Answer (D) is correct . A standard cost is an estimate of what a cost should be under normal operating conditions based on accounting and engineering studies. Comparing actual and standard costs permits an evaluation of the effectiveness of managerial performance. Because of the impact of fixed costs in most businesses, a standard costing system is usually not effective unless the company also has a flexible budgeting system. Flexible budgeting uses standard costs to prepare budgets for multiple activity levels.
Answer (A) is incorrect because MBO is a behavioral, communication-oriented, responsibility approach to employee self-direction. Although MBO can be used with standard costs, the two are not necessarily related.
Answer (B) is incorrect because Rates of return relate to revenues as well as costs, but a standard costing system concerns costs only.
Answer (C) is incorrect because Participative management stresses multidirectional communication. It has no relationship to standard costs.
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