8. Standard Costing

Question 1

What is a standard cost?

Answer 1

The estimate of what cost will be incurred for a certain purchase, service or usage

Question 2

What is the basic standard?

Answer 2

Assumes that nothing has changed since the standard was first set (e.g. inflation tax)

Question 3

What is the current standard?

Answer 3

Assumes that current efficiency and cost levels will be maintained

Question 4

What is the attainable standard?

Answer 4

Assumes that there will be some improvement in current efficiency and cost levels

Question 5

What is the ideal standard?

Answer 5

Assumes an optimum level of efficiency and cost, and minimisation of waste

Question 6

What are standard costs used for?

Answer 6

To create a budget, and for variance analysis

Question 7

What can management do to to identify the standard quantities of resource needed for the standard cost card?

Answer 7

• Use past experience
• Look at detailed product specifications
• Discuss with experts

Question 8

What can management do to to identify the standard prices for the standard cost card?

Answer 8

• Current prices
• Expected future price changes
• Availability of discounts
• Range of suppliers available

Question 9

What is piecework?

Answer 9

Rate of pay is established per unit of output, usually worked out based on some expectation of certain level of performance - an incentive based pay scheme