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In a standard costing system, what is the purpose of setting standard costs?
In a standard costing system, what is the purpose of setting standard costs?
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Practice Questions
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Q1
In a standard costing system, what is the purpose of setting standard costs?
To provide a benchmark for measuring performance
To eliminate all variances
To increase actual costs
To simplify the budgeting process
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Standard costs are set to provide a benchmark for measuring performance and to help in variance analysis.
Questions & Step-by-step Solutions
1 item
Q
Q: In a standard costing system, what is the purpose of setting standard costs?
Solution:
Standard costs are set to provide a benchmark for measuring performance and to help in variance analysis.
Steps: 5
Show Steps
Step 1: Understand that standard costs are predetermined costs for products or services.
Step 2: Recognize that these costs serve as a target or goal for the company.
Step 3: Learn that standard costs help in measuring how well the company is performing.
Step 4: Know that when actual costs are compared to standard costs, it helps identify differences, called variances.
Step 5: Realize that analyzing these variances helps the company understand where it is doing well and where it needs to improve.
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