Introduction
How the use of standard costing is quite valuable in pricing and budgeting and how the standard costing installation is a desirable vehicle for accomplishing the objectives of a progressive management.
Standard costing technique is the most efficient means of establishing desirable results for a given company. This method uses all the efficient methods available to evaluate, analyze and interpret a given set of results. Setting prices for given products or goods in a given company is the most overwhelming step that a company can take. A standardized method that considers all the dynamics necessary for this can actually calculate and stipulate on a fair price plan that is efficient for both the consumers and producers (Darcy, 84). Standard costing system takes all these into the broader perspective of going to the extreme end of analyzing all the necessary steps and outlines that should be taken into consideration when coming up with a definitive price plan.
A strategic upfront company that adopts the standard costing pricing technique can be assured of maximum returns to their profit influx. This can be realized if a professional expert that has mastered all the necessary execution techniques of undertaking this. The cost of the input or the raw materials being used should be considered when using the standard costing system. This provides a clear cutline of how the intermediary and final product quantity, quality, as well as price, should be fixed appropriate (Lipin & Knecht, n.p.)
Standard costing technique is a prolific tool when setting up a budgeting plan for a given company. This tool encompasses all the dynamics necessary for effective budget plan. This tool takes into consideration, the wider perspective of allocating and establishing a solid ground of an enforceable budgetary plan. Standard costing technique is a reliable tool for any given company that yearns for qualitative profit plan.
Standard costing installation is another technique that the frontline companies should adopt. This technique uses a broad scope that works hand on hand with the management of a given company in realizing the set objectives of the company. Most professionals who specialize in management practices usually uses this technique when setting up their prices and installing them for it to be practical in nature. Standard coating installation technique provides a ground where the management can focus on monitoring and evaluation of the given goals and objectives of the company. Through this, the management can determine the cumulative progress of the company, towards achieving the set goals that are given (Eroğlu, 76). Standard costing installation technique is one of the best methods that multinationals companies use for their price appraisals and budgetary plans. This is critical to their success due to the strict outlines and measures that should be adhered to the later.
Standard costing installation technique is being appraised by plenty of company management frameworks across the globe; this is due to its practicability and enforceability that works to achieve desired results that are critical to a company success. This tool provides a wider spectrum of checking in detail the cumulative progress of a given company and how this progress can be maintained until the desired objectives are achieved (Nedyalkova, 208). This technique is efficient if only the strict outlines and measures that are provided are followed to the later.
The analysis of the actual and the standard cost in the case given above: STANDARD BUDGE
ACTUAL BUDGET
The set of workings and data given above shows the estimation that is provided for a company that wants to invest in street lighting program. The first phase of the working shows definitive working of the standard costs that the company is likely to incur while carrying out all the activities that entails the installation of the lighting along all the streets. These standard costs show the possible approximation workings that the company is bound to incur for this project. These workings attract a provision for either appreciation or depreciation of the goods and services.
Standard Budget/Costs;
This shows the estimated workings for every expense that will be accounted for every good acquired or service’s offered. These estimations are in monetary terms. This is due to the use of monetary terms as a basic measurement for fair compensation of goods or services offered. These are just but preliminary approximations that a professional’s expert’s estimates that the given project will have to undertake. This estimation is given prior to timely consultation to the budgetary committee on the status of the financial position of the given company. The applicability of the standard costing technique is quite evident from the workings that are given. This is due to the current market of goods and services being offered, therefore; this leads to the notion that the cumulative expenses are relatively related to the current market provision of the prices of goods and services (Hinshaw, 19). Experts design these approximations bearing in mind the possible appreciation or depreciation of the market interest rate. The market interest rate is flexible; it can either appreciate or depreciate depending on the market forces of demand, hence; this provision should be enforceable, and all the necessary precautions should be adhered to strictly. The standard costs o budget is just but a blueprint of the possible expenses that the company is to incur. These provisions allow for the budgetary team to plan adequately and ensure that every factor is put in place, to realize maximum returns from the project.
Actual Costs/Budget
This is the practical bit of all the expenses that the project has incurred. These expenses have either increased or decreased from the late standard approximations. This is due to the prevailing market interest rate and market forces of demand and supply. Some of the prices of the available goods and services decrease due to the decreased demand for these factors (Vian et al, 10). The actual costs show the timely estimation of the goods and services that the company will incur in setting up the project. This project needs a monitoring and evaluation team that will work to ensure that all these money is spent in the right way and at the right team for the right purpose. Project work is an activity that takes quite sometimes for the possible income to be realized. This is the reason as to why the company spends most of it financial resources on setting up and establishing this project. Therefore, the basic notion of immediate profit realization is waivered upon.
