Which statement about standard costs is true?

Which statement about standard costs is true?

• A. They Are Actual Costs
• B. They Are Variable Costs
• C. They Are Used Only In Pricing Decisions
• D. They Are Preset Costs Used For Product Costing

Answer: (D)

Standard costs are preset costs used for product costing. They’re the planned, per-unit costs established in advance to value inventory and calculate cost variances in a standard costing system. Because they’re predetermined, they don’t represent the actual costs incurred, which are measured after the fact. Standard costs aren’t limited to pricing decisions; they’re used for budgeting, planning, inventory valuation, and performance evaluation as well. They can include both fixed and variable elements, depending on how the company sets its standards. So, the statement that they are preset costs used for product costing is the true one.

Standard costs are preset costs used for product costing. They’re the planned, per-unit costs established in advance to value inventory and calculate cost variances in a standard costing system. Because they’re predetermined, they don’t represent the actual costs incurred, which are measured after the fact. Standard costs aren’t limited to pricing decisions; they’re used for budgeting, planning, inventory valuation, and performance evaluation as well. They can include both fixed and variable elements, depending on how the company sets its standards. So, the statement that they are preset costs used for product costing is the true one.