Standard Costing as an Effective Accounting Tool

In her article “Standard Costing at 90 – Is It Still an Effective Management Accounting Tool or Has It Analyzed One Variance Too Many,” Joan Toon focuses on discussing the usefulness of videos on management accounting. Topics mentioned in the article include the problem of standard costing, the question of investing in capital projects, and the issue of developing principles of electronic commerce (Toon 7).

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The analysis of strengths and weaknesses of standard costing is the main focus of the article. Toon aims at presenting arguments for and against the use of standard costing in management accounting with reference to presenting the experts’ opinions and case study analysis. The adequacy of standard costing is a subject of debates in the sphere of accounting because this technique is discussed as outdated in contrast to activity-based costing (Toon 7). In the article, Toon accentuates such weaknesses of standard costing as an impossibility to guarantee the continuous improvement and problems with providing immediate feedbacks. Furthermore, this approach cannot be used effectively in order to reflect changes in cost structures.

However, the arguments for the use of standard costing are also presented in the article with reference to the analysis provided by Colin Drury, Professor of Accounting, and with the focus on the case of Potterton. Accounting specialists of Potterton, the company producing gas boilers, use standard marginal costing because of such an advantage as simplicity (Toon 7). In addition, they state that the appropriate use of this technique also guarantees the desired continuous improvement.

On the contrary, activity-based costing is regarded as the more complex approach to be used in organizations (Toon 7). After focusing on discussing standard costing, Toon refers to analyzing the problems associated with investing in capital projects, and she focuses on examining changes in hurdle rates expected by investors. Then, the author explains the principles of electronic commerce with reference to the experience of Dell.

For the reader interested in principles of management accounting, the discussion of advantages and disadvantages of standard costing is the most important part of the article. While examining the arguments provided by the author in order to analyze the adequacy of standard costing, it is possible to answer questions about the area where this tool can be applied most effectively.

Thus, small companies which need to optimize the accounting process and receive basic reports can use standard costing because of its advantages associated with simplicity. In this case, standard marginal costing can be discussed as the best choice. This approach allows for controlling differences in expected and actual costs, as well as changes in fixed and variable costs. However, if a company needs to refer to product costs and focus on possibilities for the continuous improvement, as well as on the timely feedback, it is reasonable to use the accounting tool known as activity-based costing.

From this perspective, the article provides prompts regarding the appropriate use of different types of costing methods in various situations. The information from the article can be used in order to guide the further analysis of specific management accounting tools with reference to the areas of their application. Therefore, the article can be viewed as providing ideas for the further discussion of the problem. Much attention should be paid to comparing standard costing with other costing methods adopted in management accounting.

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Works Cited

Toon, Joan. “Standard Costing at 90 – Is It Still an Effective Management Accounting Tool or Has It Analyzed One Variance Too Many.” Management Accounting 77.1 (1999): 7-8.

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StudyCorgi. (2020, November 11). Standard Costing as an Effective Accounting Tool. Retrieved from https://studycorgi.com/standard-costing-as-an-effective-accounting-tool/

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"Standard Costing as an Effective Accounting Tool." StudyCorgi, 11 Nov. 2020, studycorgi.com/standard-costing-as-an-effective-accounting-tool/.

1. StudyCorgi. "Standard Costing as an Effective Accounting Tool." November 11, 2020. https://studycorgi.com/standard-costing-as-an-effective-accounting-tool/.


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StudyCorgi. "Standard Costing as an Effective Accounting Tool." November 11, 2020. https://studycorgi.com/standard-costing-as-an-effective-accounting-tool/.

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StudyCorgi. 2020. "Standard Costing as an Effective Accounting Tool." November 11, 2020. https://studycorgi.com/standard-costing-as-an-effective-accounting-tool/.

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StudyCorgi. (2020) 'Standard Costing as an Effective Accounting Tool'. 11 November.

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