Standard Cost and Variances
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I need help answering the questions below. I am confused on how to answer the questions.
Week 4 DQ 1
What are some of the advantages and disadvantages of standard costs? How do managers determine what the standard cost should be? Describe the effect of inaccurate standard costs on financial reporting.
Week 4 DQ 2 -
When should variances be investigated? Who should be responsible for correcting a negative variance? Why? What are some factors that can lead to variances? How can variances be corrected?
The word count for DQ1 is 200 and for DQ 2 the word count required is 200.
Thank you.
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Solution Summary
The solution discusses standard costs, its advantages and disadvantages and the effects of inaccurate standard costs on financial reporting. It also explains when variances are investigated, who will do it, the reasons, the factors that lead to variances, and how it can be corrected. References are included.
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Cost Accounting
I need help answering the questions below. I am confused on how to answer the questions.
Week 4 DQ 1
What are some of the advantages and disadvantages of standard costs? How do managers determine what the standard cost should be? Describe the effect of inaccurate standard costs on financial reporting.
The advantages of using standard costs or standard costing are as follows:
1. They are very helpful in budgeting as it is easy to know what the DM, DL & FO costs are in advance and it also helps in preparing flexible budget.
2. They provide cost estimates to be used in pricing of product.
3. The standard cost allows management to evaluate performance better as actual costs can be measured against the standard on a regular basis.
4. It provides a guideline and concrete goal to go for.
5. Standard costing is a way to help "continuous improvement".
The disadvantages of standard costs/standard costing are:
1. It can be more expensive to develop and maintain as setting standards requires someone with the technical skills.
2. Unrealistically high standards can frustrate managers while if it is too low, it can be too easy and not challenging.
3. Where products are non-standard, e.g, production that is done according to the specifications of the customers, different expenditures are needed hence standard costs are not ...
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