Question

Standard cost systems provide companies with a number of advantages, argue the statement.
                    

Answer 1

"standard cost system provide companies with a number of advantages"- yes, the standard costing system gives many advantages for the comapanies to implement budgetery control system in operation.it helps the company to know how efficiently the material,labour and overheads are utilised by calculating variances. It also helps to motivate the employees of a firm to improve their performance by setting up a ‘standard’ . standard costing system helps the management to make proper valuation for inventory.standard costing of a goods or products can be used in a situation of make or buy decision to check wheather the goods or products is needed to outsourced or not. Analysis of variance and its measurement helps to detect inefficiencies and mistakes which enable the management to investigate the reasons. Since standard costs are predetermined costs they are very useful for planning and budgeting. It also helps to estimate the effect of changes in Cost-Price-Volume relationship which also helps the management for decision-making in future. More effective cost control is possible under standard costing if the same is reviewed and analysed at regular intervals for improvements and immediate action can be taken if deviations from standards are found out which, ultimately, leads to cost reduction.