Preset costs for delivering a product or service under normal conditions are called ______ costs.

• A. Actual Costs
• B. Standard Costs
• C. Budgeted Costs
• D. Variable Costs

Answer: (B)

Standard costs are preset per-unit amounts established for materials, labor, and overhead under normal operating conditions. They act as benchmarks in a standard costing system, letting you plan costs and compare actual results to see variances. This is different from actual costs, which reflect what you actually spent, and from budgeted costs, which are the overall planned costs for a period. It’s also not just about variable costs, since standard costs can cover the expected mix of materials, labor, and overhead, set to reflect normal efficiency and usage. Using standard costs helps managers quickly identify where performance deviates from expectations and investigate underlying causes.