Attainable Standard: In-Depth Definition
Attainable standard in standard costing refers to a benchmark for cost or income that is set at a realistic and achievable level, considering the working conditions and constraints during a specific cost period. Unlike ideal standards, which might be based on the theoretical best performance without inefficiencies, and expected standards that anticipate routine efficiencies, attainable standards are more pragmatic. These standards are considered realistic and motivate employees by being challenging yet achievable.
Standard costing is a cost accounting method where predetermined costs are used for measuring the performance. Attainable standards take into consideration factors like normal operating conditions, expected productivity levels, efficient use of resources, and average waste levels. Thus, the attainable standard is often seen as an effective middle ground between being overly optimistic (ideal standard) and overly pragmatic (expected standard).
Examples
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Manufacturing Sector: In a car manufacturing unit, an attainable standard might be set based on the average production rate achievable by workers considering minor daily interruptions, machine maintenance, and average worker productivity. For example, if the ideal standard to produce a car is 5 hours and the expected standard is 7 hours, the attainable standard might be 6 hours.
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Service Sector: In a customer service center, an attainable standard for handling calls might be determined. If the ideal standard is to handle 30 calls per hour and the expected standard is 20 calls per hour, the attainable standard could be set at 25 calls per hour, considering potential breaks, system slowdowns, and varying call complexities.
Frequently Asked Questions (FAQs)
Q: How is an attainable standard different from an ideal standard? A: An attainable standard is set based on realistic conditions and achievable performance levels, accounting for normal inefficiencies and variations. An ideal standard, on the other hand, assumes perfect conditions without any inefficiencies or deviations.
Q: Why are attainable standards important in standard costing? A: Attainable standards are important because they set realistic and motivating targets for employees, making it possible to measure performance accurately and encourage continuous improvement without demotivating the workforce with unattainable targets.
Q: Can attainable standards change over time? A: Yes, attainable standards can be revised as operational conditions, technology, and workforce capabilities evolve. Regular reviews ensure that standards remain realistic and motivating.
Related Terms with Definitions
- Standard Costing: A cost accounting method where estimated costs are used to plan and control operations.
- Expected Standard: A standard set at a level that is likely achievable under normal, expected operating conditions.
- Ideal Standard: The perfect performance level achievable under the best possible conditions, with no inefficiencies.
- Variance Analysis: The process of analyzing the difference between standard costs and actual costs to identify areas of inefficiency.
Online Resources
- Investopedia - Standard Costing
- Accounting Coach - Standard Costing
- Corporate Finance Institute - Standard Costing and Variance Analysis
Suggested Books for Further Studies
- “Cost Accounting: A Managerial Emphasis” by Charles Horngren, Srikant Datar, and Madhav Rajan: A comprehensive guide on cost accounting techniques including standard costing and variance analysis.
- “Managerial Accounting” by Ray H. Garrison, Eric Noreen, and Peter Brewer: This book covers various aspects of managerial accounting, including practical applications of attainable standards in different industries.
- “Accounting for Management” by Jawahar Lal: Focuses on detailed cost management techniques and practical case studies involving standard costing.
