Question

Why use standard costs to control the costs of the bus service.

comment enlightened by as many relevant examples as possible.

Answer 1

The standard costs are being used to control the costs within the approved limit. In the bus service business, where there is very less difference between the revenue and costs, the control over the costs is essential. The variable costs are fuel, taxes and Repair and maintenance. The fixed costs are the salaries and wages of the employees. The non-cash annual period costs include depreciation and interest. The variable costs per trip are standardized on the basis of the distance in miles. The management keeps the variable costs under control through keeping the actual costs under or within the limit set through Standard Variable Costs per mile. The period costs should be confined to the costs like depreciation and interest. It could be increased to any limit if buses are not properly maintained by the drivers and maintenance department. The more accidents would increase the period costs for the company, thus affects the company’s profitability. So, the management and the maintenance department has to keep period costs under control through creating Period cost standards.

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