As competitors simplify production and engage in repetitive manufacturing, every company needs to continually reduce costs to remain profitable and maintain its current market share. Using an actual costing system will not provide enough information to focus on cost reduction efforts and react to competitors in a timely manner.
While every company, big or small, must prepare financial statements and have a basic cost accounting system, not every company has a complete understanding of what the costs of producing goods or services should be. Determining the costs of products or services is an important step taken after capturing actual costs.
For example, if your company has recently outsourced several support activities, and the top management asks the maintenance department’s manager to reduce costs by 10%, then it is critical for that manager to identify what the costs of different processes such as machine maintenance, inspection, or certification should be to prioritize cost reduction efforts and keep this activity in-house.
Having a clear understanding of how to set standard costs and how to compare standard costs with actual results are critical steps for holding market share and remaining profitable. Many successful companies employ a standard costing system to reveal which parts of their operations are performing well and which are not meeting expectations.
While a standard costing system may require a major investment up front, it provides benefits that are simply not available in actual costing. For example, an actual costing system will not enable a company to make informed pricing decisions, improve cost efficiencies, identify and correct problem areas, or generate data needed to produce effective performance evaluations.
Is your company ready to determine whether the benefits of implementing a standard costing system will greatly enhance its performance? The Accenture Academy course Introduction to Standard Costing (SC) Systems
will help you recognize several benefits of a modern cost accounting system. The course identifies the features, benefits, and limitations of standard costing systems and identifies the conditions where standard costing is most appropriate. It discusses key terms and describes how standard costs are set. It also illustrates the basic accounting procedures for materials, labor, and overhead costs. The course presents the essentials of standard costing without intimidating jargon and prepares you to succeed in an increasingly competitive environment