Plankostenrechnung

What Is Plankostenrechnung?

Plankostenrechnung, often known as standard costing in English, is a fundamental method within cost accounting that involves setting predetermined costs for producing a unit of product or providing a service. These "standard costs" serve as benchmarks against which actual costs are compared, enabling businesses to monitor and control expenditures effectively. The primary goal of Plankostenrechnung is to improve cost control and enhance decision-making by providing clear financial targets and highlighting deviations from expected performance. Plankostenrechnung is a crucial component of managerial accounting, offering insights into operational efficiency and helping organizations manage their financial health.

History and Origin

The concept of standard costing, or Plankostenrechnung, gained prominence in the early 20th century, particularly within manufacturing industries. It emerged as a response to the need for more sophisticated cost management techniques as industrial processes became increasingly complex. Early adopters, such as the Ford Motor Company in the 1920s, championed the practice as an innovation in production control, using it to manage and control manufacturing expenses.¹² The system was developed to provide predetermined costs for materials, labor, and overhead costs based on historical data and anticipated rates. This allowed businesses to track actual costs against these set standards, identifying areas where costs exceeded expectations.¹¹ Its evolution reflects a shift from merely tracking historical costs to proactively setting targets and analyzing variances to improve efficiency.

Key Takeaways

• Plankostenrechnung sets predetermined costs for production, serving as benchmarks for evaluating actual performance.
• It is a core component of management accounting, aiding in cost control and financial planning.
• The system facilitates variance analysis by comparing actual costs to standard costs.
• Plankostenrechnung supports effective budgeting and pricing decisions.
• While advantageous for homogeneous production, it may face limitations in dynamic or highly customized environments.

Formula and Calculation

Plankostenrechnung involves calculating variances for each cost element: direct materials, direct labor, and manufacturing overhead. The general approach to calculating variances is as follows:

1. Material Variance:

• Material Price Variance (MPV): This measures the difference between the actual price paid for materials and the standard price, multiplied by the actual quantity purchased.
  $MPV = (Actual\;Price - Standard\;Price) \times Actual\;Quantity$
• Material Quantity (Usage) Variance (MQV): This measures the difference between the actual quantity of materials used and the standard quantity allowed for the actual output, multiplied by the standard price.
  $MQV = (Actual\;Quantity - Standard\;Quantity\;Allowed) \times Standard\;Price$

2. Labor Variance:

• Labor Rate Variance (LRV): This measures the difference between the actual labor rate paid and the standard labor rate, multiplied by the actual hours worked.
  $LRV = (Actual\;Rate - Standard\;Rate) \times Actual\;Hours$
• Labor Efficiency Variance (LEV): This measures the difference between the actual hours worked and the standard hours allowed for the actual output, multiplied by the standard rate.
  $LEV = (Actual\;Hours - Standard\;Hours\;Allowed) \times Standard\;Rate$

3. Overhead Variances:

• Overhead variances are typically broken down into variable overhead and fixed overhead components, with further sub-variances like spending and efficiency for variable overhead, and budget and volume for fixed overhead.

These calculations enable businesses to pinpoint specific areas of inefficiency or cost savings, providing actionable insights for performance measurement. The standard quantity allowed for actual output is a key aspect, linking back to efficient production levels.

Interpreting the Plankostenrechnung

Interpreting the results of Plankostenrechnung involves analyzing the variances generated from comparing standard costs with actual costs. A "favorable" variance indicates that actual costs were less than standard costs, while an "unfavorable" variance means actual costs exceeded standard costs. These variances serve as red flags, prompting management to investigate the underlying causes. For instance, an unfavorable direct materials price variance might suggest higher-than-expected purchase prices, while an unfavorable labor efficiency variance could indicate issues with worker productivity or production processes.

The interpretation extends beyond simply identifying positive or negative differences. Management must delve into why a variance occurred. Was it due to controllable factors within the cost centers, such as inefficient operations or poor purchasing decisions? Or was it due to uncontrollable external factors, like unexpected increases in raw material prices? Proper interpretation helps allocate responsibility, refine future standards, and implement corrective actions to improve overall efficiency and profitability.

