Question

Describe the benefits of standard costing to your Ford Motor Company from the standpoint of pricing products or services, performance evaluation, and financial reporting.

Explain and give specific examples.

Answer 1

Answer)

Benefits of standards costing to Ford motor company:

From stand point of pricing the product or service: Determining whether the current price policy is sufficient to earn the estimated profit or not.Foe example say Changing engine oil is priced at $40 where the standard cost of engine oil is $35 and it costs around $2 for the labour and hence such service have margin of $3.The cost of engine oil has increased to $38 and hence it is actual cost.Then along with labour payment there won't be any profit left.Now the company can make decision of increasing the price of engine oil.

From stand point of performance evaluation: Suppose the stand labour time for an work 2 hours.Now the efficiency of work can be determined by seeing it i.e if he did it within or less than stipulated time he will be eligible for incentives and if not he won't.

From stand point of financial reporting:Here,the management may present the standard targets that are kept to achieve and how and how far did they achieve which helps shareholders or lenders or other interested parties to evaluated the management performance.