MWL Company’s Management Accounting Essay

Exclusively available on IvyPanda Available only on IvyPanda
Updated: Mar 7th, 2024

Introduction

Standard costing is one of the approaches that are employed for cost account and controlling the costs of the business. The standards costs are usually associated with the manufacturing costs of the company which include the costs of the direct material, the costs of the direct labor as well as the manufacturing overhead. In the standard costing system the inventories, the cost of the goods sold as well as the operational costs are assigned a standard cost.

We will write a custom essay on your topic a custom Essay on MWL Company’s Management Accounting
808 writers online

The costs that are actually incurred by the company are the actual costs that are to be paid by the company; however, the comparison analysis between the standard and the actual costs provides the inefficiencies and the efficiencies that are present at the company. The objective with the standard costing system is to have the actual costs match the standard costs as close as possible or to keep the actual costs lower than the expected or the standard costs.

The objective of this paper is to highlight the concept of the standard costing system and how it can be employed in a company. The case of the MWL Company is assed in terms of the application of the standard costing system at the company. The following tasks are to be undertaken for the assignment:

  • Identify the major advantages of the standard costing system
  • Identify the major disadvantages of the standard costing system
  • Identify the participants who are to be involved in the standard-setting process
  • Highlight the benefits of having the stated participants involved in the stared setting process.
  • Depict the characteristics of the standard costing system as a tool for cost control
  • Discuss the consequences for Condon and MWL getting the standards set by a consulting firm.

Body

The major advantages that are experienced by an organization through the employment of a standard costing system include the following:

The standard costing system can enable the company to measure its efficiency. The efficiency can be measured by comparing the actual costs incurred with the standard costs set by the company. The variance depicts how much more efficient or inefficient the company is. This approach can be used to evaluate the efficiency of the various cots centers of the business. However, it is important that the costs being compared belong to the same time period as the circumstances surrounding the costs have to be kept similar or the same in order to calculate efficiency through comparison. Usually, a base period is used which best sets an example for the standard cost.

The standard costing system can enable the company to identify and find and the performance by variances which can be determined by comparing the actual costs that are incurred by the company with the standard costs. The variance can be used as supportive evidence for spotting inefficiencies in the business. The identification of the variance or the deviation can enable the company to spot the problem early on and fix it before larger issues are created or major loss is incurred by the company

The standard costing system can also enable the company to employ management by exception. The different individuals involved in the cost centers of the business are provided different targets to achieve which depict the performance of the individual. If the performance of the individual is above the standard set then there is nothing to worry and compensation-based reward can be provided to the individuals to continue performing at high levels. However, in case of the actual performance is below the set standards of the budgeted performance then the management can be called in to take corrective action.

1 hour!
The minimum time our certified writers need to deliver a 100% original paper

The standard costing system can also enable the company to conduct const control for its operations. All costing systems tend to aim at controlling the costs by reducing them. In the standard costing system, the budgeted costs are set as standards that are constantly analyzed for updates and to keep them efficient. Whenever there exists variance between the standard costs and the actual costs, corrective action is taken to reduce the actual costs to the level of the standard costs. This process is called spotting or targeting the weak point and eliminating them which results in cost control

The standard costing system also enables the company to make the right business decisions. The system provides useful information to the company and the decision-making regarding the different elements in consideration and their actual and standard costs. This enables the decision-makers to study the elements and cost centers from multiple perspectives allowing for an appropriate and effective decision to be made.

Additionally, the standard costing system also enables the companies to eliminate the inefficiencies of the business and the cost caters. The inefficiencies are easily spotted through the comparison of the actual and the standard costs and are rectified by using improved methods for business operations or improved business processes and policies for the cost centers.

The Disadvantages of Using a Standard Costing System

Despite the highlighted advantages, there are significant disadvantages to using the standard costing system. These disadvantages pertain to the following:

It is not possible to use the standard costing system in an organization where the operations are nonstandard and the products that are being produced, manufactured, or processed are of nonstandard nature. This means that if a high degree of customization takes place in the organization and the products are made according to the individual customers’ requests. Then it is not possible to employ the standards costing system as no standard can be used or set for a customized product. There would be no use of a standard if it is even set as there will be always discrepancies present between the actual products and the costs and the standards set resulting in an inefficient and ineffective costing system.

