11.1 Establishing standard costs

• Standard costing is a method used to pre-determine the expected costs of production or service provision.
• Match the purpose of standard costing with its benefit:

  Cost control ↔️ Improved efficiency

  Budgeting and planning ↔️ Cost control

  Performance evaluation ↔️ Enhanced planning

  Simplified pricing ↔️ Competitive prices
• Direct materials standard cost refers to the expected cost per unit of raw materials required for production.
• What are the two key components of direct material standards?

  Standard quantity and price
• What factors influence the standard price of direct materials?

  Supplier quotes and market conditions
• If one widget requires 2kg of material at £5 per kg, the direct material standard is £10 per widget.
• Standard costing involves pre-determining the expected costs of production or service provision.


  True
• Match the purpose of standard costing with its benefit:

  Cost control ↔️ Improved efficiency

  Budgeting and planning ↔️ Cost control

  Performance evaluation ↔️ Enhanced planning

  Simplified pricing ↔️ Competitive prices
• Direct labor standard cost refers to the expected cost per hour of direct labor required for production.
• Standard costs should be based on historical data rather than efficient operating conditions.

  False
• The standard quantity for direct materials is influenced by the bill of materials and waste allowances.
• If one widget requires 2kg of material at £5 per kg, the direct material standard is £10 per widget.
• What are the two factors influencing the standard quantity of raw materials needed to produce one unit?

  Bill of materials ||| Production techniques
• The standard variable overhead quantity is influenced by production volume and cost drivers.


  True
• Cost control in standard costing involves comparing actual costs with standards
• Standard costing can assist in preparing budgets and making informed business decisions.


  True
• How does standard costing contribute to performance evaluation?

  Assess efficiency and productivity
• One benefit of standard costing is improved efficiency
• Standard costing simplifies the process of setting competitive prices.

  True
• What does standard costing allow for in terms of performance evaluation?

  Assessing efficiency and productivity
• Standard costing provides a reliable basis for budgeting
• Match the purpose of standard costing with its benefit:

  Cost control ↔️ Improved efficiency

  Budgeting and planning ↔️ Cost control

  Performance evaluation ↔️ Enhanced planning
• The expected cost per unit of raw materials required for production is called direct materials
• Standard costs should be based on realistic expectations, not just historical data.


  True
• What are the two key components of direct material standards?

  Standard quantity and price
• If 2kg of material at £5 per kg is required for one unit, what is the direct material standard per unit?

  £10
• The standard labor rate is influenced by collective bargaining agreements
• If a product takes 0.5 hours to produce at a wage rate of £20 per hour, the direct labor standard is £10 per unit.

  True
• The standard variable overhead rate is influenced by the production volume
• The standard fixed overhead rate is calculated by dividing total budgeted fixed overhead costs by the expected units to be produced.


  True
• Standard costing is used to identify variances between actual and expected costs.


  True
• One benefit of standard costing is improved efficiency by identifying areas for cost reduction.
• What are the three main standard costs set in a standard costing system?

  Direct materials, labor, overheads
• Standard costs should be based on historical data rather than efficient operating conditions.

  False
• The standard quantity for direct materials is influenced by the bill of materials and waste allowances.
• What are the three main standard costs set in a standard costing system?

  Direct materials, labor, overheads
• What are the two key components of direct material standards?

  Standard quantity and price
• What factors influence the standard price of direct materials?

  Supplier quotes and market conditions
• What are the two key components of direct labor standards?

  Standard hours and rate
• The expected cost per unit of raw materials is called the standard price