Final answer:
A company uses a standard costing system to track and manage variances from actual costs, which helps in maintaining profits and making informed decisions on production and pricing in both short and long-term scenarios.
Step-by-step explanation:
System primarily to identify variances:
A company uses a standard costing system primarily to identify variances from actual cost that assist them in maintaining profits. This system serves as a management tool that helps in planning and controlling business operations. By comparing standard costs to actual costs, a company can identify areas where efficiencies or inefficiencies are occurring, which can lead to corrective actions. This comparison can reveal variances that may indicate problems such as wastage, misuse of resources, or incorrect pricing structures.
Looking at cost structures through the lens of fixed cost, marginal cost, average total cost, and average variable cost provides deeper insights that support strategic decision-making. For instance, understanding the average variable cost helps a company decide whether to continue or halt production in the short run. Moreover, from a long-run perspective, a robust cost analysis that includes total cost and average cost measures is crucial for profit maximization and price setting, considering market conditions and firm-specific factors.