Question

Give an example of a business that would benefit from using or not using standard costing. Critically discuss how using or not using this method would be a benefit.

Answer 1

A standard cost system can be valuable for top management in planning and decision making. More reasonable and easier inventory measurements A standard cost system provides easier inventory valuation than an actual cost system. ... Under a standard cost system, the company would not include such unusual costs in inventory.

Standard costs are useful in setting selling prices. The budget shows the expected expenses incurred by the business. By considering these expenses, management can determine how much to charge for a product so that it can produce the desired net income.

Standard costing is the practice of estimating the expense of a production process. It's a branch of cost accounting that's used by a manufacturer, for example, to plan their costs for the coming year on various expenses such as direct material, direct labor or overhead.

Three of the disadvantages that result from a business using standard costs are:

Controversial materiality limits for variances.

Nonreporting of certain variances.

Low morale for some workers.