Standard Costs

Question 1

are used as a basis for comparison to measure performance or achievement

Answer 1

Standard

Question 2

What is the nature of Standard Costs?

Answer 2

They serve as a measure of acceptable performance established by management as a guide in making economic decisions.

Question 3

are carefully [or scientifically] pre-determined costs established by management to be as a basis for comparison with actual costs.

Answer 3

Standard Costs

Question 4

Standards are normally set for the three costs elements of production namely:

Answer 4

Materials
Labor
Manufacturing Overhead

Question 5

the carefully or scientifically pre-determined cost of manufacturing a unit of product during a specific future period of time

Answer 5

Standard Costs

Question 6

is set to include all the costs to manufacture and sell a product, plus a desired amount of mark-up or profit.

Answer 6

Selling price

Question 7

is one of the planning tools used by management. It’s end product is composed of budgeted or projected financial statements, including forecast schedules.

Answer 7

Budgeting

Question 8

means that managers establish specific goals or objectives for all business activities. Eventually, actual results of operations are compared with these objectives.

Answer 8

Management by Objective (MBO)

Question 9

states that managers will maximize their efficiency if they concentrate only on those operational factors showing material deviations from the plan

Answer 9

Management by Exception

Question 10

This is the very essence of the word “standard”. Applied to standard Costs, it is the acceptable amount of cost that ought to be incurred in producing a product or undertaking an activity.

Answer 10

“a measure of acceptable performance”

Question 11

In a business organization, the management is the authority. The standard must be established by the authority so that it may be acceptable to everybody.

Answer 11

“established by management”

Question 12

Actual costs are compared with the standards. When significant deviations are noted, management takes the necessary course of action which will be for the benefit of a company as a whole.

Answer 12

“used as a guide in making economic decisions”

Question 13

The basic cost factors, and the specifications of the product to be manufactured should be taken into consideration in the _________.

Answer 13

Development of Standards

Question 14

is computed by multiplying the Physical Factor and Monetary Factor

Answer 14

Cost
Cost = Physical Factor x Monetary Factor

Question 15

the unit of measurement of the cost elements involved in the production process

Answer 15

Physical Factor

Question 16

the amount paid for the physical factors

Answer 16

Monetary Factor

Question 17

necessary for the determination of the physical and monetary factors needed in the computation of manufacturing cost elements such as materials, labor and factory overhead

Answer 17

Specifications of the product to be manufactured

Question 18

A list of materials required for the product

Answer 18

Physical Factor

Question 19

can be established by determining the prevailing market prices

Answer 19

Standard Monetary Factor/Standard Price

Question 20

usually measured in terms of time or labor hours.

Answer 20

Physical Factor for direct labor

Question 21

The Standard Costs of Materials Formula:

Answer 21

Cost = Physical Factor x Monetary Factor
Standard Cost = Std. Physical Factor x Std. Monetary Factor
Standard Cost = Std. Quantity x Std. Price

Question 22

Standard Labor Cost Formula

Answer 22

Std. Labor Cost= Std. Physical Factor x Standard Monetary Factor
Standard Cost = Std. Time x Std. Rate

Question 23

Factory Overhead Standard Cost Formula

Answer 23

Standard Cost = Std. Time x Standard Rate

Question 24

Three general types of standard

Answer 24

Basic Standard
Ideal Standard
Currently Attainable Standard

Question 25

serves as a basis for comparing performance both expected and actual, over a long period of time.
a.k.a long range standard bec. once established it is used for several years

Answer 25

Basic Standard

Question 26

this type of standard is established because trends are easier to study and analyze if the standard remains relatively constant.

Due to fluctuations in prices of materials and other manufacturing costs, it is NOT PRACTICAL to adapt for most companies

Answer 26

Basic Standard

Question 27

is a measure of optimum performance. This standard is established on a perfect working condition - no delays, breakdowns, wastages, materials and manpower shortages, work stoppage, in other words, NO ERROR of any sort

Answer 27

Ideal Standard/Theoretical Standard

Question 28

This standard is rather difficult or impossible to attain, if ever it does exist.

Workers are not expected to achieve it, but should be as close to it as possible.

Usually established as a starting point and a basis for computing other types of standards.

Answer 28

Ideal Standard

Question 29

most commonly used type of standard.

It is established for a NORMAL LEVEL of operation and efficiency, allowing for expected or normal production problems (employee errors, wastage, delays, breakdowns, brownouts, & occasional inventory shortages).

It is not as strict as the Ideal Standard, but still it represents challenging, desirable, yet attainable performance.

Answer 29

Currently Attainable Standard

Question 30

Who sets the standard?

Answer 30

Standard should be established by the authority or management so that the same may be acceptable.

Not only the CEO or top man is solely responsible to set the standards.

Establishing of standards involves other people who have something to do with the factors being considered (ENGINEERING, ACCOUNTING, PURCHASING Dept.)

Big companies have standard committee, who submit their recommendations to top management so that the standard may be given required approval…

Question 31

Three activities involved in a standard cost accounting system:

Answer 31

Development of standards
Accumulation of actual costs
Computation and analysis of variance

Question 32

A business can derive some benefits from standard costs in what areas?

Answer 32

Cost Control
Pricing Decisions
Motivation and Performance Appraisal
Cost Awareness and cost reduction
Preparation of budgets
Costing of inventories
Preparation of cost reports
Management by objective