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Finance & Accounting
Pages 8 (2008 words)
Title By; Instructor: Date: Criticisms of Standard Costing and Variance Analysis Standard Costing is the costs that a company believes each product costs the company based on direct material, direct labor, and overhead (Accounting Coach, LLC). The company predicts these costs based on the various components that go into making the product…
Other factors such as transporting the materials, utilities, etc could also be used however as stated before it is only an example. Variance Analysis is the difference between what is actually paid and the standard cost. The variance is used as a means for management to discuss performance and to review them. One of the major criticisms of standards is that some forms of standards are outdated and not as widely used as others. Another criticism is that the standards are not attainable. This means that the standards are not within reason. Considering that most standards are outdated and incorporate many different components, it is easy to see how mistakes can be made. If the company uses the wrong information on any of the components than it is guaranteed that a variance will be revealed upon further analysis. The standards are also not changed over a period of time and therefore are prone to be incorrect due to changes in technology or even by inflation. Standards are said to give employees the motivation to meet goals and to push his/her self to meet or exceed the goals of the company. This motivation is also said to benefit the company as a whole because it increases efficiency and productivity. The best way for standard costing to be effective is to have someone from every level to participate. ...
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