Activity #4 - Advantages and Disadvantages of using Standard Costs and Variances Which of the following items are advantages of using a standard cost system? A. Cost benchmarks: An advantage of standard costs are benchmarks that judge actual costs in an organization. B. Timeliness: Information is more timely as variances are computed once each month. C. Usefulness in budgeting: Standards help managers because they are the basis for many components in the master budget. These include but are not limited to direct materials, direct labor, and manufacturing overhead budgets. D. Cost Savings Keeping standards up-to-date is a more cost effective way to track costs. E. Lean thinking: lean companies strive for continual improvement and therefore standards are constantly updated. Lean manufacturers focus on standards and whether past performance met the standards. F. Motivation: The use of practical, or attainable, standards should increase employee motivation because it gives employees a reasonable goal to achieve. G. Standard costing systems simplify hookkeeping: The variances that occur between the actual costs and standard costs are immediately captured in variance accounts in the general ledger. (Recall that in a standard costing system, all manufacturing costs entering Work in Process Inventory are recorded at standard cost, rather than the actual cost.) ACCT 2301 Chapter 11 - Page 16 Activity #4 - (Continued) H. Increased automation and decreased direct labor: as manufacturers have shifted towards more automation and reduced their direct labor, direct labor standards are more relevant and helpful. 1 Behavioral consequences: By focusing employees on standard cost variances, you will get improved performance for the company J. Ideal standards: By setting ideal standards, we can motivate employees even further to achieve more difficult goals. Instead, companies use Attainable or Practical Standards. These standards are based on currently attainable conditions that include allowances for normal amounts of waste and inefficiency. Activity #4 - Advantages and Disadvantages of using Standard Costs and Variances Which of the following items are advantages of using a standard cost system? A. Cost benchmarks: An advantage of standard costs are benchmarks that judge actual costs in an organization. B. Timeliness: Information is more timely as variances are computed once each month. C. Usefulness in budgeting: Standards help managers because they are the basis for many components in the master budget. These include but are not limited to direct materials, direct labor, and manufacturing overhead budgets. D. Cost Savings Keeping standards up-to-date is a more cost effective way to track costs. E. Lean thinking: lean companies strive for continual improvement and therefore standards are constantly updated. Lean manufacturers focus on standards and whether past performance met the standards. F. Motivation: The use of practical, or attainable, standards should increase employee motivation because it gives employees a reasonable goal to achieve. G. Standard costing systems simplify hookkeeping: The variances that occur between the actual costs and standard costs are immediately captured in variance accounts in the general ledger. (Recall that in a standard costing system, all manufacturing costs entering Work in Process Inventory are recorded at standard cost, rather than the actual cost.) ACCT 2301 Chapter 11 - Page 16 Activity #4 - (Continued) H. Increased automation and decreased direct labor: as manufacturers have shifted towards more automation and reduced their direct labor, direct labor standards are more relevant and helpful. 1 Behavioral consequences: By focusing employees on standard cost variances, you will get improved performance for the company J. Ideal standards: By setting ideal standards, we can motivate employees even further to achieve more difficult goals. Instead, companies use Attainable or Practical Standards. These standards are based on currently attainable conditions that include allowances for normal amounts of waste and inefficiency