Deck 10: Standard Costing and Analysis of Direct Costs

Question 1

Interactions among variances often occur, making it even more difficult to determine the responsibility for a particular variance.

Answer 1

True

Question 2

A drawback of standard costing is that standard costs often fluctuate erratically.

Answer 2

False

Question 3

Variances are computed by taking the difference between the product cost and standard cost.

Answer 3

False

Question 4

Normal defect rates in an assembly process would be considered if a company desires to establish a series of practical manufacturing standards.

Question 5

Variance proration is the process of closing all variance accounts directly into Cost of Goods Sold.

Question 6

Product costing is the process of accumulating the costs of a production process and assigning them to the completed products.

Question 7

A standard cost:

A) is the "true" cost of a unit of production.
B) is a budget for the production of one unit of a product or service.
C) can be useful in calculating equivalent units.
D) is normally the average cost within an industry.
E) is almost always the actual cost from previous years.

Question 8

The absolute size of a variance is more important than the relative size when trying to decide what variances to investigate.

Question 9

When spending is lower than expected for direct materials, the amount by which spending is less than planned is called an unfavorable direct-material variance (U).

Question 10

Managerial accountants use either task analysis or an analysis of historical data to set cost standards.

Question 11

Variances are computed by taking the difference between which of the following?

A) Product cost and period cost.
B) Actual cost and differential cost.
C) Price factors and rate factors.
D) Actual cost and standard cost.
E) Product cost and standard cost.

Question 12

Which of the following is a predetermined estimated cost that can be used in the calculation of a variance?

A) Product cost.
B) Actual cost.
C) Standard cost.
D) Differential cost.
E) Marginal cost.

Question 13

A favorable labor efficiency variance is created when actual labor hours worked exceed standard hours allowed.

Question 14

One of the most important conditions for the successful use of standard costing is a stable production process.

Question 15

Most companies close their variance accounts directly into Cost of Goods Sold.

Question 16

The aggregate nature of the variances in standard costing is a drawback in the advanced manufacturing setting that makes it difficult for managers to determine their cause.

Question 17

Significant departures investigated, when using management by exception, are uniform across all size and types of organizations with varying production processes.

Question 18

The Purchasing Department would normally begin an investigation regarding an unfavorable materials quantity variance.

Question 19

Product costs are used only in managerial accounting.

Question 20

A manager is more likely to investigate the variance for a cost that is controllable by someone in the organization than one that is not.

Question 21

A perfection standard:

A) tends to motivate employees over a long period of time.
B) is attainable in an ideal operating environment.
C) would make allowances for normal amounts of scrap and waste.
D) is generally preferred by behavioral scientists.
E) will result in a number of favorable variances on a performance report.

Question 22

Consider the following statements:
I) Behavioral scientists find that perfection standards often discourage employees and result in low worker morale.
II) Practical standards are also known as attainable standards.
III) Practical standards incorporate a certain amount of inefficiency such as that caused by an occasional machine breakdown.
Which of the above statements is (are) true?

A) I only.
B) II only.
C) III only.
D) II and III.
E) I, II, and III.

Question 23

Which of the following variances cannot occur together during the same accounting period?

A) Unfavorable labor rate variance and favorable labor efficiency variance.
B) Unfavorable labor efficiency variance and favorable material quantity variance.
C) Favorable labor rate variance and unfavorable total labor variance.
D) Favorable labor efficiency variance and favorable material quantity variance.
E) None of the answers is correct, because all of these variance combinations are possible.

Question 24

If a company has an unfavorable direct-material quantity variance, then:

A) the direct-material price variance is favorable.
B) the total direct-material variance is unfavorable.
C) the total direct-material variance is favorable.
D) the direct-labor efficiency variance is unfavorable.
E) Any of the answers can occur.

Question 25

Which of the following variances are most similar with respect to the manner in which they are calculated?

A) Labor rate variance and labor efficiency variance.
B) Material price variance and material quantity variance.
C) Material price variance, material quantity variance, and total material variance.
D) Material price variance and labor rate variance.
E) Material price variance and labor efficiency variance.

Question 26

An unfavorable labor efficiency variance is created when:

A) actual labor hours worked exceed standard hours allowed.
B) actual hours worked are less than standard hours allowed.
C) actual wages paid are less than amounts that should have been paid.
D) actual units produced exceed budgeted production levels.
E) actual units produced exceed standard hours allowed.

Question 27

The term "management by exception" is best defined as:

A) choosing exceptional managers.
B) controlling actions of subordinates through acceptance of management techniques.
C) investigating unfavorable variances.
D) devoting management time to investigate significant variances.
E) controlling costs so that non-zero variances are treated as "exceptional."

Question 28

Which of the following choices correctly indicates the use of the standard price per unit of direct material when calculating the materials price variance and the material quantity variance?
Price Variance Quantity Variance

A) Used Always used
B) Used Occasionally used
C) Used Not used
D) Not used Always used
E) Not used Not used

Question 29

Consider the following statements:
I) The standard cost per unit of materials is used to calculate a materials price variance.
II) The standard cost per unit of materials is used to calculate a materials quantity variance.
III) The standard cost per unit of materials cannot be determined until the end of the period.
Which of the above statements is (are) true?