The actual costs are practical enough after this amount is spent on the field for the rightful purpose and timely expenditures. This project is quite sustainable in the long run perspective only if the management employs a taskforce that will work to realize the execution of the project and the possible profit influx from the project. Projects are quite hard in maintaining; therefore, this forces the company to outsource for an independent consultancy firm that has experience on such projects and will work closely to ensure maximum realization of this project (Stubbs, 11).
The most likely areas for further attention
There are plenty of areas that should be monitored closely and checked upon constantly for positive results from the project. A financial team that will monitor all the dynamics of the projects especially on how expenditures will be managed should be established (Parnaby, 1068). This prepares the company against any possible miscellaneous losses against unscrupulous management team.
Another possible area of concern is developing a monitoring and evaluation team that will work closely with the finance team on checking and ascertaining for the possible progress of the project. A monitoring team is tasked to work day in day out in the field with the respective implementation personnel. This enables the team members to participate fully in the implementation progress and ensure that the project is realized in due time. An evaluation team is tasked to check if all the set implementation procedure is adhered to and the possible repercussion for any step or procedure that is not followed. Therefore, the management is tasked with the role of overseeing the timely implementation progress of the entire project. Failure to follow all the guidelines that are provided will result to direct downturn of the entire project. Financial injection into the project implementation team is critical to achieving all the desired goals that the project coordinator needs to ascertain for. Amy project activity that lacks deep financial injection is prone to yield negative results that are not desirable to the entire implementation group. Monitoring activity will not be able to be undertaken due to the lack of finance that is necessary for the implementation process. Monitoring and evaluation process is critical to any project that seeks to be implemented. Financial assistance is necessary for this procedures to be undertaken effectively.
Other information that is desirable when making decisions based on the above data.
The main information that should be taken into perspective is not about the total costs of the project but the long run impact of the project. The company should not be concerned mainly on the heavy cost of the project; instead, they should project and prepare for the possible huge long-term income from the project. Such projects are fruitful in the long-run and maintenance should be a critical factor to the management team. Provision of appropriate estimations for the variables given should be taken into account. The prevailing market rates are used to determine the value of the goods and services that are to be offered. This gives the budgetary team adequate time to research on these prices and fix them accordingly irrespective of the possible effects of the market forces of demand. This is taken into perspective in order to set a cognitive price shadow that will not affect the smooth implementation of the project. Project implementation involves itself mainly of the prices in the market. These market prices are used accordingly when coming up with a clear-cut estimation that won’t affect the outcome of the project negatively.
Another dynamic factor that should be taken into consideration when coming up with the standard costing technique of the project with the above data is the current economic situation. Economic stability allows for the project estimation to be done with greater expectation that prices will reduce significantly in the near future. An economic situation that shows unpredictability gives an analytical scenario where prices can either rise or fall depending on the path that the economic scenario will choose to undertake. Setting of prices is efficient to any planning team for any project. This gives a clear outline of how prices are going to behave in the future and how this trend will affect the project.
The main limitations associated with the techniques of standard costing and variance analysis
There are plenty of limitations that are associated with these techniques; for the standard costing technique, time is the main limitation that affects the period when the standard budget is set, and when the actual costs are practical, this affects the profits of a given company negatively. Time gives plenty of speculations to be undertaken. Some of these speculations are significant to the success of the technique. On the other hand, time can influence rapid change of the economic status of a given economy. This can lead to robust prices that can cut on the extraneous costs that are to be incurred in the implementation process.
Variance analysis depends mainly on the number of activities that are to be undertaken for the full implementation of the project. Concentrated activities ensure that the project is likely to incur plenty of financial resources while dispersed activities will cut the cost that is to be incurred in implementing the project.
Bibliography;
Nedyalkova, P. (2010, January). SELECTION AND APPLICABILITY OF FINANCIAL - CONTROL RATE IN THE CONTROL PROCESS. Retrieved from https://www.researchgate.net/publication/314280304_SELECTION_AND_APPLICABILITY_OF_FINANCIAL_-_CONTROL_RATE_IN_THE_CONTROL_PROCESS
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Lipin, S, & Knecht, G 1995, 'How Many Other Barings are There?', Wall Street Journal - Eastern Edition, 28 February
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Stubbs, W 1995, 'Two down, Many to Go', Times Higher Education Supplement, 1167, p. II
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