This discussion forum is to expand with other resources for learning. You will p

Question

This discussion forum is to expand with other resources for learning. You will perform an internet search on one of two terms. Chapter 10 is about Flexible Budgets and Chapter 11 is about Standard Costs, thus the internet search would be done using one of the following terms.

Flexible Budgets or

Standard Cost System

When you perform your internet search on the term of your choice, you will find several hits. Select and read a case study or article from the results of your search.

Start a New Thread: Enter the term in the topic heading and identify the website you used and summarize what you read and discuss whether this component has provide a benefit to your understanding of this chapter.

Explanation / Answer

Standard Costs

Standard costing is an important subtopic of cost accounting. Standard costs are usually associated with a manufacturing company's costs of direct material, direct labor, and manufacturing overhead.

Rather than assigning the actual costs of direct material, direct labor, and manufacturing overhead to a product, many manufacturers assign the expected or standard cost. This means that a manufacturer's inventories and cost of goods sold will begin with amounts reflecting the standard costs, not the actual costs, of a product. Manufacturers, of course, still have to pay the actual costs. As a result there are almost always differences between the actual costs and the standard costs, and those differences are known as variances.

Standard costing and the related variances is a valuable management tool. If a variance arises, management becomes aware that manufacturing costs have differed from the standard (planned, expected) costs.

The sooner that the accounting system reports a variance, the sooner that management can direct its attention to the difference from the planned amounts.

If we assume that a company uses the perpetual inventory system and that it carries all of its inventory accounts at standard cost (including Direct Materials Inventory or Stores), then the standard cost of a finished product is the sum of the standard costs of the inputs:

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