Critique of “Redesigning Cost Systems: Is Standard Costing Obsolete?” by Carole and Leo
The study presented four analyzes to discuss the criticisms of Standard Costing System and suggested redesigns for traditional SCSs. Authors mentioned the advantages and disadvantages of SCS, and then separately illustrated updates for variances from the aspects of raw materials, inventories, production levels and quality, and sales analysis. After that, this article illustrated several updates for improving SCSs in the form of redesigned variances, suggestions for dynamic standards, and refocused responsibility and reporting systems. In the final portion of the case, the author explained the relationship between the Standard Cost Systems and Activity Based Costing. At the beginning of the article, the fact concluded from a survey that only about 9% of companies are using ABC as their main system while the majorities use a SCS although the ABC is the most popular new advanced system and SCSs actually can lead to many potential problems. Then this paper focused on concerns of the new manufacturing environment of raw material ordering and inventory levels, quality, production levels, finished goods inventory levels and completion of sales orders, and it used concise figures to present how particular set of variables which are normally ignored by critics can be changed as the need arises. For continuous improving the traditional SCSs, the writers argued standards should be adjusted to be dynamic or changed. Four suggestions are raised in this part: using prior periods’ results as standards, using benchmarking, using moving cost reductions, and using target costs. Moreover, the old reporting systems were thought tend to foster internal competition and arguments instead of corporation. For this potential problem, the new attitudes about responsibility companied by decentralization and improved reporting system were suggested in the which are developed with data...
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