Chapter 10: Standard Costing

Question 1

Standard costing system

Answer 1

Initial journal entries based on actual qty of outputs tines budgeted data about inputs and budgeted costs of inputs

Adjusting entries then done at the end of the period (month or quarter) to adjust for the difference between actual costs and budgeted costs

If differences are materially insignificant then adjusted directly to CoGS

If differences materially significant then adjusted to multiple levels of inventory

Question 2

Standard

Answer 2

A budgeted amount of a single unit of output

Question 3

Standard cost

Answer 3

For one unit = budgeted production cost for that unit

Calculated using standard quantities of inputs and budgeted prices for those inputs

Standard quantities should be based on efficient and attainable performance (difficult but attainable goals)

Question 4

Reasons to use a standard costing system

Answer 4

Cost control : records both (flexible) budget amounts vs actual amounts - vital information tracked within the general ledger system

Smooth out short term fluctuations in direct costs: averages out small differences in materials costs

With actual overhead rates production volume of each product affects the reported costs of all other products

Economical! Depends on the expense of an actual costing system vs the worth of it