Question

Explain the difference between a cost standard and an efficiency standard. Give an example of each

Answer 1

A product is formed by an unit of direct material, labour, and manufacturing overhead and consists of both cost and efficiency standard.A cost standard is expected cost which can be derived from each unit of direct material, labour and overhead.However efficiency standard is the expected quantity that can be derived from each unit of the same required in the manufacturing process. For instance, in deriving at the cost standard, we have to initially start with finding out the base purchase cost per unit of materials and then arrive at the factors related to purchases such as discounts, freight and receiving costs. On the other hand efficiency standard is the amount of direct materials required to be used in manufacturing process so that workers are able to work efficiently. This will eliminate the process of wasting materials.