The process of setting a standard is a difficult task and requires highly technical skills. Experienced professionals, as well as those who are directly involved in the process, are to be employed in the standard-setting and decision-making process. This is because the standards need to be set after considerable deliberation about the average production in the company which corresponds to the desired average the company wants to maintain its costs and productivity at. An incorrect standard set for the costs can resulting loss for the company as well as the high level of complexity in the is and variances when the standard costing is put into practice on the daily basis.

In standard costing, no inset circumstances are considered when determining and fixing standards for costs, productivity, and performance at the different cost centers in the business. Moreover, it is also possible that the conditions in which the standards were set to have changed in the future, i.e. they do not remain static and can change dynamically. This change in the circumstances surrounding the costs can make the standards that were set to become obsolete. In these cases, the standards need to be revised and updated on a periodic basis in order to prevent them from becoming impractical to use. These characteristics of the standard costing system can make it tedious to change the standards sets with the changing environment and conditions.

Remember! This is just a sample
You can get your custom paper by one of our expert writers

It is not easy to fix responsibility for any task. Moreover, the variances that to be categories as per the controllable and uncontrollable variances can also create problems with the changing condition if their nature tends to be affected by the change. As a result, the standard costing system is applicable only where there are controllable variables present.

Participants in Standards Setting Process and the Benefits of their Participation

The participants who are required to take part in the standard-setting process for establishing the standard costing system at any company need to be the key employees, the executives, and the senior management of the company.

The key employees from the cost centers of the company need to be involved in the standard-setting process of the company as they are aware of the costs and what factors influence the costs to rise or fall. They are also aware of the trends and the seasonality of the costs along with any issues and problems that are present at the const centers In terms of their cost inefficiencies. Their contribution to the standard-setting process is significant as they are the people who actually are involved in the processes at the cost centers.

The functional executives of the company are also required to participate in the standard-setting process for the application of standard costing in the business. The main reason for this is that these functional executives are experienced with the operations of the business and who the different processes integrate and merge with another business process in the company. They feedback on the standards being set is crucial as they assess the standards set form different perspective sand to have a larger scope which can provide an effective and efficient cost controlling mechanism along with the standard costing system. The benefit provided by their participation in the analysis of the costs from he different functional perspectives which are brought on to the table by them

The senior management also needs to be involved in the establishment of the standard costing system at the company as the commitment of the senior management is crucial for the long-term success of the system. The benefit of having the senior management involved in the standard-setting process is that the standards can be set to support the long-term company objectives and goals making them less prone to becoming obsolete.

Characteristics of a Standard Costing System Employed as an Effective Tool for Cost Control

Standard costing is an effective tool that can be employed to control the costs for the company. Essentially all costing systems aim to control costs and lower the. However, the standard costing system does this by providing set standards for the costs that are compared with the actual costs which are incurred. The variances and discrepancies between the actual and the standard costs are highlighted as cost efficiencies of the standard costs are higher than the actual costs and cost inefficiencies or unfavorable costs if the actual costs are lower than the set standard costs.

The standard costing system employs cost control through multiple strategies and perspectives. The standard costing allows for continuous control of the operations of a company and its costs and provides a budgeted assumption of the costs set as a standard. This is conducted by monitoring the price and the rate variances, as well as the efficiency variables in the cots centers. Over and under-recovery is also taken into account when it comes to the recovery of costs at the cost centers.

The standard costing system also employed split margin influence between the functions and the cost centers for the accountability of the task as, activities and actions being undertaken at the cost center. Justifications are required for all costs which aid in controlling the unnecessary costs which increase inefficiencies. The functions where the split of margin influence can be applied pertaining to the sales function the production and manufacturing function, the marketing function, the human resource management, and the financial function of the business. It is possible to apply the split of margin influence on the separate processes in the cost centers aside from the functions of the business as well.

We will write
a custom essay
specifically for you
Get your first paper with
15% OFF

The standard costing system also allows for operational cost control through the monitoring of the variance and checking the actual costs against the standard set costs. Aside from this the standard costing system also enables the company to employ fast closing of cost centers which are inefficient therefore reducing the efficiencies in the business and controlling the costs for the company. Through the standard costing system, it is also possible to smooth the cost which eliminated the random variances that may occur during the operations of the business in real-time. This also helps in controlling the costs for the business as the outlier costs are budgeted for and controlled to not occur.

The main objective of the standard costing system is to provide budgetary control on the costs incurred by the business through the setting of standards and comparing the actual costs with the budgeted and standard set costs. The standard costing system allows the management to plan for the costs in the future as well as control the costs in real-time operations.