Hypothetical Example

Consider "Alpha Manufacturing," a company that produces custom wooden tables. They use Plankostenrechnung to manage their production costs.

Setting Standards for One Table:

• Direct Material (Wood):
  • Standard Quantity: 10 board feet
  • Standard Price: $5 per board foot
  • Standard Cost: $50
• Direct Labor:
  • Standard Hours: 2 hours
  • Standard Rate: $20 per hour
  • Standard Cost: $40
• Variable Overhead:
  • Standard Hours: 2 hours
  • Standard Rate: $5 per hour
  • Standard Cost: $10

Actual Production for One Week:
Alpha Manufacturing produced 100 tables.

Actual Costs Incurred:

• Direct Material: 1,050 board feet purchased and used at $5.20 per board foot. (Total actual cost: $5,460)
• Direct Labor: 210 actual hours worked at $19 per hour. (Total actual cost: $3,990)
• Variable Overhead: $1,080 actual cost.

Calculating Variances:

1. Material Variances:

   • Standard Quantity Allowed for 100 tables: (10;board;feet/table \times 100;tables = 1,000;board;feet)
   • MPV: (( $5.20 - $5.00 ) \times 1,050;feet = $0.20 \times 1,050 = $210;(Unfavorable))
   • MQV: (( 1,050;feet - 1,000;feet ) \times $5.00 = 50;feet \times $5.00 = $250;(Unfavorable))

2. Labor Variances:

   • Standard Hours Allowed for 100 tables: (2;hours/table \times 100;tables = 200;hours)
   • LRV: (( $19 - $20 ) \times 210;hours = -$1 \times 210 = -$210;(Favorable))
   • LEV: (( 210;hours - 200;hours ) \times $20 = 10;hours \times $20 = $200;(Unfavorable))

Alpha Manufacturing can now see that while they paid less for labor (favorable rate variance), their workers were less efficient (unfavorable efficiency variance). Materials were both more expensive and used in greater quantities than planned. This detailed breakdown allows the company to investigate specific causes, such as a supplier price increase or production line inefficiencies, to improve future cost management strategies.

Practical Applications

Plankostenrechnung is widely applied across various sectors for robust cost management and strategic decision-making. In manufacturing, it helps companies manage production costs for mass-produced, homogeneous goods by establishing benchmarks for direct labor and materials. This allows for quick identification of deviations and enables timely corrective action. For instance, in an automotive assembly plant, Plankostenrechnung helps ensure that each car produced adheres to a predefined cost structure, allowing managers to spot inefficiencies in specific stages of production.

Beyond manufacturing, service industries also utilize standard costing principles to evaluate the cost of delivering services. While less tangible, standards can be set for labor time per service unit or material usage for routine tasks. Businesses can leverage Plankostenrechnung for internal control, performance evaluation of departments, and inventory valuation, especially when determining the cost of goods sold. It provides a structured approach for activity-based costing and informs pricing strategies. The insights gained from standard costing can also assist management in making informed decisions by providing timely and accurate measures of cost and performance.¹⁰

A recent academic review highlights that standard costing techniques and variance analysis remain relevant and crucial management accounting tools for industries today, particularly for cost minimization in production.⁹

Limitations and Criticisms

While Plankostenrechnung offers significant benefits, it is not without limitations. One major criticism is its reliance on historical data and the assumption of stable operating conditions, which can make it inflexible in dynamic business environments.⁸⁷ Establishing realistic and accurate cost standards can be challenging, especially for companies with frequently changing products, customized offerings, or volatile market conditions. If standards are not regularly revised, they can become outdated, leading to inaccurate performance evaluations and potentially flawed strategic decisions.⁶

