Standard costing is a method of ascertaining the costs prepared to exhibit standard cost and actual costs, and the difference between these costs is termed a variance.
Standard Costing Questions and Answers
Following are the top standard costing question answers:
1. What do you mean by standard cost?
Standard cost is a predetermined cost that determines what each production or service should cost under a given circumstance.
2. Give the limitation of Standard Costing?
The setting of the standard and standard cost for a different element of cost is tedious work, changes in factors necessitate the correction of standards which is expensive.
- Sometimes, production standard is fixed too high in case the target is not achieved it creating frustration among staff.
- It is not appropriate for a small organization because it is an expensive system.
- It is necessary to implement the budgetary control system simultaneously.
3. What do you mean by standard rate?
Wages paid to each type of worker engaged in industry/ upon job is the standard rate and may be paid according to time or piece rate.
4. Enumerate the different types of standards?
The type of standards is the current standard, an ideal standard, an expected standard, a basic standard, a normal standard, and a historical standard.
5. What is the normal standard?
These are average standards expected to be attained in a long period and do not require adjustment from time to time.
6. What is meant by the ideal standard?
The standard which can be attained under the most favorable condition possible is known as the ideal standard.
7. What do you mean by expected standard?
The Expected standard is a realistic one and should be attained under all circumstances and future adjustment has been taken into consideration.
8. State two common objects of budgetary control and standard cost accounting?
The common object of budgetary control and standard cost accounting are:
- Maximum utilization of the resource
- Obtaining maximum efficiency or
- Control over cost.
9. What is variance analysis?
The difference between actual cost and standard cost is termed as variance the examination of variances in detail and evaluation of them is known as variance analysis.
10. How will you classify variance?
- A variance may be classified as under:
- Favorable or adverse variances.
- Absolute or relative variance and
- Controllable or uncontrollable variances.
11. State the types of variances?
Types of variances are material variances, labor variance overhead variances, and sales variances.
12. What is the meaning of favorable variances?
Favorable variances are that variances which affect profit in a favorable manner which may be due to a reduction in cost or an increase In sales while adverse variance is that variances that effects profits adversely.
13. Explain controllable and uncontrollable variances?
When variance can be controlled by a person in a specified period is controllable variance if the variances cannot be controlled by the organization then it is called uncontrollable variances.
14. What may be the reason for material usage variances?
It may be due to using of substandard quality material, labor inefficiency, theft of material by workers, etc.
15. Explain material yield variance?
It is that portion of direct material usage variances which is due to the difference between the standard yield specified and the actual yield obtained.
16. What are the reasons for labor Efficiency variance?
- lack of inspection use of the new plant.
- good working conditions.
- improvement in production techniques etc.
17. Why is idle time variance always adverse?
Because for idle time wages are paid but labor remains idle due to abnormal reasons consequently there is no production.
18. What are the characteristics of Standard Costing?
- On the basis of past experience and forthcoming conditions, the standard cost is determined by the product or service.
- The actual cost in respect of material labor and overhead is ascertained.
- The actual cost is compared with the standard cost and variances are computed.
- Analysis of variances is made for fixing responsibility.
- Remedial action is taken to remove anomalies or standards are revised.
19. Explain the advantages of Standard Costing?
- The actual cost is compared with the standard cost leading to cost control.
- Responsibility is fixed in case of the excess over standard cost this is helpful in controlling expenses.
- It is helpful in quality control.
- Improvement in efficiency check over extravagance etc leads to cost reduction and increase in profits.
- The tender price can be determined on the basis of the standard cost.
- The manager can execute policies expeditiously and smoothly.
20. What are the steps to be taken for the establishment of a Standard Costing System?
The following steps should be taken for the implementation of a standard costing system:
- Setting up of a cost center.
- Classification of expenses.
- Determination of the type of standard.
- Setting up of standard and.
- Preparation of standard cost card.