Question

What is the main advantage of standard costs versus past costs?

Answer 1

The main advantage of comparing the standard costs with the past costs is to verify the accuracy of the standard costs. Standard costs are primarily derived from the past costs only based on the pre-determined overhead. Hence to check the accuracy of the estimated standard costs at the beginning of the period itself, they are compared with the past costs to ensure that the standards set follow the past trend of costs of the company. Usually standard costs are compared with the actual costs to find out the variances and to take action to resolve the same. However in some organizations standard costs set at the beginning of the period are also compared with the past costs to ensure that the standards set are in line with the past trends.

Important Note: Please note that Since the question has asked us to provide the advantage of "standard cost versus past cost" and not actual costs, we have answered accordingly.