How are costs assigned in a standard cost system?
A) actual direct materials, actual direct labour, and actual manufacturing overhead
B) actual direct materials, actual direct labour, and budgeted manufacturing overhead
C) standard direct materials, standard direct labour, and standard manufacturing overhead
D) budgeted direct materials, standard direct labour, and standard manufacturing overhead

Question

Quizplus · Accepted Answer

In a standard cost system, costs are assigned using standard direct materials, standard direct labour, and standard manufacturing overhead. This means that predetermined amounts for each of these costs are established based on expected levels of production and efficiency. The actual costs incurred may differ from these standards, but variances are calculated and analyzed to assess performance and make improvements. Option A is incorrect because it uses actual costs rather than standards. Option B uses actual direct materials and labour costs but budgeted manufacturing overhead, which could result in inaccuracies if actual overhead differs significantly from the budgeted amount. Option D uses budgeted direct materials rather than standard direct materials, which would not reflect expected efficiency levels.

How Are Costs Assigned in a Standard Cost System