Dickeson--Job Costing - A Virtual Reality Check

Do the Math
We know how our virtual job costs are derived: Multiply standard cost by either production standards or actual performance. Standard costs start from an annual budget that is founded on critical assumptions that rarely prevail.

One of the prime assumptions is work center capacity and capacity utilization. That's always a SWAG (scientific wild-ass guess). Another is use of historic capital costs, depreciated or amortized. A third is that the historic cost of plant land is equal to the value of the highest and best use; pure fiction. Another is the projection of inventory turns and cost. And on and on.