constructing natural natural natural environment seemingly have reduced the implication of benchmark costing especially as a cost command system. As asserted by Kaplan (1990,p. 4) “British companies have been quicker to abandon standard cost systems for variance analysis and control in the new manufacturing environment.” Morgan and Weerakoon (1989, p. 43) furthermore held this outlook when they stated:

British companies recognise that they have reached a strategic turning point and are adjusting their management accounting polices accordingly. They are moving away from benchmark cost schemes installed when the companies utilised to supply a steady merchandise variety to a steady market. Today's huge array of goods means that they are subject to rapid obsolesces, and in supplement, technological alterations represent severe trials to living benchmark cost systems.

Hiromoto (1988) added that in British standard cost systems are not used as widely as they are in the USA due to the market driven philosophy of the British companies. The outcomes of the past surveys on the use of benchmark costing (Howell et al., 1987; Sakurai, 1991) furthermore confirmed the outlook that standard costing was more popular in the USA than in Britain.

Through a literature review, the current study attempts to investigate the relevance of standard costing in British manufacturing environment. The major objective of this paper, therefore, is to examine the factors that led to the lowering of the usefulness of standard costing in British manufacturing concerns and to evaluate the significance of standard costing under the present settings. It is furthermore anticipated that the current study will help disclose if or not we should continue ...