When standard costs are used in applying the cost-plus approach to product pricing, the standards should be based upon normal levels of performance.

Question

Quizplus · Accepted Answer

Standard costs should be based on normal levels of performance, as this represents the expected level of efficiency and effectiveness in producing the product. Using above-normal levels of performance may result in inflated costs, while using below-normal levels may result in underestimating costs and therefore underpricing the product.

When Standard Costs Are Used in Applying the Cost-Plus Approach