SYNOPSIS: Since the early 1980s standard cost systems (SCSs) have been under attack as not providing the information needed for advanced manufacturers. In spite of the its critics, SCSs are stili the system of choice in some 86 percent of U. S. manufacturing firms.
This paper discusses the criticisms of SCSs that (1) the variances are obsolete, (2) there is no provision for continuous improvement, and (3) use of the variances for responsibility accounting result in internal conflict rather than cooperation. Updates for SCSs in the form of redesigned variances, suggestions for dynamic standards, and refocused responsibility and reporting systems are presented. The compatibility of SCSs and its main competitor as a cost system, activity-based costing (ABC), is examined. The authors discuss when it is appropriate to use ABC or SCS or some combination of the two.
Since Eli Goldratt's (1983) charge that cost accounting is the numher one enemy of productivity in the early 1980s, traditional cost systems have heen under attack. Although
Goldratt subsequently softened his stand to say that cost rather accounting was the culprit
(Jayson 1987), others were quick to jump on the handwagon to condemn the cost systems in use. New systems were proposed of which the most popular was activity-hased costing (ABC).
In spite of all the criticism, a 1988 survey shows 86 percent of U.S. manufacturers using standard cost systems (Cornick et al.
1988). A survey by SchifF(1993) indicates that
36 percent of companies use activity-based costing, but only 25 percent of those use it to replace their traditional cost system. It would seem that only about 9 percent (25 percent of the 36 percent) of companies are using ABC as their main system while the vast majority use a standard cost system (SCS).
This is not to say that traditional SCSs could not benefit from