Another drawback is the potential for management insensitivity. When actual costs consistently deviate from standards, management might not perceive a strong need for immediate cost control if those deviations are somehow "accounted for" in the budget.⁵ Furthermore, an overemphasis on meeting standards can sometimes lead to dysfunctional behavior. For example, a purchasing manager might acquire lower-quality materials at a cheaper price to meet a favorable material price variance, even if it compromises product quality.⁴

The process of setting standards can also be complex and expensive, requiring significant research and expert opinions.³ Integrating standard costing systems with modern enterprise software can also pose technological challenges.² These limitations underscore the need for a balanced approach, recognizing that while Plankostenrechnung is a valuable tool, it should be used in conjunction with other management accounting techniques and continuously adapted to the evolving business landscape. An article from the Association for Financial Professionals (AFP) discusses how volatility in operations can challenge the basis for calculating standard rates, making it difficult to define "normal capacity" for production, thereby highlighting a key problem with standard costs in dynamic environments.¹

Plankostenrechnung vs. Istkostenrechnung

Plankostenrechnung (Standard Costing) and Istkostenrechnung (Actual Costing) represent two distinct approaches to cost accounting, primarily differing in their timing and purpose of cost determination.

Plankostenrechnung (Standard Costing):

• Timing: Costs are predetermined before production or a period begins.
• Purpose: Primarily used for cost control, performance evaluation, budgeting, and setting pricing. It establishes a benchmark for efficiency.
• Focus: What costs should be under efficient operating conditions.
• Result: Generates variances (differences between standard and actual costs) that signal areas needing management attention.

Istkostenrechnung (Actual Costing):

• Timing: Costs are recorded as they are incurred during or after production.
• Purpose: Primarily used for financial reporting and determining the actual historical cost of products.
• Focus: What costs actually were.
• Result: Provides historical cost data without direct benchmarks for efficiency unless compared to prior periods or external data.

The main confusion arises because both methods aim to determine the cost of a product. However, Plankostenrechnung takes a proactive, forward-looking stance, setting targets and highlighting deviations for immediate managerial action. Istkostenrechnung, conversely, is reactive, focusing on historical accuracy for financial statements. Companies often use a hybrid approach, using standard costs for internal management and adjusting to actual costs for external reporting, particularly for inventory valuation and cost of goods sold.

FAQs

Q1: Why is Plankostenrechnung important for businesses?
Plankostenrechnung is crucial because it allows businesses to establish clear financial targets for their operations. By comparing actual expenditures to these predetermined standard costs, companies can identify inefficiencies, control spending, and improve overall operational efficiency. It helps in making informed decisions regarding pricing and resource allocation.

Q2: How are standard costs determined in Plankostenrechnung?
Standard costs are typically determined through a collaborative process involving various departments, including engineering, production, and accounting. It involves analyzing historical data, industry benchmarks, and anticipated future conditions for variable costs like direct materials and direct labor, as well as fixed costs like factory rent. Experts often provide input on efficient material usage and labor times.

Q3: What are cost variances, and why are they important?
Cost variances are the differences between actual costs incurred and the standard costs. They are vital because they highlight deviations from expected performance. Analyzing these variances, such as material price variance or labor efficiency variance, helps management pinpoint the specific causes of cost overruns or savings. This allows for targeted corrective actions and continuous improvement in cost accounting.

Q4: Can Plankostenrechnung be used in service industries?
Yes, while traditionally associated with manufacturing, the principles of Plankostenrechnung can be adapted for service industries. For example, a consulting firm might set standard hours for a particular type of client engagement or a standard cost for administrative support per project. The core idea remains the same: establishing a benchmark to measure efficiency and manage the cost of service delivery.

Q5: Does Plankostenrechnung replace actual cost accounting?
No, Plankostenrechnung does not fully replace actual cost accounting. Instead, they complement each other. While standard costs are invaluable for internal management accounting, control, and decision-making, actual costs are generally required for external financial reporting purposes to accurately reflect historical transactions. Companies often reconcile standard costs to actual costs at period-end.