Answer to Question #261077 in Management for punit

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

The process of standard costing plays a significant role in management. It is crucial for Mr. Sharma, to understand how it may influence the business's profit. Standard costing is a method used to compare the standards and revenues of the cost in an organization with the actual outcomes to determine variances and informal management concerning occurring deviations and possible corrective measures. The process involves establishing standards, determining actual cots, dosing comparison, identifying causes, and dispositioning variances. The founder should therefore follow these steps to ascertain profitability in the business.