Which of the following best defines standard costing?
A) It is the same as actual costing but done in real time.
B) It is a system that traces direct cost to output by multiplying actual process or rates by actual quantities of inputs + allocates overhead by on the basis of actual quantities of the allocation base used.
C) It is a system that traces direct costs to output produced by multiplying the standard prices or rates by the standard quantities of inputs allowed for the actual output produced.
D) It is a system that allocates overhead costs on the basis of standard overhead cost rates times the actual quantities of the allocation based used.

Question

Quizplus · Accepted Answer

Standard costing is a method of cost accounting that involves developing predetermined costs for materials, labor, and overhead for a particular period. These predetermined costs are based on standard prices or rates for materials and labor and standard overhead rates. The system then traces direct costs to the output produced by multiplying the standard prices or rates by the standard quantities of inputs allowed for the actual output produced. This allows for a comparison between the actual costs incurred and the predetermined costs to analyze variances and make strategic decisions. Option A is incorrect because actual costing is a system that traces actual costs to output. Option B is incorrect because it describes an actual costing system using actual quantities of inputs. Option D is incorrect because it describes a system that allocates overhead costs based on standard overhead cost rates and actual quantities of the allocation base used.

Which of the Following Best Defines Standard Costing