Standard cost accounting is an overview of how standard cost could serve as an effective tool in the hands of the management, it serves as a tool for planning, coordinating and controlling various activities of operation in an organization.

Standard costing system has been studied to emphasis its assistance to management planning and control. It has been discovered that it enhances proper operation of an organization and goals and objectives are achieved more easily. The standards sets guide the operation of the organization

Variances are analyzed and investigated when noticed and revision of such standards follows subsequently. The study has revealed that it is very useful tool for management to plan and control its operation so as to achieve goals and objectives of the organization.

This study made use of the questionnaire, personal interviews and reading of the organization manual to analyze the subject as well as draw conclusions and recommendations.                     


Content                                            Page

Title page    -    -    -    -    -    -    -    -    -    -    i

Approval    -    -    -    -    -    -    -    -    -    -    ii

Dedication    -    -    -    -    -    -    -    -    -    -    iii

Acknowledgement    -    -    -    -    -    -    -    -    -    iv

Abstract    -    -    -    -    -    -    -    -    -    -    v


1.0.    Introduction                                

1.1.    Statement of problems                            

1.2    The reasons why some managers refuse to use their standard cost accounting techniques

1.3     Objectives of study

1.4     Advantages of standard costing

1.5    Scope and Limitation of the Study

1.6     Research Questions

1.7     Brief History about O.K PLAST

1.8    Definition of terms


2.0     Literature Review

2.1     Introduction

2.2    Historical Background

2.3    Types of Variances and Variance analysis

2.4    Possible causes of Variance

2.5    Investigation of Cost and Sales variances

2.6    Responsibility for Setting Standards               

2.7    Setting Standard – Overhead                       

2.8    Setting Standard-Sales and price margin                

2.9    The Standard cost card                           

2.10    Revision of Standards                           

2.11    Setting Standard – materials                       

2.12    Setting Standard – Labour                       

2.13    Behavioural aspects of standards               

2.14    Budgets and standards compared                   

2.15    Motivation and standards                           

2.16    Chart of Common Variance                       

2.17    Standard Costing Formula                       

2.18    Management control system on how to investigate    for effective control

2.19    Steps involved in standard costing                   

2.20    Testing of Standard    costing Formula                



3.0    Research methodology                           

3.1    Research design                                

3.2    Data collection methods                            

3.3    Sample procedure                                

3.4    Sample size                                   

3.5    Reliability of data                               


4.0    Data analysis and Presentation                       

4.1    Introduction                                   

4.2    Data Analysis                                   

4.3    Classification of personnel data                       

4.4    Research questions                                

4.5    Contribution of the system to the survival of the manufacturing industry                       

4.6    Testing of hypothesis                           


5.0    Summary, conclusion and recommendation            

5.1    Summary                                    

5.2    Conclusion                                   

5.3    Recommendation                               






Every organization is in business either to make profit or to cover its cost of production or to render services. Profit is the excess of revenue over cost or expenditure. Company executives have control over the selling price and therefore have focus attention on cost. The executives is presented with periodic report of what the actual costs were and this have appraised in order to decide whether cost are higher or lower than the expected or about right. If cost are higher than expected, the want to know the reason in order to take corrective against future re­occurrence and if cost are lower, they will want to know the reason why, in order to take action that will perpetuate such cost savings. However, to decide whether cost are higher or lower, that must be a yardstick. This yard stick is what costs are expected to be a comparison of actual cost with the yardstick must be made. This yardstick is the standard we are expected to achieve and therefore called the STANDARD COST. This idea of yardstick is the technique applied nearly by 85% of organization in manufacturing sector

As a result the management foremen, supervisor, and employee become cost conscious, a circumstances that in-turn intend to reduce and encourages the optimum allocation of scarce resources.

Standard cost Accounting as a management techniques can be to have started long ago. Although it might not have been the practiced now because of modernization. Traders made projections with regards to these resources before embarking on their business transaction which is exactly what standard costing system set to achieve, though in a more scientific advancement in industrial resolution, management has gone a long way in setting dependable accounting standard to achieve overall organization goals, management is able to achieve effective and efficient planning and controlling of cost towards realizing organization goals. This study focuses solely on the manufacturing sector of the economy. Manufacturing sector is an important institution of the economy and their role may be categorized into two major aspects.

1.    The real manufacturing of goods needed by the society

2.    The sales ofthese goods to the society

This study is focusing on these two functions as to row the manufacturing sector has been able to achieve standard performances. It also studies how standard are being achieved in view of the current economic depression in the country.

