Question

Which of the following statements correctly explains why abnormal costs are excluded while computing variances under a standard costing system?

Q: Answer-Which of the following statements correctly explains why abnormal costs are excluded while computing...

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.