Consequences Getting Standards Set by a Consulting Firm

It has been highlighted before that it is very important for the management of the company and its key employees to be employed in the decision-making process for the standards to be set at a company for the employment of the standard costing system. Such people are required who are experts in their field as well as know the technical aspects of the processes involved and the costs that are incurred along with the circumstances and elements which can influence the costs to go up or go down. Therefore when determining the standards and the budget for the standard costing system it is important to take into account the feedback provided by the process managers at the company as was done by Condon in the case.

However, if the standards are set by the consulting firm, then the standard costing system can be a costing system depending on the strategies taken by the consulting firm to implement the standard costing system at the company. A successful, and effective standard costing implementation at the hands of the consulting firm would require a consulting party who can take significant time out and mingle with the people involved in the various cost centers at the company.

The consulting firm representatives will have to initially sit back and monitor the processes at the ground level to determine how each process is undertaken and what circumstances are present for the successful completion and execution of the process. This is specific to the production-related processes. Aside from this, the consulting firm will need to carry out in-depth interviews with the key personnel at the company to inquire about any outlier costs that they incur or any problems that they face pertaining to the processes and the costs.

Additionally, the consulting firm will also need to sit with the executives and the process owners at the company to share the objectives, strategic mission, and long-term goals of the company which can influence the choice of the costing system. Only then is it possible for an effective and efficient standard costing system to be deployed in the company by the consulting firm? In order to et the standards and the budgets the consulting firm will need to be involved with the company its operations and its financial books for a considerable amount of time to study the trends and the performance from different perspectives.

If the consulting firm is unable to carry out the above-mentioned activities and tasks and does not take feedback from all the relevant personnel at the company, then the standard costing system would be set tat the company according to the standards set by the consulting firm will be ineffective. There can be a high chance that the standards that are set are either unrealistic or inaccurate or the objective of the consulting firm is not aligned with the objective of the company for its operations.

The feedback provided by the key employees at MWL to Condon revealed that the expanding production would require increasing the suppliers and the supply level for the basic food being prioresses at the company. This would necessitate the selection of a supplier which has a high level of quality products that can be provided to the company at low prices. However, if the quality is not maintained with the expanding operations, then it is possible to face retaliation by the customers with a decrease in the sales of the companies product.

These are problems that Condon was not aware of before setting a meeting with the consulting firm and it would be prudent of Condon to get his key management to share the feedback with the consulting firm in order to come up with the best-suited standards for the deployment of the standard costing system at the company.

Conclusion

Through this paper, we have been able to achieve all the state objectives that were depicted at the initial stages of the paper. The major advantages of the standard costing system have been identified, along with the disadvantages that are present for the standard costing system. The participants that should be present for the standard-setting process at any company have also been identified and the benefit of their involvement has also been depicted as per their roles.

The characteristic of the standard costing system as cost control and a budgetary tool as also been explored through the paper. Moreover, it has also been identified that it can be advantageous for MWL to get the standards set by the consulting firm if the firm takes the approach of getting the personnel and the management of MWL involved in the standard-setting process. However, if the firm does not involve the management and the key personnel of the company in the standard-setting process then it has been provided that the standards set can be unrealistic and inaccurate for the company and its operations.

References

2008, ‘Chapter 4: Standard Cost’, Globusz Publishing. Web.

Print
Need an custom research paper on MWL Company’s Management Accounting written from scratch by a professional specifically for you?
808 writers online
Cite This paper
Select a referencing style:

Reference

IvyPanda. (2024, March 7). MWL Company's Management Accounting. https://ivypanda.com/essays/mwl-companys-management-accounting/

Work Cited

"MWL Company's Management Accounting." IvyPanda, 7 Mar. 2024, ivypanda.com/essays/mwl-companys-management-accounting/.

References

IvyPanda. (2024) 'MWL Company's Management Accounting'. 7 March.

References

IvyPanda. 2024. "MWL Company's Management Accounting." March 7, 2024. https://ivypanda.com/essays/mwl-companys-management-accounting/.

1. IvyPanda. "MWL Company's Management Accounting." March 7, 2024. https://ivypanda.com/essays/mwl-companys-management-accounting/.


Bibliography


IvyPanda. "MWL Company's Management Accounting." March 7, 2024. https://ivypanda.com/essays/mwl-companys-management-accounting/.

Powered by CiteTotal, best citation maker
If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda. Request the removal
More related papers
Cite
Print
1 / 1