MODUL PERKULIAHAN

Standard Costing
& Balance
scorecard

Fakultas Program Studi Tatap Muka Kode MK Disusun Oleh

10
Economic & Business Accountancy Kode MK Alfiandri, MAcc

Abstract Kompetensi
Diisi dengan abstract Diisi dengan kompetensi
Pembahasan
1. Introduction

For those that highly competitive in the market, the company must provide high quality
goods and service at low cost. If they do not, their customer will buy from another
competitor. In order to achieve that objective, the manager must obtain the input such as
raw material and electricity at lowest possible price and must use them effectively as
possible. If inputs purchases too high or more input is used than is necessary, higher
cost will results.

How do managers control the prices that are paid for inputs and the quantities that are
used? They could examine every transaction in detail, but this obviously would be an
inefficient use of management time. For many companies, the answer to this control
problem lies at least partially in standard costs. In addition to this, this module provide
broad understand about standard cost in the company especially, for manufacture
industry.

On the other hand, the module also explains about the balance scorecard. Balance
scorecard is integrated set of performance measures that are derived from and support a
company strategy. Balance scorecard is theory strategy how to achieve the
organizational goals.

2. Standard Cost

A standard is a benchmark or “norm” for measuring performance (Garisson & Norren,

2011). For example, doctor evaluates your weight using standards for individuals of your
age, height, and gender. The food we eat in restaurants is prepared using standardized
recipes. The buildings we live in conform to standards set in building codes. Standards
are also used in managerial accounting where they relate to the quantity and cost (or
acquisition price) of inputs used in manufacturing goods or providing services.

Usually quantity and price are set for major input such as raw materials and labor
time. Quantity standards specify how much of an input should be used to make a product
or provide a service. Price standards specify how much should be paid for each unit of

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 the input. Actual quantities and actual costs of inputs are compared to these standards. If
either the quantity or the cost of inputs departs significantly from the standards,
managers investigate the discrepancy to find the cause of the problem and eliminate it.
This process is called management by exception

Simple example of management by exception, Consider what happens when you sit
down in the driver’s seat of your car. You put the key in the ignition, you turn the key, and
your car starts. Your expectation (standard) that the car will start is met; you do not have
to open the car hood and check the battery, the connecting cables, the fuel lines, and so
on. If you turn the key and the car does not start, then you have a discrepancy
(variance). Your expectations are not met, and you need to investigate why. Note that
even if the car starts after a second try, it still would be wise to investigate.

This basic approach to identifying and solving problems is the essence of the variance
analysis cycle. That can be depict as figure below

The cycle begins with the preparation of standard cost performance reports in the
accounting department. These reports highlight the variances, which are the differences
between actual results and what should have occurred according to the standards. The
variances raise questions. Why did this variance occur? Why is this variance larger than it
was last period? The significant variances are investigated to discover their root causes.

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Corrective actions are taken. and then next period’s operations are carried out. The cycle
begins again with the preparation of a new standard cost performance report for the latest
period

3. Setting Standard cost

Standard tend basically fall into one or two categories which is either ideal or practical.

a. Ideal Standard can be attained only under the best circumstances. It means they
allow for no machine breakdowns or other work interruptions, and they call for a level
of effort that can be attained only by the most skilled and efficient employees working
at peak effort 100% of the time.

b. Practical standards are standards that are “tight but attainable.” It means they allow
for normal machine downtime and employee rest periods, and they can be attained
through reasonable, though highly efficient, efforts by the average worker. Variances
from practical standards typically signal a need for management attention because
they represent deviations that fall outside of normal operating conditions.

Practical standards can serve multiple purposes. In addition to signaling abnormal

conditions, they can also be used in forecasting cash flows and in planning inventory.
By contrast, ideal standards cannot be used for these purposes because they do not
allow for normal inefficiencies and result in unrealistic forecasts.

In the manufacturing industry, the standard cost should be set up in advance in order to
determine the proper cost for making a product. Standard cost can set up in the three
main cost classifications such as, direct material (it should be set up price standard and
quantity standard), direct labor (set rate standard and time standard), and overhead
manufacturing (set rate standard and activity standard).

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Balance Scorecard

Balance scorecard consists of integrated set of performance measure that is derived. Under
the balance scorecard approach, top management translates its strategy into performance
measure that employees can understand and influence.

Common characteristic of Balance Scorecard

Performance measure used in the balance scorecard approach tend to fall into the four
group namely, financial, customer, internal business process and learning and growth.

Internal business processes are what the company does in attempt to satisfy the customers.
For example, in a manufacturing company, assembling a product is an internal business
process. In an airline, handling baggage is an internal business process. The idea underlying
these groupings is that learning necessary to improve internal business process. Improving

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business process lead to customer satisfaction and improving customer satisfaction will
improve financial performance.

Improvement in the Balance scorecard is not attaining some specific objective like increase
the profit, continual overall improvement is encouraged instead. If an organization does not
continually improve, consequently lose the competitor.

In the Balance scorecard, achieve profit maximization is not core objective this is because
financial measures are not sufficient to measure the overall of company performance. Non-
financial measure should take into account and integrate to measure the company
performance. There are two reasons why non-financial measure should integrate with
financial measure to measure the company performance.

1. Financial measures are lag indicator that reports on the results of past action. Non-
financial measure on the other hand, is key success drivers to measure future
performance. Measure customer satisfaction for instance is leading indicator to measure
future performance.

2. Top managers are ordinarily responsible on the financial performance measure which
lower managers are not. For example, in airplane company. The supervisor in charge of
checking the passenger can be held responsible for how long the passengers have to
wait in line. However, this supervisor is not responsible for the entire profit company.

Implementing Balance Scorecard for some companies would use all of these performance
measures, and few of the companies would add other performance measures. Managers
should carefully select performance measures for their own company’s balanced scorecard,
this is because the following reasons:

1. The performance measures should be consistent with, and follow from, the company’s
strategy. If the performance measures are not consistent with the company’s strategy,
people will find themselves working at cross-purposes.
2. The performance measures should be understandable and controllable to a significant
extent by those being evaluated.
3. The scorecard should not have too many performance measures. This can lead to a lack
of focus and confusion.

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Figure below is example performance measure in the balance scorecard

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Daftar Pustaka
Garrison, R.H. 2006. Managerial Accounting. Edisi 11. Penerbit Salemba Empat. Jakarta

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