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Sir, for the standard costing, are we using feedback control in this case?
Means, once the variance are identified, we will investigate the variance (cost – benefit analysis), and then update the standard in our future budget preparation.In standard costing, it is also part of MACS (Management accounting control system), in which it is a form of output control. Sir, is standard costing having (stable input and output relationship), means when we are setting the target (we assume it should be incurred in efficient operation environment, in which we use engineering studies) . However, I am confused on the part of
– having the bottom managers (responsible centre) influence in setting the financial performance target (in this case is standard cost is the desired target), if those managers are involve in setting the target, why engineering studies is needed to set the standard cost target?
– In conclusion, I am pretty confused on engineering studies (input and output relationship), and (involvement of manager in setting target) 🙁
Is target means desired output, aka standard cost right sir?Appreciate your time to clear my confusion, Thanks Sir
Standard costing on its own is not a form of control. Standard costs can be used as targets and can be used in variance analysis.
Variance analysis is used to exercise control. As I explain in my free lectures, operational variances are used as a form of feedback control (if something went wrong last month then we try to correct any problem for the future), whereas planning variance are used as a form of feedforward control (it we identify that a problem will occur in the future then we consider changing our plans).
When arriving at a standard cost of production is is necessary to decide how much material is needed, how much labour is needed, etc.. These are then costed out at the cost per kg of material, the cost per hour of labour, etc.. Calculating the amount of material, the amount of labour is what is meant by the engineering study.
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