Chapter 8, Problem 1DQ

What are the basic objectives in the use of standard costs?

To determine

Identify the basic objectives in the use of standard costs.

Explanation of Solution

Standard Costs:

In the accounting records, the term standard cost refers to the practice of replacement of an expected cost for an actual cost. Then the difference between the expected costs and actual costs showing the variance are also recorded periodically. A standard costs is also known as target cost or predetermined cost. Generally, the manufacturing companies use standard costs for each of the three product costs which are given as follows:

1. 1. Direct materials cost
2. 2. Direct labor cost, and
3. 3. Factory overhead cost

The basic objectives in the use of standard costs are as follows:

• v To know how much a product should cost (standard cost), and
• v To know how much a product does cost (actual cost).