What is the Standard Cost?

A Standard Cost is a predetermined unit cost based on expected direct materials quantities and expected direct labour time, and priced at a predetermined rate per unit of direct materials and rate per direct labour hour and rate per hour of overhead.

What is the importance of Standard Costing?

A Standard Cost system can be valuable for top management in planning and decision-making. More reasonable and easier inventory measurements A Standard Cost system provides easier inventory valuation than an actual cost system. Under an actual cost system, unit costs for batches of identical products may differ widely.

What is the primary benefit of a Standard Costing system?

The primary benefit of a Standard Costing system is a benchmark value called "standard value" that other acquisitions are compared against. The difference between the standard and the actual value is called a variance. Variances can be evaluated for a cause.

What are the limitations of Standard Costing?

Three of the disadvantages that result from a business using Standard Costs are controversial materiality limits for variances, nonreporting of certain variances, and low morale for some workers.

What is an example of a Standard Cost?

One example is the cost of a bolt may remain the same regardless of how many bolts are produced. This is in contrast to a variable cost, which changes with production volume. A fixed cost, such as rent, does not change with production volume.

Standard Costing McQs Quiz With Answers

This multiple choice question (MCQ) test covers standard costing. You can use it to assess how much you've learned about this topic.

1. Which of the following is true of standards?

Standards represent a benchmark or a norm
Standards relate to input quantity
Standards relate to input cost
All of the above

2. Standards that can be attained only under the best circumstances are referred to as:

Attainable standards
Budget standards
Ideal standards
Practical standards

3. Which of the following equations can be used to calculate a material price variance?

(AQ X AP) - (AQ X SP)
(AP X SP) - (AQ X SP)
(AQ X SP) - (SQ X SP)
(AQ X SP) - (AQ X AP)

4. Who is most likely to be held responsible for a material price variance?

Line workers
Production supervisors
Purchasing managers
Production schedulers

5. Which of the following equations can be used to calculate a material quantity variance?

(AQ X AP) - (AQ X SP)
(AP X SP) - (AQ X SP)
(AQ X SP) - (SQ X SP)
(AQ X SP) - (AQ X AP)

6. To produce a particular batch of product, Foster Corporation paid its workers $12.00 per hour for 4,000 hours of work. The standards for the quantity of work represented by the batch were $12.50 per hour and 4,400 hours. What was the labor efficiency variance?

2,000.00 favorable
5,000.00 favorable
5,000.00 unfavorable

7. The firm's direct-labor rate variance was $4,800 unfavorable. Actual labor was 24,000 direct labor hours, at a cost of $168,000 for 25,000 units of finished product requiring 1 hour of direct labor each, at standard. What is the standard rate per direct labor hour?

$7.20
$6.80
$7.00
Cannot be determined from the information given
None of the above

8. Which of the following is not an advantage of standard costing?

It provides a basis for sensible cost comparisons
It enables managers to manage by exception
It provides a means of performance evaluation and employee rewards
It is usually less expensive than actual or normal costing
It works well with long and short product life cycles

9. Which of the following is not a criticism of a standard costing system?

It is more expensive than other systems
Variances calculated under standard costing come too late to be useful
It can cause dysfunctional behavior in a JIT/FMS environment
Traditional cost variances are not tied to specific product lines
None of the above

10. The organization budgeted $400,000 for 40,000 hours of direct labor to complete 16,000 units of finished product. The firm used 42,000 direct labor hours and completed 17,000 units of finished product. What is the direct labor rate variance?