Answer to Question #244250 in Management for Tarun Kumar

Question

. Mr. Sharma, founder of Pioma Plastics desires to increase the profit of the business in
the coming year. He calls for a meeting with the managerial-level personnel and
explains them that the selling price of their product is based on the prevailing market
prices of their competitors. He seeks their advice on whether they should work
backward on optimizing their costs by determining a standard cost for each of the
components. Explain the process of standard costing to the founder as one of the
managerial-level personnel. Would following standard costing help the founder in
increasing the profit of the business?

Answer 1

Estimating the required costs of a production process is part of a standard costing system. Use the actual amounts and costs of direct material at the end of the accounting period. After that, compare the actual amounts and pay rates of direct labor to the previously established standards.