Waleed Noman

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BS-AF (A)

Accounting for Decision Making: Assignment

Is standard costing obsolete?

Empirical evidence from
Malaysia
Sulaiman, M., Ahmad, N., & Alwi, N. (n.d.). Is standard costing obsolete?
Empirical evidence from Malaysia. Managerial Auditing Journal, 109-124.
This study expects to give experimental confirmation on the degree to
which organizations in Malaysia use standard costing. Total 87 companies
(66 local and 21 Japanese firm in Malaysia) from consumer product and
industrial sectors were surveyed. These companies were sent a
questionnaire about how they perceived standard costing as a measuring
tool for performance and cost control. The questions were based on the
following categories:
Use of standard costing
Importance of standard costing
Setting labour and material standards
Frequency in reviewing standards
Importance of variances as an aid to control
The purpose of this research was to find out any evidence to support that
standard costing is not capable to help companies cost effectively in the
current rapidly progressing economies. Numerous researchers have
anticipated that the shorter product life cycles, low focus on labour in
production processes and extreme worldwide competition will make
standard costing obsolete. New technologies like JIT and Kaizen have also
made costing more effective for manufacturing companies, thus isolating
the benefits of standard costing.
According to the research done, almost 70% of local and 76% of Japanese
companies conveyed that they use standard costing. Which confirmed
that there is no undesirability in the usage of standard costing. Companies
mainly stated that standard costing is cheap in the long run and hence
makes it useful for cost control in itself.
There has been various criticisms leveled at standard costing but the
empirical conclusions appear to declare that standard costing remains in
use by a large majority of firms inside Malaysia. Prior analysis in
developed and developing nations discovered similar results. The reason it
is still used by these firms is because of the fact that such organizations

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BS-AF (A)

have modified their own standard costing systems to be in line with the
current manufacturing environment.

Rather than abandoning the standard costing system altogether,

companies made modifications to the system in accordance to the
advanced technologies such as:

Real time feedback

Kaizen costing

Real time feedback is now possible in standard costing due to

computerized accounting and manufacturing systems. This enables the
companies to gain insights on new adjustments and tweaking instantly,
hence resulting in better management of costs.
The most prominent advancement in standard costing to meet current
manufacturing standards is in accordance to Kaizen costing. The primary
base of standard costing that is determining beforehand what needs to be
achieved and then see how much of it was achieved is still applicable. The
only change to this principle is the Kaizen approach application, which is
done by applying target reduction rate to the actual cost of production of
the last period instead of using already determined standards.
The findings of the research concluded that Japanese firms use standard
costing to measure costs for inventories, past performances were used to
determines standards and alleged material price/Sales volume variances
to be most vital in cost control. The Malaysian local companies according
to the research, used average of historic costs to set their overall
standards, used standard costing for costing and performance assessment
and also believed that material price/sales volume variances define cost
controlling. The results also suggested that focus of management
accounting in Malaysia is principally for cost control.

Findings of this research must also be analyzed in the light of the

limitations of the whole research. The limitations of the research
conducted were mainly:

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BS-AF (A)

1. Only limited sectors were surveyed, hence the findings do not speak
for the Malaysian economy as a whole.
2. This study alone cannot be considered as a conclusive model to all
the questions asked.
3. The sample size was limited and hence a truly random sample could
not have been taken.
In conclusion, it can be stated that standard costing has not yet obsoleted
in Malaysia and many companies still use standard costing to control
various costs and evaluate performance. More research needs to be
conducted in order to get detailed analysis on the usage of standard
costing in the whole economy of Malaysia. It can also be concluded that
since standard costing is still in use, the basic concepts of it are still sound
and workable in the current progressive world.