Drury, C. (1992). Standard costing. London: Published in association with the Chartered Institute of Management Accountants [by] Academic Press.
Standard Cost System
Standard cost is a system used for planning, managing and controlling cost together with an evaluation of cost management strategies. It is generally used to roughly estimate the costs that are incurred in the production process. In this book, the author states that the primary importance of standard costing is evaluating the performance of an organization using variances. He, however, indicates that it is difficult to use standard costing in companies that do not have recurrent purchases as this may make recording difficult. He further argues that the major challenge with accounting data is the provision of old cost entries while the current systems use overhead allocations rather than tracing directly.
Dopuch, N., Birnberg, J., & Demski, J. (1967). An Extension of Standard Cost Variance Analysis. The Accounting Review,42(3), 526-536. Retrieved from http://www.jstor.org/stable/243717
Cost variances are the difference between the estimated cost and the actual cost of goods and services. Cost variance could be as a result of a change in market prices or labor rates. It can also result in a product of saving or wasting materials during the production process or the range in production volumes. Some factors that could affect the efficiency variance include minimum standard wages in the company. It explains that when the workers don’t hit their targets due to unsatisfactory wages, this could lead to a decrease in production, in turn, increasing variance. On the other hands, fluctuation in prices of products that cannot be controlled by the company such as diesel may increase or decrease the estimated cost of purchases. It is because if diesel is a factor during the production process, then it will increase the overall production of the goods.
Seiler, R., Louderback, J., & Hirsch, M. (1982). The Accounting Review,57(4), 839-840. Retrieved from http://www.jstor.org/stable/247433
Cost accumulation is generally a record for all the costs and transactions involved in the production of goods. There are however two main methods of cost accumulation one of which job order system collects direct information about staff, materials and any other necessary raw materials while the other one is where general costs are kept and maintained under one center. The company in its working year already sets aside the expected overhead for the year because there may be changes in prices of purchase products. A company may, however, choose to work with averages in terms of costs and units over some time. However, standard overhead rates can be assigned to individual models, and this could eliminate fluctuations in above rates.
Liao, S. (1993). The Accounting Review,68(2), 426-427. Retrieved from http://www.jstor.org/stable/248416
Overhead Cost Allocation
The rate of allocation charged per unit for production of goods is referred to as overhead allocation. Usually, the rate is generated from the amount of time a worker or machine spent in the production of a product. The article dwells on the implications of overhead cost allocation and conclusively states that it is important to determine an overhead allocation in order to decide how to price the output.