Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 35

Applicability of Standard Cost Systems Portfolio management is a powerful concept in finance and marketing. The marketing application of the concept is to develop and manage a balanced port­folio of products. Market share and market growth can be used to classify products for portfolio purposes, and the product classifications often are extended to the organizational units that make the product. The market share/growth classifications can be depicted as follows:

	Market Share
Market Growth Rate	High                      Low
High	Rising star               ?
Low	Cash cow                 Dog

The question mark is the classification for products that show high-growth rates but have small market shares, such as new products that are similar to their competitors. A rising star is a high-growth, high-market-share product that tends to mature into a cash cow. A cash cow is a slow-growing established product that can be milked for cash to help the question mark and introduce new products. The dog is a low-growth, low-market-share item that is a candidate for elimination or segmentation. Understanding where a product falls within this market share/growth structure is important when applying a standard cost system.

Required

1. Discuss the major advantages of using a standard cost accounting system.

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2. Describe the types of information that are useful in setting standards and the conditions that must be present to support the use of standard costing.

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3. Discuss the applicability or nonapplicability of using standard costing for a product classified as (a) a cash cow, and (b) a question mark.

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4. What are some primary criticisms of using standard cost systems in today’s manufacturing environment?

Step 1 of 5

Standard Cost System and Direct Cost Variance:

A standard cost system is a tool for arranging financial plans, overseeing and controlling expenses, and assessing cost the board execution. A standard costing framework includes assessing the necessary expenses of a creation cycle.

Direct Cost Variance (DCV), is the distinction between the standard expense for real creation and the real expense underway. There are two sorts of work differences. Work Rate Variance is the distinction between the standard expense and the genuine cost paid for the real number of hours.