Much of cost accounting is based on the principles of standardisation. It assumes that businesses operate in a stable environment where, for example, a standard amount of materials will be used in the production of each product and that a standard price can be attached to the price of those materials.
Much of cost accounting is based on the principles of standardisation. It assumes that businesses operate in a stable environment where, for example, a standard amount of materials will be used in the production of each product and that a standard price can be attached to the price of those materials.
Problems with standard costing in modern environments:
Standard product costs are associated with traditional manufacturing systems producing large quantities of standard items.
Standard costing may not be appropriate in the modern production environment because:
– Products are often non-standard
– Standards can become quickly outdated
– Production is highly automated
– Often an ideal standard is used
– Modern environments are more concerned with continuous improvement
– Modern managers need more detailed information
– More ‘real time’ performance measures are needed.
