Is Standard Costing Outdated?

Jan 19, 2015

Have you ever walked into an outdated home or business and think you just did a time-warp back to 1976? The shag carpet, the deep brown color, and the kitchen with its orange flowers make you want to put on a pair of tight bell bottom jeans. I’m sure most you are getting the picture. It seems that many of the once outdated fads always end up becoming popular again.

Some people say standard costing is outdated due to alternative contemporary methods. My personal experience does not agree with this statement. At least 80% of all those clients and prospects I encounter are currently using standard cost. A few years ago the Institute for Management Accountants (IMA) completed a survey, which resulted in a staggering 86% using standard cost.

OutdatedThose individuals I have worked with who use standard cost do so because it is used specifically to value inventory. If your organization utilizes this method to value your inventory, why not utilize it for your entire costing system? It also provides variance reporting. Some managers prefer to manage with variances. This can be very valuable information if reported in the correct manner and time. Others use it for the simple reason that they always have and it is understandable. Many of the new costing systems are very complicated and lack transparency which can cause a significant problem.

Whatever costing system you utilize, make sure it is reasonable, provides timely information, and is transparent. If you have those elements then you are on the right track. If standard costing is outdated then just about everyone is outdated for continuing its implementation.

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Categories: Cost Accounting