A) I only.
B) II only.
C) III only.
D) I and II.
E) I, II, and III.

Question 30

A favorable labor efficiency variance is created when:

A) actual labor hours worked exceed standard hours allowed.
B) actual hours worked are less than standard hours allowed.
C) actual wages paid are less than amounts that should have been paid.
D) actual units produced exceed budgeted production levels.
E) actual units produced exceed standard hours allowed.

Question 31

Which of the following correctly lists all the information needed to calculate a labor rate variance?

A) Standard labor rate and actual hours worked.
B) Actual hours worked and actual units produced.
C) Standard labor rate, actual labor rate, and actual units produced.
D) Actual labor rate and actual hours worked.
E) Actual labor rate, standard labor rate, and actual hours worked.

Question 32

An unfavorable labor rate variance is created when:

A) actual labor hours worked exceed standard hours allowed.
B) actual hours worked are less than standard hours allowed.
C) actual wages paid are less than amounts that should have been paid.
D) actual units produced exceed budgeted production levels.
E) actual wages paid exceed amounts that should have been paid for the number of hours worked.

Question 33

Which of the following would not be considered if a company desires to establish a series of practical manufacturing standards?

A) Production time lost during unusual machinery breakdowns.
B) Normal worker fatigue.
C) Freight charges on incoming raw materials.
D) Production time lost during setup procedures for new manufacturing runs.
E) The historical 2% defect rate associated with raw material inputs.

Question 34

Which of the following individuals is least likely to become involved in the setting of either direct material standards or direct labor standards?

A) The purchasing manager.
B) A production supervisor.
C) An engineer.
D) A machine operator.
E) A company's president.

Question 35

Which of the following variances are most similar with respect to the manner in which they are calculated?

A) Labor rate variance and labor efficiency variance.
B) Material price variance and material quantity variance.
C) Material price variance, material quantity variance, and total material variance.
D) Material price variance and labor efficiency variance.
E) Material quantity variance and labor efficiency variance.

Question 36

A favorable labor rate variance is created when:

A) actual labor hours worked exceed standard hours allowed.
B) actual hours worked are less than standard hours allowed.
C) actual wages paid are less than amounts that should have been paid for the number of hours worked.
D) actual units produced exceed budgeted production levels.
E) actual units produced exceed standard hours allowed.

Question 37

Which of the following would be considered if a company desires to establish a series of practical manufacturing standards?

A) The productivity loss associated with a short-term worker slowdown.
B) Normal defect rates in an assembly process.
C) Highly unusual spoilage rates of direct materials.
D) Quantity discounts associated with purchases of direct materials.
E) Both normal defect rates in an assembly process and quantity discounts associated with purchases of direct materials.

Question 38

Most companies base the calculation of the material price variance on the:

A) quantity of direct materials purchased.
B) quantity of direct materials spoiled.
C) quantity of direct materials that should have been used in achieving actual production.
D) quantity of direct materials actually used.
E) quantity of direct materials to be purchased during the next accounting period.

Question 39

When the quantity of materials purchased is not equal to the quantity of material used, most companies base the calculation of the material quantity variance on the:

A) quantity of direct materials purchased.
B) quantity of direct materials spoiled.
C) quantity of direct materials that should have been used in achieving actual production.
D) quantity of direct materials actually used.
E) None of the answers is correct.

Question 40

Which of the following are methods for setting standards?

A) Analysis of historical data and goal congruence.
B) Task analysis and matrix application forms.
C) Task analysis and the analysis of historical data.
D) Matrix application forms and analysis of historical data.
E) Goal congruence and task analysis.

Question 41

Use the following data that relate to product no. 33 of Volusia Corporation to answer the following Questions
Direct labor standard: 5 hours at $14 per hour
Direct labor used in production: 45,000 hours at a cost of $639,000
Manufacturing activity: 8,900 units completed



-The direct-labor efficiency variance is:

A) $7,000F.
B) $7,000U.
C) $7,100F.
D) $7,100U.
E) None of the answers is correct.

Question 42

Use the following information to answer the following Questions
Thomas Enterprises purchased 56,000 pounds (cost = $420,000) of direct material to be used in the manufacture of the company's sole product. According the production specifications, each completed unit requires five pounds of direct material at a standard cost of $7.80 per pound. Direct materials consumed by the end of the period totaled 53,500 pounds in the manufacture of 10,900 finished units.
An examination of Thomas’ payroll records revealed that the company worked 22,000 labor hours (cost = $319,000) during the period, and specifications called for each completed unit requiring two hours of labor at a standard cost of $14.80 per hour. Assume that the company computes variances at the earliest point in time.


-Thomas' direct-material quantity variance was:

A) $7,800F.
B) $16,800F.
C) $7,800U.
D) $16,800U.
E) None of the answers is correct.

