Standard costing aids in inventory valuation because:
AStandards smooth out short-term fluctuations
BStandards reflect actual cost
CStandards are equal to market
DStandards are tax-deductible
Answer & Solution
Correct answer: A. Standards smooth out short-term fluctuations
1. Inventory valuation under fluctuating actual costs is noisy and difficult to compare period to period.
2. Standards reflect a planned average and absorb routine fluctuations.
3. Using standards smooths out short-term fluctuations.
4. Hence standards aid stable interim profit measurement and stock valuation.
_Source: ICAI BoS Inter Paper 3, Ch 13 "Standard Costing", §13.1.2 ¶3-4_
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