Standard Costing Question Answer
Following are the top standard costing question answers.
1. What do you mean by standard cost?
Answer: Standard cost is a predetermined cost that determines what each production or service should cost under given circumstance – brown & ha-ward.
2. Explain standard costing?
Answer: Standard costing is a method of ascertaining the costs prepared to exhibit standard cost, actual costs, and the difference between these costs is termed as variance.
3. What do you mean by standard rate?
Answer: Wages paid to each type of worker engaged in industry/ upon job is standard rate and may be paid according to time or piece rate.
4. Enumerate the different type of standards?
Answer: Type of standards is the current standard, an ideal standard, expected standard, basis standard, normal standard, and historical standard.
5. What is the normal standard?
Answer: 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?
Answer: 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?
Answer: the Expected standard is a realistic one and should be attained at all circumstance and future adjustment has been taken into consideration.
8. State two common object of budgetary control and standard cost accounting?
Answer: 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?
Answer: 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?
- Variance may be classified as under:
- Favourable or adverse variances.
- Absolute or relative variance and
- Controllable or uncontrollable variances.
11. State the types of variances?
Answer: Type of variances are material variances, labour variance overhead variances,and sales variances.
12. What is the meaning of favorable variances?
Answer: Favorable variances is that variances which affect profit in a favorable manner which may be due to a reduction in cost or increase In sales while adverse variance is that variance which effects profits adversely.
13. Explain controllable and uncontrollable variances?
Answer: When variance can be controlled by a person in a specified period is controllable variances if the variances cannot be controlled by the organization than it is called uncontrollable variances.
14. What may be the reason for material usage variances?
Answer: It may be due to using of substandard quality of material, labor inefficiency, theft of material by worker etc.
15. Explain material yield variance?
Answer: 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 labour Efficiency variance?
- lack of inspection use of the new plant.
- good working condition.
- improvement in production techniques etc.
17. Why is idle time variance always adverse?
Answer: Because for idle time wages is 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 condition, standard cost is determined by product or service.
- The actual cost in respect of material labor and overhead is ascertained.
- Actual cost is compared with 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?
- 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.
- Tender price can be determined on the basis of standard cost.
- The manager can execute policies expeditiously and smoothly.
20. Give limitation of Standard Costing?
- The setting of standard and standard cost for a different element of cost is tedious work, changes in factors necessitate correction of standards which is expensive.
- Sometimes, production standard is fixed too high in case the target is not achieved it creates 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.
21. What are the steps to be taken for the establishment of Standard Costing System?
Answer: Following steps should be taken for implementation of standard costing system:
- Setting up of a cost center.
- Classification of expenses.
- Determination of type of standard.
- Setting up of standard and.
- Preparation of standard cost card.
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