Standard costing involves establishing preset costs for materials, labor, and overhead. The standard cost for direct materials is found by multiplying the standard quantity of materials by the standard price. The standard cost for direct labor is calculated by multiplying the standard labor hours by the standard labor rate. Factory overhead is applied to products using a predetermined overhead rate multiplied by a standard allocation base, which is commonly the standard direct labor hours. Row 4 correctly identifies these industry-standard calculations for all three cost components.

Row 1: This row incorrectly uses "Standard quantity" for calculating direct labor and factory overhead; the correct metric is "Standard hours" or a similar activity base.

Row 2: This row incorrectly uses "Standard price" for the factory overhead calculation. Overhead is applied using a "Predetermined overhead rate," not a material price.

Row 3: This row incorrectly swaps the formulas for direct materials and direct labor and uses an incorrect formula for factory overhead.

1. Heisinger, K., & Hoyle, J. B. (n.d.). Managerial Accounting. The Saylor Foundation. Chapter 10, Section 10.2, "Standard Costs." This text, aligned with the Saylor curriculum, specifies the formulas:

Direct Materials: "Standard quantity of direct materials × Standard price of direct materials"

Direct Labor: "Standard hours of direct labor × Standard rate for direct labor"

Overhead: "Standard hours of direct labor × Standard variable overhead rate" (demonstrating the use of a rate and standard hours).

2. Walther, L. M., & Skousen, C. J. (2009). Managerial and Cost Accounting. Bookboon. Chapter 8, "Standard Costs and Variance Analysis," pp. 78-79. This university-level textbook explicitly defines the components of a standard cost sheet as:

Direct material: "Standard Price X Standard Quantity"

Direct labor: "Standard Rate X Standard Hours"

Factory overhead: "Standard Overhead Rate X Standard Application Base" (where the base is often standard hours).

3. Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2012). Managerial Accounting (14th ed.). McGraw-Hill/Irwin. Chapter 10, "Standard Costs and Variances," Exhibit 10-1, p. 428. This standard academic textbook illustrates a standard cost card with the exact formulas: "Standard Quantity or Hours (a) × Standard Price or Rate (b) = Standard Cost (a)×(b)." It applies this to materials, labor, and overhead.