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ACCA Applied Knowledge · Management Accounting · Standard costing system

A standard cost card sets the labour rate for a grade of worker. Which approach to setting the standard labour rate is most appropriate?

The standard labour rate should be the rate expected to be paid in the budget period, based on agreed pay scales and anticipated awards for that grade. Using old rates or a mixed average would give standards that do not reflect the period or grade being controlled.

  1. AUse the rate from the most recent actual payroll, even if the next pay award is already agreed
  2. BUse the rate expected to be paid in the budget period, based on agreed pay scales and expected awardsCorrect
  3. CUse the lowest rate that has been paid in the last five years
  4. DUse the average rate across all grades in the factory

Explanation

Standards should reflect the expected rate for the period they will be used, using agreed pay scales and known awards. Past rates ignore expected changes, and a factory-wide average hides differences between grades, which would distort the rate variances for a specific grade.

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