Essay: Valuation of Stock & Standard Costs
Valuation of the stock is often associated with the LIFI, FIFO and the AVCO systems of valuation, however standard costing can also be used for the valuation of the inventory and the stock related costs. It is highly unpopular when it comes to lean accounting as it tends to hide the real cost centres while make redundant or low performing cost centres as efficient due to its focus on volume.
“Older plants with fully depreciated equipment may have the lowest standard costs yet be less efficient (and profitable) than newer locations with expensive, high-speed equipment. An average cost system will even out these differences and provide the company with better methods of valuing inventory and measuring efficiencies.” (Engle, 2006) A combination of standard costing and variance analysis can be employed to limit and control the application of decision models for the valuation of stock. As depicted above standard costing can have its issues and proposals have been made to reduce them; however the most significant of these pertain to analysis of variables in standard costing in terms of their usefulness and their importance. Instead of controlling the process using standard costing fro valuation the model can be controlled which can yield much better results than traditionally simple standard costing.
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