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CA Intermediate · Cost and Management Accounting · Standard Costing

Standard Costing: Which one of the following best describes a 'basic standard' in standard costing?

A basic standard is one established for use over a long period without revision. It is not changed for price or method changes, so it acts as a base against which later changes in actual cost can be compared, like an index base year.

  1. AA standard set for a short period and revised whenever prices change
  2. BA standard that assumes ideal conditions with no wastage, idle time or breakdowns
  3. CA standard established for use over a long period without revision, serving as a base for comparing changesCorrect
  4. DA standard based on the average of the past actual costs

Explanation

A basic standard is fixed for a long period and not revised for changes in prices or methods, so it works like a base-year index for comparing trends. Option A describes a current standard, option B an ideal standard, and option D a historical-average based standard.

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