Question

Which of the following is a purpose of standard costing? A. Eliminate the need for subjective decisions by management. B. Improve performance by controlling costs. C. Determine breakeven production level. D. Allocate cost with more accuracy.

Answer 1

The correct answer is Option B(Improve performance by controlling costs).

Standard Costing helps in improving performance by controlling costs, thus minimising costs and increasing efficiency.

Standard Costing is a technique which establishes a predetermined estimate of the costs of the product and services known as standard costs and then compares these predetermined costs with actual costs as they are incurred. The main objective is to ascertain the exact degree of efficiency of various operations through comparison of actual and standard costs. Managers can safely delegate responsibility to the subordinates since all concerned are told what they have to achieve. Standard costing helps in discovering the exact cause of the deviation of actual costs from standard costs. This enables the management to remove causes of inefficiency or change the standard if necessary.