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ACCA Applied Knowledge · Management Accounting · Standard costing system

Which of the following best describes an ideal standard in a standard costing system?

An ideal standard assumes perfect operating conditions with no waste, idle time or machine breakdowns. It differs from an attainable standard, which allows for reasonable inefficiencies, and from historical standards, which are based on past results. Ideal standards can demotivate because they are rarely achieved.

  1. AA standard based on the average performance achieved over the last three years
  2. BA standard that assumes perfect operating conditions with no waste, idle time or machine breakdownsCorrect
  3. CA standard set at a level that is challenging but attainable with reasonable effort
  4. DA standard based on the performance level that was achieved in the best previous period

Explanation

An ideal standard assumes optimum conditions: no wastage, no idle time and no breakdowns. A standard that is challenging but attainable is an attainable standard, so option 3 describes a different type. Averages of past performance are basic or historical standards.

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