What Are Reference Prices and How Do Customers Use Them

question 93

Essay

What are reference prices and how do customers use them? What is the difference between internal and external reference prices?

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Definitions:

Standard Cost System

An accounting system that uses estimated costs for material, labor, and overhead to assess performance and control costs.

Materials Quantity Variance

The variance between the real amount of materials consumed during manufacturing and the anticipated amount, as per norms.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product and are a significant portion of the total cost of production.

Standard Cost Card

A document that lists the standard costs associated with producing a unit of product, including materials, labor, and overhead.