Applicability of Standard Cost Systems Portfolio management is a powerful concept in finance and marketing. The marketing application of the concept is to develop and manage a balanced port- folio of products. Market share and market growth can be used to classify products for portfolio purposes, and the product classifications often are extended to the organizational units that make the product. The market share/growth classifications can be depicted as follows:
Market Share
|
Market Growth Rate
High
|
High
Rising star
|
Low
?
|
|
Low
|
Cash cow
|
Dog
|
The question mark is the classification for products that show high-growth rates but have small market shares, such as new products that are similar to their competitors. A rising star is a high- growth, high-market-share product that tends to mature into a cash cow. A cash cow is a slow- growing established product that can be milked for cash to help the question mark and introduce new products. The dog is a low-growth, low-market-share item that is a candidate for elimination or segmentation. Understanding where a product falls within this market share/growth structure is important when applying a standard cost system.
Required
1. Discuss the major advantages of using a standard cost accounting system.
2. Describe the types of information that are useful in setting standards and the conditions that must be present to support the use of standard costing.
3. Discuss the applicability or nonapplicability of using standard costing for a product classified as (a) a cash cow, and (b) a question mark.
4. What are some primary criticisms of using standard cost systems in today's manufacturing environment?