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ACCA Applied Knowledge · Management Accounting · Standard costing system

Which of the following is a primary purpose of operating a standard costing system in a manufacturing company?

The primary purpose of standard costing is to provide a predetermined benchmark so that actual costs can be compared with it. The resulting variances are investigated under management by exception. It does not measure exact actual unit cost, replace budgets, or value inventory at selling price.

  1. ATo value inventory at the highest possible selling price
  2. BTo provide a benchmark against which actual costs can be compared so that variances can be investigatedCorrect
  3. CTo eliminate the need for a budget
  4. DTo calculate the exact actual cost of each unit produced

Explanation

A standard cost is a predetermined unit cost. Its main uses are to act as a benchmark for control, to highlight variances for management by exception, and to simplify inventory valuation and costing. It does not give actual cost, it does not replace budgets, and inventory is not valued at selling price.

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