ABSTRACT
The information produced by a standard costing system is used in management accounting to measure performance and analyze profitability. A standard costing system also goes a long way to defining the role of accounting and accountants in using and maintaining the system. Lean practices, primarily around improving the flow of materials, create improvement opportunities to simplify the components of bills of material used to set material standard costs. An improvement objective would be for the number of bills of material to match the number of finished goods that a company produces. Improvement opportunities can focus on the goal of quantity per assembly being based on the actual quantity of a part needed to produce the product based on engineering specifications. Improving material cost standard setting is best approached as a cross-functional series of improvements with the stakeholders in bills of material included – accounting, engineering, operations, and purchasing.
