1.1. Statement of
1.2 The reasons why some managers refuse to use their standard cost
1.3 Objectives of
1.4 Advantages of
1.5 Scope and
Limitation of the Study
1.7 Brief History about
1.8 Definition of
2.3 Types of
Variances and Variance analysis
causes of Variance
of Cost and Sales variances
2.6 Responsibility for Setting Standards
2.7 Setting Standard – Overhead
2.8 Setting Standard-Sales and price margin
2.9 The Standard cost card
2.10 Revision of Standards
2.11 Setting Standard – materials
2.12 Setting Standard – Labour
2.13 Behavioural aspects of standards
2.14 Budgets and standards compared
2.15 Motivation and standards
2.16 Chart of Common Variance
2.17 Standard Costing Formula
control system on how to investigate for
2.19 Steps involved in standard costing
2.20 Testing of Standard costing Formula
3.0 Research methodology
3.1 Research design
3.2 Data collection methods
3.3 Sample procedure
3.4 Sample size
3.5 Reliability of data
4.0 Data analysis and Presentation
4.2 Data Analysis
4.3 Classification of personnel data
4.4 Research questions
of the system to the survival of the manufacturing industry
4.6 Testing of hypothesis
5.0 Summary, conclusion and recommendation
organization is in business either to make profit or to cover its cost of
production or to render services. Profit is the excess of revenue over cost or
expenditure. Company executives have control over the selling price and
therefore have focus attention on cost. The executives is presented with
periodic report of what the actual costs were and this have appraised in order
to decide whether cost are higher or lower than the expected or about right. If
cost are higher than expected, the want to know the reason in order to take
corrective against future reoccurrence
and if cost are lower, they will want to know the reason why, in order to take
action that will perpetuate such cost savings. However, to decide whether cost
are higher or lower, that must be a yardstick. This yard stick is what costs
are expected to be a comparison of actual cost with the yardstick must be made.
This yardstick is the standard we are expected to achieve and therefore called
the STANDARD COST. This idea of
yardstick is the technique applied nearly by 85% of organization in
a result the management foremen, supervisor, and employee become cost
conscious, a circumstances that in-turn intend to reduce and encourages the
optimum allocation of scarce resources.
cost Accounting as a management techniques can be to have started long ago.
Although it might not have been the practiced now because of modernization.
Traders made projections with regards to these resources before embarking on
their business transaction which is exactly what standard costing system set to
achieve, though in a more scientific advancement in industrial resolution,
management has gone a long way in setting dependable accounting standard to
achieve overall organization goals, management is able to achieve effective and efficient planning and
controlling of cost towards realizing organization goals. This study focuses
solely on the manufacturing sector of the economy. Manufacturing sector is an
important institution of the economy and their role may be categorized into two
real manufacturing of goods needed by the society
sales of these goods to the society
study is focusing on these two functions as to row the manufacturing sector has
been able to achieve standard performances. It also studies how standard are
being achieved in view of the current economic depression in the country.
costing can be define as a predetermined calculation of how much cost should be
under specific working condition. It is built from an assessment of the value
o-f material labour and other cost components are rates expected to apply
during the period in which the standard cost is intended to be used.
main purpose are to provide basis for control through variance analysis, for
the valuation of stock and work in progress and in some case for fixed selling
prices (T Lucey).
main points in the definition are:
cost is a predetermined calculation of what ought to be under specific working
cost is built up by correcting standard quantity (of machine time, labour time
and material) and forecast of future market trend for price standard (price of
material wages rate, machine cost per hour etc.)
cost provide basis for control through variance accounting.
cost provide basis for valuation of stock and work in progress and in some
cases, for fixed selling prices.
there are two groups of standard.
i. Quantity 'standard
ii. Prices standard
standards are set on the basis of forecast 0- f market trends. It is important to
note that quantity, standard should not be revised frequently while price
standard essentially require a periodical revisions.
accounting refers to difference between the standard sets and the actual result
in a given period. Variance enable the management to know which element or
component o-f costs that is not efficiently controlled during production. As a
result, step can be taken to ensure an improvement where the result is
favourable or institute more control where the result is unfavourable.
