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Posted on April 2nd, 2012, by

The purpose of the article is very important because many companies apply the standard costing strategy, whereas many specialists (Breneman & Taylor, 1996) are very skeptical about prospects of this strategy and its effectiveness in the contemporary business environment. In such a situation, the analysis of the standard costing strategy in the real life situation can help companies to apply this strategy effectively or abandon this strategy if they consider this strategy ineffective. In this regard, the research conducted by Johnsen and Soparivala (2000, p.3) is very helpful and proves that the standard costing strategy is still quite effective.

In spite of the fact that the article raises a serious problem of the application of the standard costing strategy, it is still easy to read and understand. The language of the article is not overwhelmed with specific terms that make the article comprehensible even for those readers who have basic knowledge of management accounting. In addition, the authors use in abundance visualization, such as tables which reveal factual information that backs up findings and arguments of the authors. In such a way, visualization facilitates the perception of the article by readers.

It proves beyond a doubt that costing strategy affects consistently the marketing position of a company and its pricing policy. The process of taking pricing decision may be affected by a variety of factors. Basically, it may depend on both external market situation and the situation within a company. At the same time, one of the major constituent elements that affect consistently pricing decision is costs. In actuality, costs and prices are closely interrelated and interdependent and it should be pointed out that the latter are dependent on the former in such a way that the change in costs respectively affects the pricing.

First of all, it should be said that costs of the production are very important and actually define the price at which a product or service should be sold (Peters, 2002, p.184). To put it more precisely, the costs a company spends on the production of a service or product and its delivery to the customer are very important and shape the final price of the product because they determine the expenditure the company should cover through the sale of its product or service.

In actuality, the major goal of a company normally is to maximize its profits and, at the same time, maintain its competitive position (Gitlow, 1997, p.137). This is why the company needs to sale its products or services at the price which could cover the costs of the production, as well as costs of the delivery and sale of a product or service to customers.

In fact, a company cannot sell its products at the price lower than the costs of the production. In such a situation, the production of goods or services would be absolutely ineffective and would lead to the ruin of a company because its financial losses will grow proportionally to the gap between the costs and the price (Viardot, 2001, p.166).

Consequently, the price of a product or service should cover the costs of the production and basically it should bring some profit to a company. This will provide the company with an opportunity to maintain the stable production and positive market performance as well as high rates of sales as long as the price does not exceed the level acceptable for the particular product in a particular competitive environment, i.e. the final price should meet the average price of a product or service in the industry.

Taking into consideration, such a dependence of costs and price, it should be said that pricing decisions are taken on the basis of the costs of the production. As a result, the increase of the costs of the production naturally leads to the increase of the price (Mohrman, 1998, p.229). At the same time, through the decrease of costs it is possible to maintain the prices at the stable level or even decrease slightly that will increase the competitiveness of the product and, therefore, increase the sales rate that means that the company that manages to minimize costs can have larger opportunity to vary prices in accordance with the current situation in the market, i.e. it can maintain the price to increase its profits or decrease the price to attract a larger amount of customers and increase sales rates that may also increase profits of a company. On the other hand, a company cannot sell products at a price that is lower than the costs of production. At any rate, such a disparity between price and costs cannot last for a long time.

Conclusion

Thus, taking into account all above mentioned, it should be said that the article “Standard Cost Is Alive and Well at Parker Brass”¯ by Johnsen and Soparivala focuses on the very important issue ”“ the application of the standard costing strategy in the contemporary business environment. The authors conduct the research on the ground of Parker Brass’ experience of application of this strategy. Eventually, they arrive to the conclusion that this strategy can be applied effectively in the contemporary business environment, if it is adapted to the specific business environment in which the company operates. This finding is very important in terms of the further use of standard costing strategy by companies operating in different industries.

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