Preset costs for delivering a product or service under normal conditions are called ______ costs.

• A. Fixed
• B. Variable
• C. Standard
• D. Sunk

Answer: (C)

Verified step by step guidance

1. Understand the concept of 'preset costs' in Financial Accounting. These are predetermined costs established under normal operating conditions to serve as benchmarks for measuring performance.
2. Review the term 'Standard Costs.' Standard costs are preset costs used in budgeting and cost control, representing the expected cost of delivering a product or service under normal conditions.
3. Differentiate 'Standard Costs' from other cost types: Fixed costs remain constant regardless of activity level, Variable costs change with activity level, and Sunk costs are past costs that cannot be recovered.
4. Recognize that 'Standard Costs' are used for planning and control purposes, helping businesses compare actual costs to expected costs to identify variances.
5. Conclude that the correct term for preset costs under normal conditions is 'Standard Costs,' as they are specifically designed for this purpose in Financial Accounting.