Standard cost accounting

Accountants in industrial plants maintain records on actual expenditures for labor, materials, power, etc., and the maintenance and interpretation of these records is known as actual or post-mortem cost accounting. From these data, it is possible to make accurate predictions of the future cost of the particular plant or process. These predictions are very valuable for determining future capital requirements and income, and represent an important type of cost accounting known as standard cost accounting. Deviations of standard costs from actual costs are designated as variances. 

Most people agree that general expenses incurred in administration, selling, distribution, etc., should not be included in the cost of inventory. In fact, many feel that no costs should be absorbed before they have been incurred. In general, method 2 is favored by engineers and method 3 by most accountants. However, the accountancy convention is to value at either cost or market value, whichever is the lower. In the methods considered, either ac tual or standard costs can be used. Note that method 3 shows a higher profit than method 2 when sales volume exceeds the produc tion rate and a lower profit when the production rate exceeds sales volume. 

In both the average-cost and the standard-cost methods of valuing inventory, materials are not charged out at actual cost. Thus, the amount of profit or loss for the period may be varied by the method chosen to value the inventoiy. For this reason, accountants usually insist that the method of inventory valuation be consistent from period to period. This causes inertia but does not prevent a change of method men it can be justified. In such cases, it is usual to inform stockholders of the change because the influence on declared profits can be large. 

Tne Standard Hour The standard hour can be defined as the number of units of output expected to be produced in I h. It is often used as a measure of output rate by cost accountants. 

It is common practice in cost accountancy to treat the standard semivariable cost C vow. t the normal produc tion rate as part of the standard fixed cost. In this case, Eqs. (9-225) and (9-226) can be written respectively as... 

The application of waste-management practices in the United States has recently moved toward securing a new pollution prevention ethic. The performance of pollution prevention assessments and their subsequent implementation will encourage increased activity into methods that 1 further aid in the reduction of hazardous wastes. One of the most important and propitious consequences of the pollution-prevention movement will be the development of life-cycle design and standardized hfe-cycle cost-accounting procedures. These two consequences are briefly discussed in the two paragraphs that follow. Additional information is provided in a later subsection. 

The landed cost analysis included in the report manager takes these effects into account, whereas traditional accounting systems often use standard costs or average costs to determine unit production costs irrespective of these considerations. Figure 51 shows an example of the landed costs report. 

We argue that those involved in standard setting need to respond to these concerns. Specifically, we need to ensure that the process for delivering standards takes account of any unintended consequences (e.g., the costs of meeting a standard), and that the outcome provides a reasonable balance between environmental protection and regulatory costs. Furthermore, the process must be transparent and auditable. This means it should be participatory, communicative, and inclusive. If this can be achieved, the outcomes are more likely to be trusted by all those who are affected by the standards that are eventually introduced. 

Cost accounting for direct costs is accomplished in terms of unit cost and quantity. The product of these two is the cost. For example, an existing process may have used 11.2 million kg/yr of a raw material with an average unit cost of 0.52/kg. The cost is then 5,824,000/yr. At the beginning of the year, a standard cost and a standard quantity are established for the year, for example, 10,500,000 kg and 0.51/kg. The budgeted cost for the year is 10,500,000 X 0.51 = 5,355,000. The differences between the actual and standard unit costs and quantities are called variances. Accountants can set variance flags to warn process managers of possible cost overruns. In the example, the quantity variance is 11.2 — 10.5 or 0.7 million kg/yr. This is a % variance of 0.7/10.5 X 100% = 6.7%. The cost variance is SO.Ol/kg or a % variance of 0.01/0.51 X 100% = 2.0%. 

It is vital that the company has a rehable accounting system in place to provide fast and accurate cost information. The minimum requirements should be standard costing and budgetary control. 

The direct one-off costs for registration are calculated to be 20% of the product costs of pigments and additives for individual products based on the standard costs and no consortia forming. When consortia forming and information already available is taken into account at one supplier for the whole product portfolio, the direct one-off costs for registration were calculated to be 6%. 

Cost accounting is a well-developed discipline, with numerous methods and standards. And normal life cycle costing, as it is employed in traditional systems engineering, is described in various publications [4]. The life cycle aspect is reflected in our approach, as both the Cost and the Revenue are measured per accounting period over the life of the project. But as noted at the end of Sec. C4.3, when working in the functional domain, cost is seen as a consequence of requiring the plant to have a particular functionality. Consequently, the primary requirement on a cost accounting appropriate to the functional domain is that the cost elements correspond to primary elements. The additional properties of the primary elements, such as reliability and durability, as may be expressed by secondary elements, influence these cost elements. 

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