Standard costs may be used to arrive at the cost of inventory only where standards are set at ideal levels and any costs arising from exceptional wastage are excluded from the cost of inventories.

Question

Quizplus · Accepted Answer

Standard costs should include an allowance for normal levels of wasted materials, so any costs arising from exceptional wastage should still be included in the cost of inventories. Therefore, standard costs should not be used to arrive at the cost of inventory only where standards are set at ideal levels.

Standard Costs May Be Used to Arrive at the Cost