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1. The Kaplan study text states: It can be too time-consuming to collect actual cost information FOR EACH INDIVIDUAL UNIT PRODUCED.
Is not it required by every company to work this out? Because if they are not working out cost per unit, how can the management accountant compare actual vs. budget after the year end?2. I understand that the standard costs are supposed to be updated regularly. But why are they being updated? Maybe to reflect inflation, market changes, and other factors?
1) No it’s not required. There are no requirements for management a/cs whatsoever, although you might expect all but the smallest of companies to prepare budgets and use management a/cs of some sort. If a company is a manufacturer, it might use standard cost for control purposes (MA/PM). However, that might be marginal cost – not total absorption cost. Marginal cost is not permitted in financial reporting because cost includes production overheads (IAS 2).
2) Where a company uses standard absorption cost AND those costs are kept up-to-date, those costs should be a reaonsable approximation to actual and this is permitted by IAS 2 (though allowance would still have to be made to write down any inventory which is damages/slow-moving, etc).
If standard costs are out-of-date they may still suffice for management accountin purposes, but a major costing exercise would need to be undertaken to value physical inventory at the reporting date for the financial statements.
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