cific activities within the overall organization, depending upon the contribution to the specific activities made by the corporateaviation function. Such allocation may be made on the basis of standard costing, or they may be made on the basis of actual costs incurred. By contrast, if a corporate aviation depart ment is viewed as a separate activity area, other overhead costs incurred by the corporation will be allocated, in part, to the corporate aviation activity. Again, such allocation may be made on the basis of either standard or actual costs.
Standard cost systems are used in different ways at dif ferent levels within an organization. At the operating level, as an example, which is concerned with the transformation of inputs (materials, labor, knowledge, and so forth) into outputs (goods and services), the major function of standard costs is the control of transformation efficiency, generally over rela tively short periods of time.
It is at this operating level that standard cost applica tions are most often considered. While the function of stan 3dard cost systems at the operating level is both pervasive and significant, it is not the only organizational function of standard cost systems. At the managerial control level the focus is on an integration of the demands of individuals within the organization, the demands of operational control, and the requirements of the organization as a whole (as determined by the organization's policy makers). A major function of stan dard costs at this level is the evaluation of individual departmental performance at the operating level.9
The essence of management through the use of standard costs is the identification and analysis of the variance between actual and projected, or standard, costs. When the variance, or difference, between actual and standard costs is identified and quantified, management is then in possession of the knowledge as to exactly in which specific ar...