(Exercise 6-13 – Revised) Select one of the following quotes from the text to di
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Question
(Exercise 6-13 – Revised) Select one of the following quotes from the text to discuss. Clearly state whether you either agree or disagree with the comment and support your opinion with at least one scholarly resource. Include in your response an explanation of the major purposes of budgeting. Your initial post should be 200-250 words.
"One major criticism of budgeting is that it is used as a ‘cost reduction’ tool rather than a ‘cost control’ tool. The objective of the budget is to control costs at an efficient level of operation."
"There are generally three benefits from allowing employees to participate in developing the budget: (1) Employees tend to accept the budget as their own plan of action. (2) Participation tends to increase morale among employees and toward management. (3) Employee cohesiveness is increased, and productivity will also increase if dictated by the group norm."
"Even though budgets are quantitative tools, considerable emotion is connected to budgeting. The individual in control often sees the budget as a means of getting things done. People being controlled often have feelings of anxiety because their success and promotion are tied directly to the budget."
sing Chapter 7 of your text as a reference, define a standard cost and explain what constitutes the components of a standard cost. Describe the advantages and disadvantages of a standard cost system and explain under what circumstances a standard cost system is most effective. Your initial post should be 200-250 words
Explanation / Answer
Standard costing is that techinique through which management of any organisation defines a scientific way for assigning one cost that a management thinks should be a approximately the cost of the products.Management defines the standard cost after taking alot of considerations and try to keep it as close as an actual cost would be in normal case. Standard cost basically includes for material, labour, overhead, such std.material cost, std. labour cost etc. they set standard pricing for selling the product or for purchasing the raw material as well.
Advantage od std. costing would be like it makes the life easy of cost accountant, that he does not need calculate the cost regularly. Once Std. cost is set it does not get revised morre frequently. another advantage would be it helps in estimatinng the inventory, inventory calculations can be based on it. It helps management in finding the variances against the std. cost, it works as a parameter. Disadvantage of standard cost is that finding the correct std. cost is not easy, it requires alot of information and expertise finding this is bit difficult. Hence it actually consumes alot of time in finding the accurate std. cost. another example would be allocation of cost based on std. cost some time creat variances as well, such as price variance and std. cost material variance, which is actually not a variance in real sense. another dis advantage would be that std. cost requires continue upgradation since market fluctuates so much hence most of the time set std. cost becomes old and variance increases so much then you need to review it again hencr time consumes, it is also a costly since requires expertise time which is costly.
Std. cost system is most effective when you deal with less no. of products, prices does not fluctuates much and most of the company in the particular industry maintains it so that you can easily compare the data. A company which uses batch costing can use std. cost system since it helps to apply on same type of products, because variation will be less.
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