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Questions and Answers
What is the primary purpose of standard costing?
What is the primary purpose of standard costing?
- To track historical costs of products or services
- To report variances by comparing actual costs to pre-set standards (correct)
- To calculate the total cost of production
- To set fixed prices for products or services
What are the components of standards for each cost element in standard costing?
What are the components of standards for each cost element in standard costing?
- Direct cost and indirect cost
- Fixed component and variable component
- Material cost and labor cost
- Monetary component and resources requirement component (correct)
What principle does standard costing enable to be practiced?
What principle does standard costing enable to be practiced?
- Just-in-time production
- Activity-based costing
- Total quality management
- Management by exception (correct)
When should standard costs be revised for control purposes?
When should standard costs be revised for control purposes?
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What does standard costing involve for control purposes?
What does standard costing involve for control purposes?
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Study Notes
Standard Costing
- The primary purpose of standard costing is to provide a benchmark against which actual costs can be compared, facilitating cost control and performance evaluation.
Components of Standards
- Standards for each cost element in standard costing comprise:
- Physical standards (quantity of materials, labor hours, etc.)
- Price standards (cost per unit of material, labor rate, etc.)
- Efficiency standards (output per labor hour, etc.)
Principle of Management by Exception
- Standard costing enables the principle of management by exception to be practiced, where attention is focused on deviations from standard costs.
Revising Standard Costs
- Standard costs should be revised for control purposes when there are significant changes in the production process, technology, or market conditions.
Control Purposes
- Standard costing involves establishing standards, recording and reporting actual costs, and analyzing and investigating variances from standard costs for control purposes.
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Description
Test your knowledge of standard costing and standard costs with this quiz. Explore the preparation of standard costs, their use in variance analysis, and the principles of management by exception. Challenge yourself with questions on monetary and resource requirement components of standards for cost elements.
