Describe standard costs. Explain the benefits of using a standard cost system at Apple.

Expert Solution

Standard costs are the budgeted costs set by the management in advance by foreseeing the expected expenses. These costs set a benchmark or standard for the actual costs. Managers and supervisors see that the expenses do not cross the standards and should fall under the set costs by making the production process efficient. The difference between the standard and actual costs reflects the inefficiency of the management and is defined as the cost variance. These are generally determined and worked out by the middle level of the management and are approved by the top management. Lower level of management has the responsibility to adhere to these costs while carrying out the business process.

Following benefits can be derived by using standard cost system at Apple:

1. It would enable to get the standards clear and defined for the management to keep a control over the costs.

2. It would provide the required information for the decision making to the management.

3. It would enable the management to ascertain the cost variance and would help them to analyze the reasons behind that variance.

4. By determining and evaluating the cost variance, the system would enable management to come up with the improvement plan to adhere to the standards costs efficiently.

5. It would help in evaluating the efficiency of the production process and can be used as the basis for incentive policies.

6. The system would also provide basis for formulating and implementing pricing and production strategies.

ekkarill92 answered 2 years ago

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