Actual costs should be compared against which type of costs?

Actual costs should be compared against which type of costs?

• A. Standard costs
• B. Budgeted costs
• C. Historical costs
• D. Estimated costs

Answer: (A)

Standard costs serve as the benchmark for cost control. They are predetermined per unit costs set under normal operating conditions, reflecting expected input prices and efficiency. By comparing what actually happened to what should have happened for the same level of production, you generate variances that show whether costs ran over or under the standard. This per-unit benchmark makes it possible to pinpoint price variances (actual price vs. standard) and efficiency variances (actual quantity or use vs. standard). Budgeted costs, historical costs, and estimated costs serve different roles, such as planning a period or reflecting past or forecast figures, but they don’t provide the per-unit performance benchmark that standard costs do for variance analysis.

Standard costs serve as the benchmark for cost control. They are predetermined per unit costs set under normal operating conditions, reflecting expected input prices and efficiency. By comparing what actually happened to what should have happened for the same level of production, you generate variances that show whether costs ran over or under the standard. This per-unit benchmark makes it possible to pinpoint price variances (actual price vs. standard) and efficiency variances (actual quantity or use vs. standard). Budgeted costs, historical costs, and estimated costs serve different roles, such as planning a period or reflecting past or forecast figures, but they don’t provide the per-unit performance benchmark that standard costs do for variance analysis.