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What is a standard cost in variance analysis?
AAn estimated goal for what a product should cost
BThe actual amount paid for the units purchased
CThe price a customer pays for a finished unit
DA past cost that cannot now be recovered at all
Answer & Solution
Correct answer: A. An estimated goal for what a product should cost
1. Budgets set performance goals before a period begins, and those goals are called standards.
2. A standard cost states what a product or batch should cost to manufacture.
3. Once the period ends, actual amounts are compared with those standards, and the gaps are the variances.
4. The actual amount paid is the other side of that comparison rather than the standard itself.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 8.1 Introduction_
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