ACCA Applied Knowledge · Management Accounting · Standard costing system
Which of the following is a recognised advantage of using a current standard rather than a basic standard when setting standards?
A current standard reflects present conditions, such as current prices and attainable efficiency, so it provides a realistic benchmark for cost control and planning. Remaining unchanged for years and showing long-term trends are features of basic standards, while perfect efficiency describes ideal standards.
- AIt remains unchanged for many years, making trends easy to see
- BIt reflects present conditions and so gives a realistic benchmark for performance and cost controlCorrect
- CIt is set at the level of perfect efficiency
- DIt is the best way to show long-term changes in cost levels
Explanation
A current standard is based on current prices and efficiency levels, so variances are meaningful for control and can be used for planning. A basic standard stays unchanged for long periods and is used to show trends. An ideal standard assumes perfect efficiency.
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