Archive for February, 2012

Standard Cost: Setting Overhead Cost Standards

When it comes to setting cost standards, overhead is the biggest problem. Why? Today, aside from material costs, overhead is the largest component of product cost and the least understood. Historically, overhead cost averaged 20% to 40% of labor cost. It was a minor consideration to product cost and was not significant in management decisions. […]


Standard Cost: Is Standard Cost A Key Performance Indicator?

Most manufacturing companies have a standard cost system. Their first motivation for this system is to simplify inventory valuation and tracking. Then with all the resulting information available from this system, it seems only logical to use it for key performance indicators or KPI’s. One indicator could be a product’s total standard cost; others could […]


Standard Cost: Overhead Absorption and the 800 Pound Gorilla

Standard costs and particularly overhead absorption have drawn fire from many who use problems in this area to promote their own “solution”. But let’s examine what is really going on here.