Question

Sole Purpose Shoe Company is owned and operated by Sarah Charles. The company manufactures casual shoes, with manufacturing facilities in your state. Sarah began the business this year, and while she has a great deal of experience in manufacturing popular and comfortable shoes, she needs some help in evaluating her results for the year, and asks for your help.
Sarah’s first questions for you have to do with the general ideas and terminology used to evaluate variances.
Provide answers to the following questions (1)-(3).
Why might Sarah want to use standard costs to compare with her actual costs?
A) Management can evaluate the differences between standard costs and actual costs to focus on correcting the cost variances.
B) Standard costs give management a cost structure for products that is applicable for the entire life of the business.
C) Standard costs allow management to motivate employees by comparing their performance to what it would be under perfect conditions.

Answer 1

Answer:

Sole Purpose Shoe Company

The reason for Sarah to want to use standard costs to compare with her actual costs is:

A) Management can evaluate the differences between standard costs and actual costs to focus on correcting the cost variances.

Explanation:

Standard costs provide a control technique for evaluating the Sole Purpose Shoe Company's performance at three levels: a standard performance level, a measure of actual performance, and a measure of the difference (variance) between standard and actual costs.  Sarah will use the variance resulting from the comparison of standard costs with actual costs to measure the non-financial performance of the entity.