Attainable Standard: A Benchmark in Standard Costing

Attainable Standard represents a cost or income standard set at a realistic level, achievable by operators under normal working conditions during the relevant cost period.

An Attainable Standard represents a realistic target in standard costing, set at a level that can be achieved by operators under normal working conditions during the relevant cost period. This standard is contrasted with other benchmarks such as expected standards and ideal standards, providing a more realistic and motivating target for performance measurement and cost control.

Historical Context

The concept of attainable standards emerged alongside developments in industrial management and accounting in the early 20th century. These standards were introduced to motivate workers by setting achievable targets and to establish a baseline for measuring performance and controlling costs.

Types/Categories of Standards in Costing

• Attainable Standard:

  • Definition: Realistically achievable targets under normal working conditions.
  • Purpose: Motivates employees and provides a realistic benchmark.

• Expected Standard:

  • Definition: Based on the average expected performance over a period.
  • Purpose: Used for budgeting and forecasting.

• Ideal Standard:

  • Definition: Represents the best possible performance without any inefficiencies.
  • Purpose: Establishes a goal for perfection and continuous improvement.

Key Events

• Early 1900s: Introduction of standard costing as part of scientific management by Frederick Taylor.
• 1950s-1960s: Widespread adoption of attainable standards in manufacturing to improve efficiency and cost control.

Detailed Explanations

Calculation and Implementation

Attainable standards are typically derived from historical performance data, adjusted for expected normal working conditions. The process involves:

• Data Collection: Gathering historical data on resource usage, machine efficiency, labor productivity, etc.
• Analysis: Analyzing variations and identifying normal operating conditions.
• Adjustment: Modifying historical averages to reflect achievable performance under normal conditions.
• Standard Setting: Finalizing the attainable standards for cost and income.

Mathematical Models

Mathematical formulas and models used in setting attainable standards often include variance analysis:

$$ \text{Standard Cost} = \text{Standard Quantity} \times \text{Standard Price} $$

Variance Analysis Formula:

$$ \text{Variance} = \text{Actual Cost} - \text{Standard Cost} $$

Charts and Diagrams (in Hugo-compatible Mermaid format)

Sample Variance Analysis Chart

    graph LR
	    A[Data Collection] --> B[Historical Data Analysis]
	    B --> C[Adjustment for Normal Conditions]
	    C --> D[Final Standard Setting]
	    D --> E[Performance Monitoring]
	    E --> A

Importance and Applicability

• Motivation: Provides achievable targets that boost employee morale and productivity.
• Benchmarking: Establishes realistic standards for evaluating performance.
• Cost Control: Helps in identifying and addressing inefficiencies.

Examples and Considerations

• Example: In a manufacturing plant, historical data show that machines typically produce 100 units per hour. Considering minor downtimes and normal operating conditions, an attainable standard might be set at 95 units per hour.
• Considerations: Periodic reviews are necessary to ensure standards remain realistic and motivating.

Related Terms with Definitions

• Standard Costing: Accounting method involving setting predetermined costs for products and services.
• Variance: The difference between actual costs and standard costs.
• Efficiency Variance: Measures the efficiency of resource usage.

Comparisons

• Attainable Standard vs. Expected Standard:
  • Attainable is more realistic, while expected is based on averages.
• Attainable Standard vs. Ideal Standard:
  • Attainable is achievable under normal conditions, whereas ideal represents the best possible scenario without any inefficiencies.

Interesting Facts

• Inspirational Story: Toyota’s implementation of attainable standards significantly improved their production efficiency, setting a benchmark for the entire automobile industry.

Famous Quotes

• “The best preparation for tomorrow is doing your best today.” - H. Jackson Brown, Jr.

Proverbs and Clichés

• “Under-promise and over-deliver.”
• “A bird in the hand is worth two in the bush.”

Jargon and Slang

• Benchmarking: Comparing performance against a standard.
• Kaizen: Japanese term for continuous improvement, often linked with setting attainable standards.

FAQs

What is an attainable standard?

An attainable standard is a cost or income standard set at a level that can realistically be achieved under normal working conditions.

How is an attainable standard different from an ideal standard?

An attainable standard is realistic and achievable under normal conditions, while an ideal standard represents the best possible performance without inefficiencies.

References

1. Horngren, C. T., Datar, S. M., & Rajan, M. (2012). Cost Accounting: A Managerial Emphasis. Pearson.
2. Kaplan, R. S., & Atkinson, A. A. (1998). Advanced Management Accounting. Prentice Hall.

Summary

Attainable Standards are crucial in standard costing, serving as realistic and motivational benchmarks for evaluating performance and controlling costs. By setting achievable targets, businesses can improve productivity, encourage efficiency, and foster a culture of continuous improvement.

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By encompassing a range of insights and thorough explanations, this encyclopedia article ensures a deep understanding of the Attainable Standard, aiding readers in grasping its significance and application in various contexts.