Perhaps no accounting principle utilizes performance management
concepts better than standard costing. One of the elements of
cost accounting, standard costing is of particular benefit to
those companies engaged in manufacturing. A firm wishing to
utilize finances efficiently monitors the following costs: -
Direct Material Costs - Direct Labor Costs - Manufacturing
Overhead The process of standard costing is achieved, in part,
i.e., identifying a standard cost for each. A typical company
may employ a committee to develop a standard costing plan. Such
a committee often involves key personnel such as a Cost
Accountant, Production Manager, Personnel Manager and Purchase
Manager. This group clarifies and classifying its costs in more
detail, grouping them by some categories such as the examples
below: - Functionality (production, Selling, Distribution, etc.)
- Fixed Costs - Variable Costs - Direct Costs - Indirect Costs
Assuming a company establishes realistic standard costs, it may
then monitor performance with