#10

Question 1

Standard cost

Answer 1

An estimated or predetermined cost of performing an operation or producing a good or service, under normal conditions.

Standard costs are used as target costs (or basis for comparison with the actual costs), and are developed from historical data analysis or from time and motion studies. They almost always vary from actual costs, because every situation has its share of unpredictable factors. Also called normal cost.

Question 2

Ideal standard cost

Answer 2

Standards that allow for no machine breakdown or other work interruptions and that require peak effeciency at all times.

Question 3

Practical standard cost

Answer 3

Standard that allow for normal machine downtime and other work interruptions and that can be attained through reasonable, though highly efficient, efforts by the average worker.

Question 4

Purpose of standard cost

Answer 4

benchmarking actual cost against the flexible budget and standard cost. Employee motivation. Performance evaluation.
The core reason for using standard costs is that there are a number of applications where it is too time-consuming to collect actual costs, so standard costs are used as a close approximation to actual costs.

Question 5

Advantages of Standard Costing

Answer 5

Price setting, budgetting, Investory costing

Question 6

Problems with Standard Costing

Answer 6

may even result in incorrect management actions.

Question 7

Variance

Answer 7

A variance is the difference between the actual cost incurred and the standard cost against which it is measured