Sequence the following activities in the process of standard costing.

(A) Establishing standard costs

(B) Measurement of actual costs

(C) Identifying variances and causes of variance

(D) Disposing the variances to cost and profit centers

(E) Comparison of actual and standard costs

Choose the correct answer from the options given below:

Correct option is A

Standard costing follows this sequence:
1. Establishing Standard Costs (A) – Predetermined cost estimates for materials, labor, and overhead.
2. Measurement of Actual Costs (B) – Recording the actual costs incurred during production.
3. Comparison of Actual and Standard Costs (E) – Finding differences (variances) between actual and standard costs.
4. Identifying Variances and Causes (C) – Analyzing why the variances occurred (e.g., inefficiencies, inflation).
5. Disposing of Variances (D) – Allocating the variances to cost/profit centers or taking corrective actions.
Since A → B → E → C → D is the correct order, the answer is (a).
Information Booster:
1. Types of Standards – Ideal, normal, current, and basic standards.
2. Variance Analysis – Determines whether deviations are favorable or unfavorable.
3. Material, Labor, and Overhead Variances – Key areas analyzed in standard costing.
4. Purpose of Standard Costing – Helps in cost control, budgeting, and decision-making.
5. Industries Using Standard Costing – Manufacturing, retail, and service industries.