Question

Explain and provide One (1) example for each accounting term: Normal standards and Ideal standards. Explain the differences between normal standards and ideal standards and include why a company would choose either standards to use when preparing their budget.

Answer 1

Normal standard - Normal standard tells us level of operation that are efficient can be attained with reasonable effort. Normal standard are difficult but attainable under normal working conditions.

Example - Normal working conditions such as worker's rest period is the example of normal standard.

Ideal standard - Only in perfect operating conditions, ideal standard can be achieved. Or we can say, it tells us level of operation that are optimum can be attained in perfect conditions.

Example - No time for machinery rest and No time for worker's rest.

Normally, companies adopt normal standard because it allowed for normal level things such as machinery breakdown, worker's rest period which are normal conditions in any company which are not adopted in ideal standard.