CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
The
effect of standard of standard costing on profitability has been a problem to
manufacturing companies in Nigeria. The standard costing as a tool for either
improving or not improving profitability. Unlike its contemporaries in the
field of science, it deals with human beings and calculation significant
information.
Lucey
(2002) defines standard costing as a technique which establishes pre-determined
cost estimates of the cost of products and services and then compares these
pre-determined costs with actual costs as they incurred. Standard cost
represent am estimated or pre determines total cost of product per unit for an
organization. Adeniji (2009) argues that the process of estimating the total
cost of production per unit is described as standard costing technique.
Standard
costing as a long established concept is the management function of planning
and control. In effect, yardstick has been of vital importance for planning and
control exercise. As a matter of fact, problems associated with production and
earning a profit was recognized for many years before the concept of standard
costing was invented. Standard costing appeared in the early twentieth century
when transaction volumes were overwhelming the record keeping system in the use
at that time. Since then, prevalent use of computer systems and automated data
entry systems have reduced the need for standard costing, though not entirely
eliminated.
These
standard costs reveals goals, spur actions and efforts for effective management
and equally provide checks such that exceptional profit oriented goal
performance can be achieved and the reserve adequate punishment to be exercised
for bad performance. Standard cost cause appraisal to be made over production
facilities and form management intentions and capabilities and is a first step
strength and weakness appraisal. These led to the preference of standard
costing system in 1920’s. it was brought into the system such that total
variances might be accumulated as well as detailed variances. These steps gave
rise to formal expression that significant costs were not actual and historical
cost but standard or planning cost and their variances.
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