Multiple Choice
Which of the following is NOT one of the three elements of the fraud triangle?
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6. Internal Controls and Reporting Cash
Fraud and the Fraud Triangle
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Which of the following is a reason companies use standard costs?
A
To increase the risk of fraud
B
To avoid preparing financial statements
C
To provide a benchmark for measuring performance
D
To eliminate the need for budgeting
Verified step by step guidance1
Understand the concept of standard costs: Standard costs are predetermined costs that serve as benchmarks for measuring actual performance. They are widely used in managerial accounting to help companies plan and control operations effectively.
Analyze the options provided in the question: Evaluate each option to determine its relevance to the purpose of standard costs. For example, increasing the risk of fraud or avoiding financial statements are not valid reasons for using standard costs.
Focus on the correct purpose of standard costs: Standard costs are primarily used to provide a benchmark for measuring performance. This allows companies to compare actual costs against expected costs and identify variances that need attention.
Consider the role of standard costs in budgeting: While standard costs do not eliminate the need for budgeting, they complement the budgeting process by providing a framework for cost control and performance evaluation.
Conclude that the correct answer is 'To provide a benchmark for measuring performance,' as this aligns with the primary purpose of standard costs in financial and managerial accounting.
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