How is standard costing used to manage performance in manufacturing?

• A. Track only actual costs without standards.
• B. Use standard costing for pricing only.
• C. Ignore variances.
• D. By comparing actual costs to standard costs and analyzing variances to identify improvements.

Answer: (B)

Standard costing manages performance by setting expected costs for materials, labour, and overhead and then comparing what actually occurs to those standards. This comparison produces variances that reveal where operations deviate from plan, such as price or usage differences for materials, or efficiency and rate differences for labour and overhead. By analysing these variances, management can identify waste, price pressures, or process inefficiencies and take corrective actions to improve cost control and productivity. While standard costs can inform pricing decisions, using them only for pricing misses the ongoing performance management purpose of variance analysis. Tracking actual costs without standards provides no benchmark, and ignoring variances loses the actionable insight that drives improvements.