Question

One of the purposes of standard costs is to

A.   Eliminate accounting for under- or overapplied factory overhead at the end of the period.

B.   Simplify costing procedures and expedite cost report

   C.   Serve as a basis for product costing for external reporting purposes.

   D.   Replace budgets and budgeting.

Answer 1

Solution. The correct option will be B.

Reasons: Option A won't hold true as standard costing helps establish standard value of costs beforehand to various activity level of operation in an organization, to facilitate in controlling costs decision making activities. It does not eliminate accounting for under or over applied factory overhead at the end of the period, which is done by transferring such amount to inventory account, finished goods account or to cost of goods sold account.

Option B holds true as basic task of standard costing is to reduce expenses giving higher cost to costs and helps in controlling variances in costs from standard value determined.

Option C won't hold true as it facilitates in costing procedures by establishing standard measurement for organization and helps in controlling any variance thereof. Full costing is employed to determine cost of producing goods.

Option D won't hold true as standard costs facilitate in budgets and budgeting by providing standard measurement for costs to various activity level of operation in an organization.