Question

Notes le November 24, 2019 at 6:42 PM 1. Why do companies use normal instead of ideal standards? What is the difference between a standard cost and a budget? How could Walmart use a standard cost? How does purchasing commodity options help Walmart achieve their goals? 2. How does Delta Air lines use the Balanced Scorecard? What are the four main quadrants of the scorecard?

Answer 1

1. Ideal standards refers to best in industry performances, which can only be achieved by industry leaders, it is not that easy to benchmark which industry leaders and reach their targets, so companies generally go for normal standards instead of ideal standards.
2. Flexed budget is called standard cost. Budget means the actual budget without considering the normal and abnormal reasons for deviations from actual. Standard cost is different from budget because standard cost considers the cost associated with actual sales. This can be understood with an example, let us say, the budgeted sales of 10,000 units and the budgeted cost be 20,000 that is 2 per unit. Now let us assume the actual sales are only 15,000 and actual cost is 28,000. If we compare the budgeted cost with actual cost it appears that company has spent 8,000 more. But if we take standard cost it means, budgeted cost for actual sales of 15,000 units, it is 30,000 we come to know that company actually spent less compared to budget. Hope this might help to understand the difference between budgeted and standard costs.
3. Standard costing is a technique of cost control which closely monitors the actual costs by comparing it with budgeted and helps in cost control. Walmart uses standard costs to control the costs they incur and pass on the benefits to the customers to increase sales by reducing the costs.
4. Walmart has a vast supplier base to choose from which increases their bargaining power, they select the supplier who offers the lowest cost and therefore becomes successful in reducing the purchase costs and achieve their goals.
5. Balanced score card is an approach developed by Kaplan and Norton, which is widely used to evaluate bith financial and non financial performance of an entity. Delta airlines manages to be the best airlines by using the balanced score card approach. Delta airlines effectively uses the four quadrants of balanced score card to become the best airlines. Coming to tbe quadrants, balanced score card considers both financial and non financial aspects such as, financial perspective, innovation and learning perspective, organisation perspective and customer perspective. Delta airlines used to run flights on time by using innovation and achieved the customer base. And also delta airlines achieved competitive edge by learning internally through organization practices.