Standard costs and variances
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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
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?
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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 standard costs are
a. They provide a way of measuring performance by comparing actual with standards
b. Standard costs help in management by exception since we need to be concerned only with variance which are material in nature
c. Standards help in motivation by getting people to attain the standards
d. Standard costing simplifies accounting as transactions are recorded at standard costs
e. It helps in decision making by providing timely information since standard costs are known and so pricing can be done.
The disadvantages of standard costs are
a. Standards need to be adjusted continuously for the changes in the price of inputs
b. Setting standards may not be easy, it standards are set too high, performance may ...
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