Question

3. Which of the following statements is true? A. In a standard costing system, standard costs can only be used for cost control.B. In a standard costing system, standard costs can only be used for product costing.C. In a standard costing system, standard costs are used for both cost control and product costing.D. In a normal costing system, standard costs are used for cost control and normal costs are used for product costing

Answer 1

Ans: C. In a standard costing system, standard costs are used for both cost control and product costing

Explanation-

• Standard costing is a process which involves setting standards for the costs before the accounting period begins.
• The actual costs incurred during the period may be then compared with the standards to obtain variances and control costs in future.
• Also, setting the standard costs would help in setting product costs on the basis of standard cost for each input and also for further analysis of variances of unit price of product, sales, revenues, market share and size variances etc.
• Thus, the standard cost is used for both cost control objective as well as for determining product cost.
• The primary advantage of using standard costing method is that it can be used for cost controlling, product costing as well as decision making purposes.