STATEMENT OF PROBLEMS
the ever increasing complexity of business and dynamic conditions of the
business environment, makes it difficult: for a company to consistently earn
pro-fit that entails fair returns. Management has to be a plan of action for
the business if its profits are to be protected. There are some problems
management face both internal and external that warrant them to have a standard
management control and planning system to tackle these problems.
to the survey hold in the production department it was noticed that their
manager do not make use of the information's provides by the management and
that is why most manufacturing industries do experience unfavourable variance
in some departments in one study conducted, interviews were made in some
departments with the manger and production manager in the four factories all
held established standard costing system. In the 40 middle managers were
found out that 22 managers ignored standard costing accounting techniques
entirely, and of the remaining 28, 10 made use of the whole of their standard
costing accounting technique. It seems that the
international efforts of management who initiated the techniques were wasted.
So far, those manager who ignored their standard cost accounting techniques is
considered as they appeared to pay little attention to their predetermined
standard of performance or the examination of achievements as depicted in their
another problem ok plastic was facing is the efficient and effective use of the
system. It was noticed that there was no adequate skilled labour in the
organization. The company is owned by a group of Lebanese who preferred to
employ people with little skill and pay them less than employing well skilled
labour that would last them more.
REASONS WHY SOME MANAGERS REFUSE TO USE
THESE STANDARD COST ACCOUNTING TECHNIQUES
Some techniques might not be clearly
stated to the management team. So there is always a conflict between the top
managers and the middle managers
Some managers may have adapted to a
particular technique which is quite different from that of the standard cost
accounting system thereby creating a problem for the manager because he might
not have adequate knowledge of the standard costing accounting technique
Managers might refuse to use the
standard cost accounting technique because it is expensive and time consulting
to install and to keep up to date.
1.4 OBJECTIVES OF STUDY
aim of this study is to,
Examine how effective and efficient the
standard cost accounting system has helped organization to achieve the
judicious utilization of resource.
The contribution of the system towards
the survival o-f the manufacturing industry in the economic recession.
It also examine the reaction of both
management and junior staff to this effect
It also provide a production of the
future cost to be used in decision making situation.
study is set to examine the effect of standard costing system as a means of
effective and efficient .management of business organization. Many
organizations in the country are currently operating the system to ensure
effective management of the resources. This implies that, standard are set and
comparison are made with actual result achieved. This study also expose how the
system helps in planning and controlling of actual performance expected.
ADVANTAGES OF STANDARD COSTING
costing is an example of management by exception. By studying the variances,
management' attention is directed towards those items which are not proceeding
according to plan, management are able to delegate cost control through the
standard costing system knowing that variance will be reported
process of setting revising and monitoring standards encourage are appraisal of
methods materials and techniques so leading to cost reduction
costs represent what the parts and products should cost. They are not in merely
averages of post-performance and consequently they are better guide to pricing
than historical costs. In addition, they provide a simpler basis of inventory
properly development standard costing system with full participation and
involvement creates a positive cost effective attitude through all level of
provides a motivating force necessary achieve high performance.
standards encourage workers to achieve or surpass the same because they know
any performance would be evaluated with reference to establishing standards.
1.6 SCOPE AND
LIMITATIONS OF THE STUDY
are many limitations that prevent a smooth running of this research work. These
to the sensitivity of the nature of the topic towards survival of any
organization operating it, it is expected that collection of accurate data in
respect it of product and sales may be difficult to obtain.
a standard is too easy to attain or impossible to attain, it becomes a
disincentive and operative go at their own pace.
will be suspicious of standards and will be reluctant to super achieve in. case
the standards in changed. Also when standard are being set, the operative will
convince to market the standard easy to beat by working slowing the inevitable
result will be a subjective standard.
