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EMA COURSE WORK - Essay Example

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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 One of the major criticisms of standards is that some forms of standards are outdated and not as widely used as others.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 Considering that most standards are outdated and incorporate many different components, it is easy to see how mistakes can be made.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. There has traditionally been a problem trying to get enough people to participate so that the results are reasonable. Participants will look for the easy target and this can pose a problem. The easy target is not necessarily the optimum target or the most cost efficient. Participation in the costing or analysis would require a lot of time and knowledge that the participants do not have. Also the more time they spend on it the more it will cost the company in the form of salaries and benefits. There is also the risk of the participants being out for their own individual gain. They could feel as if their participation could help them further their own agenda instead of that of the company. They could also spend too much time talking and not enough time coming up with solutions. Lack of knowledge can also factor into this because if the participants do not understand the goal they are trying to reach, then time can be spent teaching them instead of getting down to business. Management of Time is also another criticism of standard costing and variance analysis. The process is time consuming to say the least and most managers already feel as if they don’t have enough time to carry out their day to day activities let alone deal with standard costing or variance analysis. Managers in particular might feel as if this is something that someone else should be doing, namely someone in the corporate office if there is one. Absorption costing fuels another criticism of standard costing and variance analysis. Absorption costing assumes that all costs of the production of a product are included in the final price of the product (AccountingCoach, LLC). This type of costing can create some problems because it could lead to extremely high standard costing which in turn would always lead to variances. If a product includes all of the fixed costs such as utilities of the entire building, rent of all buildings, etc than the standard cost could be extremely high and overstated. The costs are not allocated over all of the products that are produced in the same area but instead the costs are absorbed into the ...Show more


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…
Author : trever94
EMA COURSE WORK essay example
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