The term Standard applied to costs, implies the word control and its corresponding analyzes. The so-called scientific organization of work has its origin in his studies carried out by Frederick Taylor (1856 - 1915) who, watch in hand, began to study each of his movements and time that workers use to carry out their work.
He found many of these tasks repetitive in nature and began planning how to save unnecessary effort and movement. The attempt to convert the workers into new machines that produced in units in predetermined time, led to standardization of work and birth of Standard costs.
Standard costs do not mean a new cost system, but scientific procedures for work organization and cost control. Scientists have been highlighted, large companies require scientific collaboration for the rationalization of work, which has reached a degree of perfection required by the services of professionals.
One of the great advantages of Standard costs, over the historical that lies in the studies of comparisons and decision-making.
Within the development, each of the parts that comprise it will be explained in detail, as well as in the conclusion, observations and suggestions obtained in the preparation of this research.
NATURE OF STANDARD COSTS
Historical costs are used to determine the actual amount of resources necessary for the acquisition of materials, labor, and some elements of indirect expenses. However, these actual costs do not provide information about the costs that must have been incurred to produce these products.
This unfavorable aspect of historical costs has encouraged the development of a more satisfactory determination of costs, called predetermined costs.
Default values are used in the standard cost system to record both direct labor and materials costs and manufacturing overhead. Comparisons are made of the differences between the standard costs assigned for a given level of production and the actual costs, in order to verify if what has been incorporated into production has been used efficiently. This comparison process is known as
Variation Analysis. The study of cost variations has important implications for the planning, control, and evaluation of production processes.
IMPLEMENTATION OF STANDARD COSTS:
To determine the Standard costs, the collaboration of all the departments of the company is required practically, starting from the management to the sales.
Obtaining the implementation of the Standard costs, in order to be efficient, requires arduous and meticulous work. In some cases, it takes more than a year to achieve the first results. They are more easily found and have more application from industries that manufacture a small number of items and mass produce. Due to the cost effort involved in implementation and the constant possible revisions and possible changes, a large variety of products in small quantities are not recommended for companies.
Standard costs, does not mean that they cause more administration work than those that can cause the estimated (non-standardized) or historical costs, is in accordance with the established method, such as:
- Partial Method Uniform Method Combined, mixed or memo method
It is possible that one increases the administration work.
ANALYSIS OF VARIATIONS
Once the Standard costs have been found, the success or failure of its implementation will, in large part, be based on the reports related to the possible variations presented by the cost accountant to the management and executives responsible for decision-making. Standard cost reports are often long and tedious. When actual costs remain similar to the Standard, do not burden management with unnecessary information. Apply the principle of exceptions, that is, try to highlight only the variations, if any; This will allow responsible executives, at a glance, to focus on the important parts and not waste their valuable time studying information that falls within the parameters of the established Standards.Although we are dealing in depth with industrial costs, it will allow me to expand the summary on the study of variations in Standard costs a little more.
When the cost of finished production of a lot in units of the item is not equal to its Standard cost, it means that there are variations. To determine it, a detailed analysis of each of the elements that make up its cost is precious.
Example: Exercise 26-11, Page 1,190, A. Redondo, Practical Course on General and Superior Accounting
The standard cost sheet for the production of a batch of 1,000 units of article 243-XB (the information is provided in summary form).
As you can see, the total of the Standard cost is not equal to the total of the finished production cost. However, when analyzing the cost for each element we check:
- Direct Materials. Although the total cost is not the same, there are variations both in the quantity of parts used in production and in their unit cost. Direct Labor. There are variations in the total cost, in the number of hours and the cost per hour. Manufacturing expenses. Although the Standard rate per hour Bs. 100,6472546 was applied, by varying the number of hours applied, it would cause a variation in costs for this concept.
Considering that you do not need new applications to understand the need for variations, they must be made in each of the three elements that are part of the production cost:
- Direct Materials Direct Workmanship Manufacturing Expenses
VARIATION OF VARIATIONS
To value and analyze the variations, it is necessary to distinguish the element of the cost from which they come and discriminate them in:
Variations in costs, in some cases, come from exogenous causes, that is, not controllable by the company. For example, that suppliers increase the costs of materials or that unions force increases in wages (in our country, they are also increased by presidential decrees). Variations in quantity are controllable by the company, as well as most manufacturing costs and also production capacity and efficiency.
VARIATIONS
Variations can be:
- Positive: They represent a decrease or saving in the Standard cost. Negative: Represents an increase or loss in the Standard cost.
Example: Exercise 26-11, Page 1,190, A. Redondo, Practical Course on General and Superior Accounting
BIBLIOGRAPHY:
- PRACTICAL COURSE OF GENERAL AND SUPERIOR ACCOUNTING, By A. Redondo, Reprint 1993 VOLUME II, Page: 1,143-1,190. FINANCIAL ACCOUNTING CONSULTING, Buenos Aires No. 100, esq. to Leonor, Cerro, City of Havana.www.contadoronline.cubaindustria.cu
GLOSSARY:
- Standard Costing: Sets the cost per unit to be incurred. Standard costs: Costs that you want to achieve in a certain production process. Direct Labor Efficiency Standard : Default performance standards based on the direct labor costs that would go into producing a finished unit. Direct labor price standard (rate): Salary rates for a given period. Direct Materials Efficiency Standard: Default specifications for the amount of direct materials that would go into the production of a finished unit. Direct material pricing standard:Unit prices at which direct materials could be purchased. Variation: The difference that arises when the actual results are not equal to the standard results, due to internal and external factors, can be favorable or unfavorable. Proration of variations: The treatment given at the end of the period to the resulting variations.