of materials prices (which are largely uncontrollable) are at best opinions of
what should be set as a result of union negotiations (Consequently, standard no
longer measure buying power but ability to predict accurately and negotiate
hard bargains with the unions
setting of standards and the reporting' through variance accounting is now a
complicated laborious time consuming and costly business. The saving arising
from cost control are often eroded by the high reporting cost any time lapse
means that the detailed information is too late in presentation to be of real
is sometimes difficult to attribute responsibility for variance to the correct
source. Standard are considered coercive and as such management and staff may
find them a "big stick" which may be dysfunctional. This may make
management liable to "passing the buck" to keep within the standards
or to be unadventurous for similar reasons
the study, research questions will be asked which if answered will assist in
the study. The questions are:
your company operate standard costing system?
your system ensure efficient utilization of resources?
the system as a management tools enhance better planning and control?
your company experience variance in the standard set when compare with the
your company usually review the standard set to meet the current changes?
answers to the following questions will assist this study to test how standard
costing assist management to control and plan.
Ho: The application of
standard costing as a means of management control and planning do not have any
significant impact on the management objectives.
The application of standard costing as
a means of management control and planning have a significant impact on the
The application of standard costing as a
means .of management control and planning has not improve the productivity of
The application of standard costing as
a means of management control and planning has improve the productivity of the
1.8 BRIEF HISTORY
ABOUT O.K PLAST
view of the present economic conditions which the industries sector is failing,
a lots of constraints here. been hindering its success, among such constraints
are now level of capacity utilization as a result of weak domestic demand,
depression of Maria, unstable foreign exchange market, high internal rate etc.
it is gratifying to note that O.K. Plast is one of Nigeria leading' plastic
industries and has distinguished itself with the high quality service and
consistent increase in turnover, profit after tax earnings per share dividend
per over the year. The O.K. Plast industry started its operation in Nigeria as
a market outfit in the early 90s, seIling household plastic as at today, they
have grown into a reputable manufacturing and market company with the aid of
standard costing techniques as a tool for management planning processes and
standard costing techniques is seen as an integral part of management though it
is practiced when condition favours its employment as a system of standard
costing, can assist in the function of management. The modem management must be
forward working and must be capable of converting the resources as effectively
in recent year’s qualitative technique have been developed at O.K. Plast to
determine the validity of investigation significant variance and these
technique involve the uses of probability theory standard deviation analysis
matrices and chi-square
DEFINITION OF TERMS
following are terms used in standard costing.
STANDARD: These are long term standard which would remain
unchanged over the years their sole use in is to show trends over time such as
materials prices labour rates and efficiency and the effect of changing
STANDARAD: These are based on the best possible operating
condition, i.e. no breakdown of machine, no material wastage, no stoppages or
idle time, in short, perfect efficiency ideal standard, if used would be
revised periodically to reflect improvement in methods, material and
STANDARD: these are standard based on efficiency (but not
perfect) operating conditions. The standard would include allowance for
fatigue, machine breakdown etc. it must be stressed than an attainable standard
must be based on a high performance level so that it achievement is possible,
but has to be worked for
STANDARD: These are standard that is based on current working
conditions. Current standard is employed for a short period of time.
AND BUDGETS: Both standard and budget are concerned
with setting performance and cost levels for control purposes. They therefore
similar in principle but they are different in scope. Standard are a unit
concept i.e. they apply to a particular products to individual operations,
processes or services. Budget are concerned with totals, they lay down cost
limits for function and departments and for the firm as a whole.
COST: this is a management estimate of cost of input and it’s
usually expressed in monetary terms.
COST CARD: This is a sheet or card used in the preparation of
cash sheet for every product produced in any manufacturing concerned. On this
standard cost card the quantity of each type of product to be made is shown.
This is the different between standard cost and actual cost and it can either
be favourable or adverse.
Lucey, (1984): costing: An instructional manual Eng.
Lang. Book society/DP publication Great Britain 2nd Edition
Pages 385 - 285
Lucey, (2000): costing: An instructional manual Eng.
Lang. Book society/DP publication Great Britain 6th Edition
Ayinde: Cost and Management Accounting Haymaker Concept
Limited, Published 1999, First Edition Chapter 14
(1998): Costing· accounting and budgeting (ATS2) Students
PYE Nigeria Limited. Published 1998, Page 1991-1992