When Raw Materials, Work in Process, and Finished Goods are recorded and carried at their standard cost, the actual prices paid for inputs and the actual quantities of inputs that are used in production affect the costs recorded in the inventory accounts.

Standard Cost

A predetermined cost that serves as a benchmark for evaluating actual production costs.

Actual Prices

The real prices at which transactions have occurred, as opposed to estimated or standard prices.

Inventory Accounts

Accounts used to track the costs of products purchased or produced for sale to customers until the products are sold.