Discuss two ways to set cost standards and distinguish between perfection and practical standards.

Expert Solution

As per Standard Costing system, standards are normally categorized as ideal standards and practical standards. The difference between these two types of standards is briefly explained below:

Perfection Standards assume that production takes place in ideal world , employees always work at their best and materials are not defective at all also machines never break. It all attributes to Most Ideal Situation.
Some managers feel that ideal standards give employees a goal to shoot for many it is setting unattainable goals.
Practicable Standards are set high enough to encourage efficient and effective operations but not impossible
Behavioural scientists feel employees have positive effect on productivity.
Unlike variances compited with perfection standards variances calculated when practical standards atr employed tend to be more meaningful as they represent a realistic goal.
A perfection standard is the cost e expected under perfect or ideal operating conditions. A practical standard is the cost expected under normal operating conditions. Many people question the effectiveness of perfection standards.

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