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Question 1

What is a standard cost

Answer 1

Predetermined target cost for a unit of activity

Target should be incurred under efficient operating conditions

Question 2

What does a budget relate to

Answer 2

An entire activity or operation

Some budgets are prepared using standard costs, usually for production costs

Question 3

How are standards set 

Answer 3

Direct materials standards – based on product specification and intensive study of quantities required for each product together with prices from purchasing department

Direct labour standards – similar to materials for quantities with wage rates from HR

Overhead standards – split into fixed and variable, for variable overheads, absorption rate is determined

Question 4

What are the purposes of standard costing

Answer 4

Providing predictions that can be used for decision-making purposes

Setting a challenging target

For use in developing budgets

Acting as a control device

Simplifying task of tracing costs to products

Question 5

What is a variance

Answer 5

Difference or change