When a manufacturing company employs standard costs, all costs affecting the three inventory accounts and the Cost of Goods Sold account are stated in terms of standard or predetermined costs rather than in terms of actual costs incurred.

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When a manufacturing company employs standard costs, all costs affecting the three inventory accounts (Raw Materials, Work in Process, Finished Goods) and the Cost of Goods Sold account are stated in terms of standard or predetermined costs rather than in terms of actual costs incurred. This allows for easier budgeting and cost control as well as easier comparison of actual results with planned or budgeted results.

When a Manufacturing Company Employs Standard Costs, All Costs Affecting