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Bulletin H A S K I N S & SELLS 31 Standard Costs BY R. A. DALRYMPLE THE subject of standard costs is worthy of earnest consideration. A brief discussion may stimulate further study and investigation in this subject which has gained many adherents. The basic principles briefly stated are as follows: (1) Standard costs are those costs which competent engineers and operators can establish prior to performance as normal and proper, giving due consideration to the nature and class of cost factors and plant facilities available. (2) Cost finding by the means of standards is an application of the standards already established to the actual expenditures, retaining an analysis of variations in complete detail. (3) Accounting reports based on standard costs make full detail comparisons of the variations from actual and thus establish the trend of the industry. In considering the application of principle (1) we will divide costs into material, labor, and overhead. A new manufacturing venture or a new sales year and program must be predicated on an assumed market basis for the necessary raw materials. If the market changes are unexpectedly violent, drastic changes in the program or sales price of the product will be necessary. By the application of principle (2) we propose to continue in use throughout the entire period for which the estimate was made the same standard cost of material per unit as that submitted at the time the project or program was undertaken. Along with this standard cost will be shown the actual expenditures for material. The variation from standard will be a composite of several factors, and this variation will be set up on the books divided into the several amounts due to separate causes. Thus, a variation in material cost may properly reflect increase in market price of raw material, decrease in transportation costs, and increase in quantity consumed due to greater percentage of waste than was included in the standard cost. This variation will be further analyzed so that the individual operator, the class of operations, and the department producing this over-standard waste will be shown. Each one of these items is important in itself and there is potential danger in netting results that have such diverse causes. Having arranged the records so that there is available analyses of material variation, the accountant now applies principle (3) and shows the trend of all the vital factors affecting the cost of raw material. When the new project or program is undertaken, the second element of cost, namely, labor must be considered and estimated. In order to do this, each operation necessary to convert the basic raw materials into finished product must be separately examined and the class of labor and type of facilities available for said operation must be also taken into account. A standard labor cost is established for each operation which will be given in the following terms: (1) Standard number of units estimated manufacturable from basic quantity of raw material or previous process.
Dalrymple, Rollin Adams
Haskins & Sells Bulletin, Vol. 12, no. 04 (1929 April), p. 31-33
|Source||Originally published by: Haskins & Sells|
|Collection||Deloitte Digital Collection|
|Digital Publisher||University of Mississippi Libraries. Accounting Collection|
|Identifier||HS Bulletin 12-p31|