d through the application of these managerial accounting concepts permits managers to make valid and rapid decisions on the basis of performance variances from managerial accounting cost factors or ratios (Anthony, and Reece, 1986, pp. 697-771).
Internal cost controls within firms cover a multitude of factors and considerations, depending on the activity being controlled. Within production organizations, one of the most important forms of internal cost control involves the use of standard costs. The use of standard costs in an internal cost control program involves the evaluation of the efficiency of the production process through the analysis of the variance between standard costs and actual costs.
Process cost and job order cost systems provide the cost accountant with the means of determining actual and historical unit costs of production (Niswonger, and Fess, 1985, p. 592). The purpose of both actual and historical costs is to provide management with timely data on actual manufacturing costs and to facilitate cost control and profit maximization (Niswonger, and Fess, 1985, p. 592). To effectively control productions costs, however, it is necessary to have some idea as to what production costs should be. Having an idea as to what production costs should be enables management to project, or budget, production costs.
For management to have some idea of what production costs should be requires detailed estimates of each element of manufacturing cost entering into the finished product (Niswonger, and Fess, 1985, p. 592). These detailed cost estimates are referred to as standard costs (Niswonger, and Fess, 1985, p. 592).
Three principal functions for standard cost systems have been stated. These three functions are (1) identifying the actual costs of operation, (2) determining the achievement of the production operation, and (3) evaluating the performance of the production operation (Calvasina, & Calvasina, 1984, p....