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Sir can you please expalin how standard costing is used for inventory valuation as an alternative to FIFO or AVCO?
FIFO and AVCO are not examined in Paper F5 (they are tested in Paper F3 – Paper F5 is not interested in financial accounting and these are financial accounting concepts).
For variance analysis, we value inventories at standard cost (i.e. budgeted cost). This is because in practice variance analysis is done every month, and it would be ridiculous to keep valuing the inventory differently each month just because some months we spend more and some months we spend less.
All this is explained in my free lectures on variances. The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.
Thank you.
One.more thing sir. I know this will be very basic question but I just want to confirm are ABC, absorption costing and marginal costing types of standard costing methods?
They are costing methods (whether or not the company is using standard costing). Standard costing is where we budget on the costs (as will usually be the case) and when budgeting the costs then, again, they are three alternative ways.
Again, I do suggest that you watch the free lectures!
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