Standard costing can be define as a predetermined calculation of how much cost should be under specific working condition. It is built from an assessment of the value o-f material labour and other cost components are rates expected to apply during the period in which the standard cost is intended to be used.

Its main purpose are to provide basis for control through variance analysis, for the valuation of stock and work in progress and in some case for fixed selling prices (T Lucey).

The main points in the definition are:

Standard cost is a predetermined calculation of what ought to be under specific working condition.

Standard cost is built up by correcting standard quantity (of machine time, labour time and material) and forecast of future market trend for price standard (price of material wages rate, machine cost per hour etc.)

-Standard cost provide basis for control through variance accounting.

-Standard cost provide basis for valuation of stock and work in progress and in some cases, for fixed selling prices.

Basically, there are two groups of standard.

i. Quantity 'standard

ii. Prices standard

Quantity standards are set on the basis of forecast 0- f market trends. It is important to note that quantity, standard should not be revised frequently while price standard essentially require a periodical revisions.

Variance accounting refers to difference between the standard sets and the actual result in a given period. Variance enable the management to know which element or component o-f costs that is not efficiently controlled during production. As a result, step can be taken to ensure an improvement where the result is favourable or institute more control where the result is unfavourable.


With the ever increasing complexity of business and dynamic conditions of the business environment, makes it difficult: for a company to consistently earn pro-fit that entails fair returns. Management has to be a plan of action for the business if its profits are to be protected. There are some problems management face both internal and external that warrant them to have a standard management control and planning system to tackle these problems.

According to the survey hold in the production department it was noticed that their manager do not make use of the information's provides by the management and that is why most manufacturing industries do experience unfavourable variance in some departments in one study conducted, interviews were made in some departments with the manger and production manager in the four factories all held established standard costing system. In the 40 middle managers were interviewed.

I found out that 22 managers ignored standard costing accounting techniques entirely, and of the remaining 28, 10 made use of the whole of their standard co­sting accounting technique. It seems that the international efforts of management who initiated the techniques were wasted. So far, those manager who ignored their standard cost accounting techniques is considered as they appeared to pay little attention to their predetermined standard of performance or the examination of achievements as depicted in their control returns.

Lastly, another problem ok plastic was facing is the efficient and effective use of the system. It was noticed that there was no adequate skilled labour in the organization. The company is owned by a group of Lebanese who preferred to employ people with little skill and pay them less than employing well skilled labour that would last them more.


⦁    Some techniques might not be clearly stated to the management team. So there is always a conflict between the top managers and the middle managers

⦁    Some managers may have adapted to a particular technique which is quite different from that of the standard cost accounting system thereby creating a problem for the manager because he might not have adequate knowledge of the standard costing accounting technique

⦁    Managers might refuse to use the standard cost accounting technique because it is expensive and time consulting to install and to keep up to date.


The aim of this study is to,

i.    Examine how effective and efficient the standard cost accounting system has helped organization to achieve the judicious utilization of resource.

ii.    The contribution of the system towards the survival o-f the manufacturing industry in the economic recession.

iii.    It also examine the reaction of both management and junior staff to this effect

iv.    It also provide a production of the future cost to be used in decision making situation.

The study is set to examine the effect of standard costing system as a means of effective and efficient .management of business organization. Many organizations in the country are currently operating the system to ensure effective management of the resources. This implies that, standard are set and comparison are made with actual result achieved. This study also expose how the system helps in planning and controlling of actual performance expected.


1.    Standard costing is an example of management by exception. By studying the variances, management' attention is directed towards those items which are not proceeding according to plan, management are able to delegate cost control through the standard costing system knowing that variance will be reported

2.    The process of setting revising and monitoring standards encourage are appraisal of methods materials and techniques so leading to cost reduction

3.    Standard costs represent what the parts and products should cost. They are not in merely averages of post-performance and consequently they are better guide to pricing than historical costs. In addition, they provide a simpler basis of inventory valuation.

4.    A properly development standard costing system with full participation and involvement creates a positive cost effective attitude through all level of management

5.    Standard provides a motivating force necessary achieve high performance.

Attainable standards encourage workers to achieve or surpass the same because they know any performance would be evaluated with reference to establishing standards.


There are many limitations that prevent a smooth running of this research work. These includes

1.    Due to the sensitivity of the nature of the topic towards survival of any organization operating it, it is expected that collection of accurate data in respect it of product and sales may be difficult to obtain.

2.    If a standard is too easy to attain or impossible to attain, it becomes a disincentive and operative go attheir own pace.

3.    Operative will be suspicious of standards and will be reluctant to super achieve in. case the standards in changed. Also when standard are being set, the operative will convince to market the standard easy to beat by working slowing the inevitable result will be a subjective standard.

