Question

Using standard costs

1)can make management planning more difficult.
2)promotes greater economy.
3)does not help in setting prices.
4)weakens management control.

Answer 1

Using standard costs helps promote greater economy by providing benchmarks for expenses and aiding in management control, while also presenting some challenges in management planning and pricing strategies in volatile markets.

Step-by-step explanation:

Using standard costs in management does several things for a business. It promotes greater economy by establishing cost benchmarks, which help to manage and reduce expenses. Standard costs also serve as a yardstick for performance evaluation, thereby aiding in management control. However, it's important to note that while standard costs are valuable for managing expenses and performance, their role in setting prices may be less direct. Prices need to respond to market supply and demand, and factors like competition, which may involve menu costs and other pricing challenges. Furthermore, standard costs can create difficulties in management planning, particularly in environments with high and variable inflation, where market adjustments toward equilibrium prices and quantities are more erratic and can lead to surpluses and shortages, complicating long-term planning strategies.