annotated bibliography for the Case 19.1
Search for the following concepts when looking for appropriate resources:
�Standard Cost System
�Cost Variances
�Cost Accumulation
�Overhead cost allocation
Relevant and credible sources that can be used to support the concepts discussed in the case
Edward vanderbeck (2013). Principles of cost accounting
The author generally talks about cost accounting and how management applies cost
accounting in management of costs. As written by the author, cost managers collect, analyze,
summarize and evaluate a variety of courses of action on cost management. Through cost
management, appropriate information is given to the cost managers on how to control operations
and budget for the future. The methods employed in cost accounting are standard costing and
actual costing. Standard costing uses forecasted cost instead of actual cost when recording.
Variances between the expected cost and actual cost are then determined. On the other hand,
actual costing uses the actual costs of materials and labor used in production.
Applying the author’s text on case 19-1, it is evident that Conley uses standard costing while
Bennet uses actual costing in its production. Conley uses a budget to estimate costs while Bennet
Company assigns the cost incurred to each product. Also, Conley overhead rate and production
estimates are based on the entire year. Each month’s actual cost and each month’s production
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volume are used to assign the actual cost in Bennet Company. The two systems used by the
companies are different.
Under standard costing, as applied by Conley, paperwork and record keeping cost is pre-
determined before the beginning of the year. Paperwork and record keeping are specifically done
by employees who are considered to be direct labor to their respective departments. The costs for
the labor used are assigned to the employees who keep records, and the cost for stationaries used
in paperwork and for keeping of records is also budgeted and the cost charged to the overall
overhead cost. For Bennet, the cost of record keeping and paperwork is charged specifically to a
product that used the materials. If an employee worked on record keeping for a specific material,
the actual cost is assigned to the material. Also, stationary used for record keeping and
paperwork is also charged specifically to the product that consumed the materials.
Picone, Mina, and Destri (2012). Bringing Strategy Back into Financial Systems of Performance
Measurement: Published by Business System Review
The authors tried to explain how having strategic measures in cost management lead to
performance improvement in organizations. Variance that arises as the difference between actual
cost that occurred and the normal cost against which it is measured are either rate variances or
volume variances in standard costing. Rate variance is also referred to as the price variance and
results when there is a difference between the actual price paid for a product and the estimated
price.
Conley accounting system gets differences between actual and standard cost from differences in
price between the estimated price of truck bodies and the actual price paid for the truck bodies
multiplied by the number of units. Also, the difference between actual and standard cost occur
when there is a difference between the actual amount of products sold and the budgeted amounts
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multiplied by the price per unit. Since Conley used the standard cost in calculating selling price,
it led to differences in the actual total cost that could have occurred either as direct material cost,
labor cost, or production overhead cost. Standard costing strategically provides for budgeting in
an organization.
Historical cost is used in budgeting for the overhead cost of a specific product model.
Since overheads were charged yearly at a certain percentage of the total direct labor, estimates
for the total overhead would be apportioned as per the previous cost assigned the model. The
overhead for each model is therefore allocated by summing up all the manufacturing overheads
and then use a certain activity measure to apportion overhead to inventory. Conley uses labor
hours to apportion overhead to inventory.
The system for allocation overhead should be changed. Allocating overhead monthly is
costly and time-consuming. Also, overhead is not directly related in the development of a
product since it’s either administrative or manufacturing overhead. The overheads are fixed since
they do not affect volume and rate of producing a product and should, therefore, be charged
yearly to save time.
Shawn Parker (2015). Proper Use of Standard Cost Methods Enhances Efficiency.
Shawn describes the use of standard costing and its effectiveness if it’s applied well by
cost managers. Hence, best accounting method is the standard costing. When standard costing is
used, the overhead rate used is usually more uniform and realistic for all of the units produced in
an accounting period. Under actual costing it takes a lot of time to aggregate costs into costs
pools and the allocated overhead is normally not uniform in the different accounting periods.
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Standard costing adjusts the overhead rate every few months to make it almost equal to the actual
overhead.
Also, standard costing allows the use of budgets. Budgets help in estimating the amount
required for production in a certain accounting period. Actual costing cannot use budgets since
it’s not possible to get the actual costs of producing a product beforehand. Hence, standard
costing leads to better managerial control of costs by the use of a budget.
Under standard costing it is easy to formulate prices for specific products. A company
that uses standard costing uses the standard cost to project the price of a product after which it
adds on a certain margin to get the selling price of the product.
Chris Crowder (2014). Three Tips to Make Standard Cost Accounting More Effective
After researching on the application of standard costing by different companies, Chris
describes overhead as the main component that differentiates actual costing to standard costing.
When overhead is allocated annually, overall cost is decreased.
Bennet needs to modify its system by applying standard costing in the allocation of overhead
since it gives more realistic and uniform overhead during the year. Overhead should also be
allocated on an annual basis to save time and costs. Standard costing should be used for custom
made products while actual costing is beneficial when analyzing the exact cost for producing a
specific product.
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References
Chris Crowder (2014). Three Tips to Make Standard Cost Accounting More Effective.
Edward vanderbeck (2013). Principles of cost accounting
Picone, Mina, and Destri (2012). Bringing Strategy Back into Financial Systems of Performance
Measurement: Published by Business System Review
Shawn Parker (2015). Proper Use of Standard Cost Methods Enhances Efficiency.
