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    Question

    Which of the following statements correctly explains why

    abnormal costs are excluded while computing variances under a standard costing system?
    A Because abnormal costs cannot be measured accurately Correct Answer Incorrect Answer
    B Because abnormal costs are part of normal production efficiency Correct Answer Incorrect Answer
    C Because variances aim to measure controllable operational performance only Correct Answer Incorrect Answer
    D Because abnormal costs are always fixed in nature Correct Answer Incorrect Answer
    E Because abnormal costs are recorded as administrative overheads Correct Answer Incorrect Answer

    Solution

    Standard costing systems are designed to provide management with a tool for cost control and performance evaluation. Abnormal costs (e.g., losses due to accidents, machine breakdowns, or gross negligence) are excluded because they are not inherent to normal production and would distort the performance report. By removing these outliers, the resulting variances accurately reflect controllable operational performance, allowing management to focus on efficiencies or inefficiencies within the standard production process.

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