ExpertACCA · Question 30 · Behavioral Aspects of Standard Costing
Section B - Case 3: UrbanTransit
UrbanTransit operates a fleet of municipal buses. The company uses a standard costing system to monitor fuel costs.
At the start of the year, the original standard price for diesel was set at $2.00 per liter.
Mid-year, due to a global geopolitical shock, the market price of diesel surged. Management revised the standard price to $2.50 per liter to reflect uncontrollable market conditions.
During the last quarter, UrbanTransit purchased and used 100,000 liters of diesel at an actual total cost of $260,000.
What is the most likely behavioral impact of revising the standard price from $2.00 to $2.50 mid-year?
Section B - Case 3: UrbanTransit
UrbanTransit operates a fleet of municipal buses. The company uses a standard costing system to monitor fuel costs.
At the start of the year, the original standard price for diesel was set at $2.00 per liter.
Mid-year, due to a global geopolitical shock, the market price of diesel surged. Management revised the standard price to $2.50 per liter to reflect uncontrollable market conditions.
During the last quarter, UrbanTransit purchased and used 100,000 liters of diesel at an actual total cost of $260,000.
What is the most likely behavioral impact of revising the standard price from $2.00 to $2.50 mid-year?
Answer options:
It will demotivate the purchasing manager because the target is now harder to achieve.
It will motivate the purchasing manager by providing a realistic and achievable target.
It will encourage the purchasing manager to buy lower quality fuel.
It will have no behavioral impact as variances are only used for financial reporting.
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