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Hello Sir, can you please help me in this question.
State whether the following statement is true or false
1) The publication of material price planning variances should always lead to automatic
updates of standard costs.The answer is “False”
Reson “The publication of material price planning variances should not
always lead to automatic updates of standard costs.
There must be a good reason for
deciding that the original standard cost is unrealistic”.Question- Sir in case we are calculating the Planning variance, we need to revise/update the standards or else there won’t be any planning variance at all.
So how come the above statement is False.
Firstly any updating to the standard costs will apply for the future.
More often that not the standard costs will be updated. However let me give you an example as to why they might not be automatically updated. Suppose there was an adverse variance because the supplier charged higher prices during the period. However, it could be that the higher prices were only temporary and that prices are expected to fall back in the future. In that case we would not change the budgeted standard cost.
Sir as you have mentioned that
“Firstly any updating to the standard costs will apply for the future”.Does this mean that there is a difference between the term “Revision of standards” and “Updation of standards” ?
We revise the standards in order to be able to separate out which are planning variances and which are operational variances. That is looking at what has happened in the past.
We update standards so as to have hopefully more realistic standards for the future.
Thankyou Sir. I didn’t knew there’s a difference between these 2 terms. But now i know, again thankyou a lot
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