Standard Costing

MCQs

1. Standard costing entails the creation of predetermined cost estimates to serve as a baseline against which
2. 1. actual costs can be compared
   2.  real costs can be compared
   3. future costs can be compared
   4.  past costs can be compared

Answer – A

Explanation: The establishment of predetermined cost estimates to serve as a baseline against which actual prices can be compared is known as standard costing.

2. Standard Cost is the planned cost for a unit of product or service
3. 1. demanded
   2.  produced
   3.  supplied
   4. None of the above

Answer – C

Explanation: Standard costs are estimates of the cost of goods that are supplied & sold or the cost of manufacturing your products. Direct materials, direct labor, and manufacturing overhead are usually the three components.

3. Standard costing is well recognized as which tool in the manufacturing industry?
4. 1. a cost-control tool
   2. a price-determinant tool
   3. manufacturing overhead calculation tool
   4. None of the above

Answer –A

Explanation: When using a standard cost system, a lesser quantity of manufacturing expenses could be an advantage. Employees may become more cost-conscious, and efficient, and work on their performance as a result of standard costing, which allows others to visualize spending habits.

4. Why do companies use the Standard costing concept?
5. 1.  Because actual costs cannot be established, companies budget using standard costs
   2.  The demand for the product is not an important factor of assumption
   3. Overhead expenses are already calculated by the companies
   4. Standard costing concept is a conventional costing method

Answer – C

Explanation: Since actual costs cannot be estimated, companies estimate using standard costs. This is due to the fact that it is difficult to foresee a product’s demand or all of the variables that will affect its manufacturing costs during the manufacturing process.

5. Which of the following statements on Standard Costing is correct?
6. 1. It’s a method of implementing cost controls within a company
   2.  It aids in the organization’s planning of business activities
   3.  A and B are both incorrect
   4.  A and B are both correct

Answer –A

Explanation: Standard costing is a method of measuring and understanding variance by comparing revenues and actual costs of providing an item or service to actual results.

6. Which of the following parties is accountable for significant price differences?
7. 1. Supervisors of production
   2. Managers of purchasing
   3.  Timelines for production
   4. None of the above

Answer – B

Explanation: Price discrepancies are the responsibility of the purchasing manager because they are responsible for arranging the material requirement from the market; if they timely contract with suppliers at agreed pricing, price variances will be reduced.

7. Standard Costing is best suited for which of the following industries?
8. 1. It is appropriate for industries that manufacture standard goods
   2.  It is appropriate for service-oriented businesses
   3.  It’s ideal for industries that make non-standard goods
   4.  None of the above

Answer – A

Explanation: Standard costing, often known as standard cost accounting, is a method of creating budgets and forecasting future costs. It’s a sort of cost accounting that’s mostly employed in the manufacturing industry because it’s simpler to allocate costs to specific items.

8. Which of the following is a part of an organization’s Standard Costing process?
9. 1. The standard and actual costing processes are compared
   2. Standard costing preparation and application
   3.  Statistical analysis of variances
   4. All of the above

Answer – D

Explanation: The Standard Costing method is a helpful tool for management in determining production and pricing policies in advance.

9. Which of the following features of the Standard Costing System is not a disadvantage?
10. 1. Traditional cost variations aren’t related to any particular product lines
    2.  The Standard Costing System is significantly more expensive than alternative solutions
    3. It is frequently less expensive than standard or actual pricing
    4.  All of the above

Answer –C

Explanation: A variance is a difference between the standard cost and the actual cost. The occurrence of a variation suggests that something went wrong with the profit strategy. If real costs are higher than predicted, management can expect a lesser profit than anticipated.

10. Within the Standard Costing process, a fundamental standard is set for ___________ .
11. 1.   A long duration of time
    2. The current time frame
    3. The brief time frame
    4. A period of indefinite duration

Answer – C

Explanation: Basic Standards are unchanged standards that have been in use for a long time and do not reflect contemporary circumstances. These guidelines are useless in terms of cost of control because they solely examine fixed costs. It’s just a cost-cutting method.

11. The Standard Costing System has which of the following advantages?
12. 1. It aids in the promotion and measurement of organizational efficiencies
    2.  It aids in the control and reduction of an organization’s overall costs
    3.  It aids in the determination of the selling price for products created within a company
    4.  All of the above

Answer – D

Explanation: Top management might benefit from a common cost system when planning and making decisions. They are more reasonable and easier to measure inventories with. An actual cost system is more difficult to value inventory than a conventional cost system.

12. Which of the following is not included in the principle of cost accounting?
13. 1. Product costing
    2. Planning
    3. Controlling
    4. Profit sharing

Answer – A

Explanation: Two accounting strategies for determining the cash required to manufacture goods and services are cost accounting and product costing.

13. The Standard Costing System is utilized for which of the following activities?
14. 1.  It serves as a foundation for executing cost control and determining product pricing through variance analysis
    2.  It aids in determining the cost-volume connection between the company’s products
    3.  It aids in determining the company’s breakeven point for the products it produces
    4. None of the above

Answer – A

Explanation: The practice of estimating the cost of a production process is known as standard costing. It’s a type of cost accounting that allows a manufacturer, for example, to budget for various expenses such as direct labor, direct material, and overhead for the coming year.

14. Under the Standard Costing System, which of the following actions is true about the cost variance?
15. 1.  The difference between the standard cost and the planned cost is known as cost variance
    2.  The gap between the standard and marginal costs is known as cost variance
    3.  The difference between the standard cost and the actual cost is known as cost variance
    4.  The gap between the actual and marginal costs is known as cost variance

Answer –C

Explanation: The real cost of material cost, direct labor, and administration to produce a unit of product is known as actual cost. Variance is the difference between the actual and standard costs. If the actual cost is higher than the standard cost, the variance is unfavorable. The variance is advantageous if the real cost is lower.

15. Under the Standard Costing System, which of the following cases is correct?
16. 1. Variation in overhead volume is usually desirable
    2. A corporation can utilize either budgetary control or conventional costing to compute overall costs, but not both at the same time
    3.   For variable overheads, the overhead efficiency variation plus overhead expense variance equals the overhead budget variance
    4.  The perfect time difference is never advantageous

Answer – D

Explanation: Time Variance is the cost of direct labor on standby that could not be used in production owing to a variety of factors such as equipment breakdown, labor disputes, and a lack of orders.

16. Under the Standard Costing System, which of the following assertions is correct?
17. 1. A predetermined or expected cost to manufacture a good/service or perform an activity inside an organization is referred to as a standard cost
    2. Standard cost is a control approach that aids in the reporting of deviations by comparing pre-set standards to real expenses
    3.  A and B are both incorrect
    4.  A and B are both correct

Answer – D

Explanation: The practice of estimating the cost of a production process is known as standard costing. It’s a type of cost accounting that allows a factory, for example, to budget for various expenses for the future year.

17. Under the Standard Costing System, audit fees are a part of which of the following?
18. 1.  Audit fees are included in a company’s distribution costs
    2.  Audit fees are an element of a company’s selling overhead
    3.   Audit fees are an element of an organization’s administrative expense
    4. Audit fees are an element of an organization’s cost-cutting efforts

Answer – D

Explanation: Standard costs are estimates of the cost of goods sold or the cost of manufacturing your products. Direct materials, direct labor, and manufacturing overhead are usually the three components.