On measurement and analysis of standard costs

Abstract: An analysis of standard costs as conceived in this study will contain the following main stages: (i) a prediction of the value of the result, (ii) a comparison between the predicted and the observed value of the result and (iii) an explanation of the differences between s-values [standard values] and the observed values of the result and of its component parts. We shall take as our starting-point the treatment of the subject in the existing literature, which we present in Chapter 2. In Chapter 3 we introduce our own theoretical notion of the analysis. An important feature here is the use of models in predictions and explanations. In our introductory discussion of control and review [earlier in Chapter 1; not included here] we made preliminary mention of the activities to be considered. Even at that stage we noticed some important questions concerning the formulation of the models, in particular the need for closer specification of plans, execution, result, etc. and the selection of characteristics by which to designate the result. The framework for the analysis is constructed in Chapter 4, while the construction of models for use in predictions and explanations of the result will be the subject of Chapters 4 through 6. Observations of the result and of its component parts will be dicussed in Chapter 7. With the material from Chapters 2 through 7 in mind, we shall underake in Chapter 8 a formulation and discussion of the analysis of standard costs. The comparison between the predicted and the observed values of the variables used to characterize the result, presupposes that the definition of the variables in the model is related to their definition in the observation. The difficulties involved can be most easily studied with regard to the direct manufacturing costs and their component parts: working time, material usage, material price and wage rates. It is our wish to keep the study within reasonable limits, which will lead us to restrict our definition of the considered result in this way. The report will, however, touch upon the definitions with regard to more comprehensive variables too, so that the views presented here will probably be of interest beyond the limits that we have set.