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Hello dear tutor. Can you explain to me in a simple way, why B is incorrect?
Which one of the following best defines standard costing in a system of budgeting?
A all activities are examined without reference to history each year
B output level and costs are predetermined, actual results then compared with these
predetermined costs and variances analysed
C actual costs are compared with predetermined costs for the level of activity
D costs are assigned to a manager in order that controllable and non-controllable costs
are accounted forThis definition accurately reflects the essence of standard costing, which involves comparing the actual costs incurred during a specific period with the predetermined standard costs that are set based on expected levels of activity.
The purpose of this comparison is to analyse variances, which helps organisations assess their performance and identify areas for improvement.
Option B, while it mentions predetermined costs, implies a broader comparison of actual results against these costs without specifically focusing on the level of activity, which is a key aspect of standard costing.
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