Why Standard Cost Systems are adopted

Two reasons for adopting a standard cost system are:

  • To improve planning and control. A standard cost system compares actual amounts with standard amounts to determine variances from the standard. The use of a standard cost system for operational control in an advanced manufacturing environment can produce dys functional behavior. However, standards in the advanced manufacturing environment are still useful for planning, such as developing bids.

  • To facilitate product costing. Standard costing uses standard costs for direct materials, direct labor, and overhead. Standard cost systems provide readily available unit cost information that can be used for pricing decisions.

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