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Financial & Managerial Accounting
Found in: Page 967
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

What is the purpose of using standard costs?

The use of standard cost facilitates the management to fix the price of a product, do the planning, and determine variances.

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Step by Step Solution

Step 1: Meaning of Standard Cost

In the cost accounting branch, standard cost refers to the cost expected to be incurred by an entity to produce a specific product or service. Standard costs are further compared with the actual costs for applying control measures.

Step 2: Purpose of using standard costs

  • The use of standard costs facilitates the management to do effective planning.

  • It helps the management in the process of setting the selling price of a product.

  • Standard costs enable the managers to control the costs by providing the basis for cost control.

  • This cost helps the managers identify and treat the respective variance through the evaluation of variance analysis.

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