Question

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

Answer 1

Each input that goes into a production that might be direct material or direct labour etc have both a cost standard and an efficiency standard.

A cost standard is the expected cost of each input.

An efficiency stand is the expected quantity of each input.

goes into production

For example, the cost standard for direct materials starts with the expected purchase cost of each unit of materials and expected purchase discounts etc.

For example, the efficiency standard for direct materials is the quantity of direct materials that should be used in the manufacturing process without wasting materials.