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CA Intermediate · Cost and Management Accounting · Introduction to Cost and Management Accounting

Sundaram Auto Components Ltd. maintains its cost records so that the cost of every component can be compared against a pre-set cost target, and the variances are reported to the production manager for corrective action. Which cost accounting technique is being described?

The technique is standard costing. It fixes predetermined cost targets, compares actual costs with them, and reports the variances to management for corrective action. Historical costing records only actual costs after the event and does not use pre-set targets for control.

  1. AStandard costingCorrect
  2. BHistorical costing
  3. CUniform costing
  4. DAbsorption costing

Explanation

Standard costing compares actual cost with predetermined standard cost and analyses the variances so that management can act on them. Historical costing only records costs after they are incurred and has no pre-set target. Uniform costing is the use of common costing principles by several firms, and absorption costing deals with charging all costs to products.

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