Standard costing is widely used by manufacturing companies (Lewis 1993 p. 12). It is a system that absorbs direct materials, direct labor and factory overhead into the production costs. These three main costs are classified as standard costs which have close relationship with budgeted costs. Under the condition of normality in operations, it guides corporate managers to identify overall costs of production (Investorwords 2007). However, its effectiveness is blurred by three factors; namely, lean production does not fit standard costing, standard cost is too optimistic and it is overly-focused on statistical applications. However, effectiveness of standard costing is not yet proven in the service sector where main cost drivers are different (e.g. fewer types of machinery, overheads). As you can see here, I tried to define standard costing and elaborate on the need for research. Costing issues are the core problems in managerial accounting.
In general, activity-based costing (ABC) is much related to managerial accounting as it can assist in managerial decision-making and control functions (Young 2000). It is a technique that embraces systems thinking, works with information technology and requires accounting knowledge. Due to this, it can be said that it is an indispensable tool for top-level managers who are known to possess and apply conceptual ability in their management and leadership. Without ABC assistance in concept building, managerial decision-making process may lack or distort the crucial quantitative factors needed to arrive with objective and measurable actions. Positive features circle ABC technique; namely, makes the firm price competitive against industry players, aids in strategy formulation and continuous improvement and rejuvenates organizational cohesion. The same as the rationale for standard costing. ABC is a breakthrough costing method in managerial accounting because of its integrated-mechanisms.
As there are yet specific researches that tackle the issue, the proposed study will rationalize the effectiveness of ABC and standard costing under the economic situation in
Research questions and objectives
1. What are the costing techniques being applied by selected firms?
2. How could ABC and Standard Costing aid in management accounting of selected firms?
3. Who has the relative advantage on accounting performance between ABC and Standard Costing?
Primary data will be gathered in selected firms within the service sector of Chinese small and medium scale enterprises. This will be carried through interviews, getting relevant accounting processes and observation (e.g. on monthly business audits). Secondary data will be sourced through journals, textbooks and relevant websites which can polish analysis of the primary data and towards the resolution of research questions. Since the study is exploratory, it is expected that first-hand conclusions will be derived based on accounting theories, principles and empirical evidences.
This will include business data and their cooperation. Also, public documents found in government agencies will also be useful in determining relevant facts about local businesses. Libraries and internet will be useful in getting secondary data.
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