This extract describes the accounting support available from a commercial provider to help house builders with costing.

IDS Scheer North America, the leading provider of business process excellence services and tools, today announced that it is teaming closely with SAP and will unveil a new ARIS Reference Model specifically developed for the needs of the home building sector at the 2004 Big Builder Conference in Las Vegas, November 9–11, 2004 at the Mandalay Bay Convention Center. The ARIS Reference Model for Home Building will be a part of the ARIS SmartPath for Home Building. IDS Scheer’s ARIS SmartPath includes a process-oriented approach to the configuration, implementation, methodology and management of SAP(R) solutions.

l ARIS SmartPath for Home Building modules will include:

l Support for the National Association of Home Builders (NAHB) chart of accounts l Configuration of the construction industry requirement of actual costs vs. standard costs for projects l Management of the entire construction to cash cycle, including the scheduling and purchasing functions.

l Support purchasing and all aspects of sub-contracting management l Warranty management specific to the construction industry

Discussion points
1 What is the role of standard costing in the process described here?
2 How might a standard costing system for housebuilding differ from a standard costing system for defence contracts (Real world case 15.2)?

Real world case 15.2

The US government has strict accounting rules for those involved in defence contracts. This extract outlines the process and then sets out the rules for applying Standard Costing.

Administratively a function located within OFPP is the Cost Accounting Standards Board (CASB), an independent legislatively established board consisting of five members, including the OFPP Administrator, who serves as chairman, and four members with experience in Government contract cost accounting, two from the Federal government, one from industry, and one from the accounting profession. The Board has the exclusive authority to make, promulgate, and amend cost accounting standards and interpretations designed to achieve uniformity and consistency in the cost accounting practices governing the measurement, assignment, and allocation of costs to contracts with the United States.

One of the standards set by this body is for the use of standard costs:

CAS 407 Use of Standard Costs for Direct Material and Direct Labor Purpose To improve cost measurement and cost assignment for contractors that choose to use a ‘standard’

type accounting system.

Requirement Standard costs may be used for estimating, accumulating, and reporting costs of direct material and direct labor when:

l Standard costs are entered into the books of the account;

l Standard costs and related variances are appropriately accounted for at the level of the production unit; and l Practices regarding the setting and revising of standards, use of standard costs, and disposition of variances are stated in writing and are consistently followed.

Discussion points
1 Why are standard costs particularly important for use in defence contracts?
2 What does the standard indicate about

(a) the nature of the standard costs and

(b) the recording of the standard costs?