Chapter 4 - Budget preparation

Question 1

Standard costing

Answer 1

A standard cost is an estimated unit cost, prepared in advance and calculated from management expectations of the following:

• Usage and efficiency levels on the use of materials and labour
• Prices of materials, labour & overheads
• Budgeted overhead costs and budgeted levels of activity

Question 2

Ideal standards

Answer 2

Which are set on the basis that ideal working conditions apply.

Question 3

Attainable standards

Answer 3

Better reflect the reality of the workplace, which allow for small amounts of normal wastage and inefficiency

Question 4

Basic standards

Answer 4

Are the historical standard costs, probably set when the product was first produced. Therefore likely to be out of date.