4.    Standard of materials prices (which are largely uncontrollable) are at best opinions of what should be set as a result of union negotiations (Consequently, standard no longer measure buying power but ability to predict accurately and negotiate hard bargains with the unions

5.    The setting of standards and the reporting' through variance accounting is now a complicated laborious time consuming and costly business. The saving arising from cost control are often eroded by the high reporting cost any time lapse means that the detailed information is too late in presentation to be of real use.

6.    It is sometimes difficult to attribute responsibility for variance to the correct source. Standard are considered coercive and as such management and staff may find them a "big stick" which may be dysfunctional. This may make management liable to "passing the buck" to keep within the standards or to be unadventurous for similar reasons


During the study, research questions will be asked which if answered will assist in the study. The questions are:

1.    Does your company operate standard costing system?

2.    Does your system ensure efficient utilization of resources?

3.    Does the system as a management tools enhance better planning and control?

4.    Do your company experience variance in the standard set when compare with the actual?

5.    Do your company usually review the standard set to meet the current changes?

The answers to the following questions will assist this study to test how standard costing assist management to control and plan.


Ho:    The application of standard costing as a means of management control and planning do not have any significant impact on the management objectives.

Hi:    The application of standard costing as a means of management control and planning have a significant impact on the management objectives

Ho:    The application of standard costing as a means .of management control and planning has not improve the productivity of the industry.

Hi:    The application of standard costing as a means of management control and planning has improve the productivity of the industry.


In view of the present economic conditions which the industries sector is failing, a lots of constraints here. been hindering its success, among such constraints are now level of capacity utilization asa result of weak domestic demand, depression of Maria, unstable foreign exchange market, high internal rate etc. it is gratifying to note that O.K.Plast is one of Nigeria leading' plastic industries and has distinguished itself with the high quality service and consistent increase in turnover, profit after tax earnings per share dividend per over the year. The O.K.Plast industry started its operation in Nigeria as a market outfit in the early 90s, seIling household plastic as at today, they have grown into a reputable manufacturing and market company with the aid of standard costing techniques as a tool for management planning processes and control.

The standard costing techniques is seen as an integral part of management though it is practiced when condition favours its employment as a system of standard costing, can assist in the function of management. The modem management must be forward working and must be capable of converting the resources as effectively possible.

Again in recent year’s qualitative technique have been developed at O.K.Plast to determine the validity of investigation significant variance and these technique involve the uses of probability theory standard deviation analysis matrices and chi­-square


The following are terms used in standard costing.

BASIC STANDARD: These are long term standard which would remain unchanged over the years their sole use in is to show trends over time such as materials prices labour rates and efficiency and the effect of changing methods.

IDEAL STANDARAD: These are based on the best possible operating condition, i.e. no breakdown of machine, no material wastage, no stoppages or idle time, in short, perfect efficiency ideal standard, if used would be revised periodically to reflect improvement in methods, material and technology.

ATTAINABLE STANDARD: these are standard based on efficiency (but not perfect) operating conditions. The standard would include allowance for fatigue, machine breakdown etc. it must be stressed than an attainable standard must be based on a high performance level so that it achievement is possible, but has to be worked for

CURRENT STANDARD: These are standard that is based on current working conditions. Current standard is employed for a short period of time.

STANDARD AND BUDGETS: Both standard and budget are concerned with setting performance and cost levels for control purposes. They therefore similar in principle but they are different in scope. Standard are a unit concept i.e. they apply to a particular products to individual operations, processes or services. Budget are concerned with totals, they lay down cost limits for function and departments and for the firm as a whole.

STANDARD COST: this is a management estimate of cost of input and it’s usually expressed in monetary terms.

STANDARD COST CARD: This is a sheet or card used in the preparation of cash sheet for every product produced in any manufacturing concerned. On this standard cost card the quantity of each type of product to be made is shown.

VARIANCE. This is the different between standard cost and actual cost and it can either be favourable or adverse.


T. Lucey, (1984): costing: An instructional manual Eng. Lang. Book society/DP publication Great Britain 2ndEdition Pages 385 - 285

T.Lucey, (2000): costing: An instructional manual Eng. Lang. Book society/DP publication Great Britain 6th Edition

Pages 415- 440

BiodunAyinde: Cost and Management Accounting Haymaker Concept Limited, Published 1999, First Edition Chapter 14

PYE, (1998): Costing· accounting and budgeting (ATS2) Students PYE Nigeria Limited. Published 1998, Page 1991-1992



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