Question 43

Use the following information to answer the following Questions
Thomas Enterprises purchased 56,000 pounds (cost = $420,000) of direct material to be used in the manufacture of the company's sole product. According the production specifications, each completed unit requires five pounds of direct material at a standard cost of $7.80 per pound. Direct materials consumed by the end of the period totaled 53,500 pounds in the manufacture of 10,900 finished units.
An examination of Thomas’ payroll records revealed that the company worked 22,000 labor hours (cost = $319,000) during the period, and specifications called for each completed unit requiring two hours of labor at a standard cost of $14.80 per hour. Assume that the company computes variances at the earliest point in time.


-Thomas' direct-material price variance was:

A) $16,050F.
B) $16,050U.
C) $16,800F.
D) $16,800U.
E) None of the answers is correct.

Question 44

Storkin Enterprises recently used 24,000 labor hours to produce 8,600 completed units. According to manufacturing specifications, each unit is anticipated to take 2.75 hours to complete. The company's actual payroll cost amounted to $456,000. If the standard labor cost per hour is $19.20, Storkin's labor rate variance is:

A) $1,920U.
B) $1,920F.
C) $4,800U.
D) $4,800F.
E) None of the answers is correct.

Question 45

Consider the following information:
Direct material purchased and used, 80,000 gallons
Standard quantity of direct material allowed for May production, 76,000 gallons
Actual cost of direct materials purchased and used, $176,000
Unfavorable direct-material quantity variance, $9,400
The direct-material price variance is:

A) $11,400F.
B) $11,400U.
C) $12,000F.
D) $12,000U.
E) None of the answers is correct.

Question 46

Use the following information to answer the following Questions


-The direct-material quantity variance is:

A) $750F.
B) $750U.
C) $6,500U.
D) $7,250U.
E) None of the answers is correct.

Question 47

Perez, Inc. recently completed 56,000 units of a product that was expected to consume four pounds of direct material per finished unit. The standard price of the direct material was $8.50 per pound. If the firm purchased and consumed 228,000 pounds in manufacturing (cost = $1,881,000), the direct-material quantity variance would be figured as:

A) $34,000U.
B) $34,000F.
C) $57,000U.
D) $57,000F.
E) None of the answers is correct.

Question 48

Use the following information to answer the following Questions
Airon Company recently completed 10,600 units of its single product, consuming 32,000 labor hours that cost the firm $480,000. According to manufacturing specifications, each unit should have required 3 hours of labor time at $15.40 per hour.

-On the basis of this information, determine Airon's labor rate variance and labor efficiency variance.

Question 49

Use the following information to answer the following Questions
Airon Company recently completed 10,600 units of its single product, consuming 32,000 labor hours that cost the firm $480,000. According to manufacturing specifications, each unit should have required 3 hours of labor time at $15.40 per hour.

-On the basis of this information, determine Airon's total labor variance.

A) $15,880U
B) $9,720F
C) $15,720F
D) $9,720U
E) $15,880F

Question 50

Consider the following information:

The direct-labor rate variance is:

A) $17,250U.
B) $20,700U.
C) $20,700F.
D) $21,000F.
E) None of the answers is correct.

Question 51

Use the following data that relate to product no. 89 of Mansion Corporation to answer the following Questions
Direct material standard: 3 square feet at $2.50 per square foot
Direct material purchased: 30,000 square feet at $2.60 per square foot
Direct material consumed: 29,200 square feet
Manufacturing activity: 9,600 units completed

Assume that the company computes variances at the earliest point in time.


-The direct-material quantity variance is:

A) $1,000F.
B) $1,000U.
C) $1,040F.
D) $1,040U.
E) $2,000F.

Question 52

Use the following data that relate to product no. 89 of Mansion Corporation to answer the following Questions
Direct material standard: 3 square feet at $2.50 per square foot
Direct material purchased: 30,000 square feet at $2.60 per square foot
Direct material consumed: 29,200 square feet
Manufacturing activity: 9,600 units completed

Assume that the company computes variances at the earliest point in time.


-The direct-material price variance is:

A) $2,880U.
B) $2,920F.
C) $2,920U.
D) $3,000F.
E) $3,000U.

Question 53

Use the following information to answer the following Questions
Thomas Enterprises purchased 56,000 pounds (cost = $420,000) of direct material to be used in the manufacture of the company's sole product. According the production specifications, each completed unit requires five pounds of direct material at a standard cost of $7.80 per pound. Direct materials consumed by the end of the period totaled 53,500 pounds in the manufacture of 10,900 finished units.
An examination of Thomas’ payroll records revealed that the company worked 22,000 labor hours (cost = $319,000) during the period, and specifications called for each completed unit requiring two hours of labor at a standard cost of $14.80 per hour. Assume that the company computes variances at the earliest point in time.


-Thomas' direct-labor rate variance was

A) $6,600F.
B) $6,600U.
C) $2,960F.
D) $2,960U.
E) None of the answers is correct.

Question 54

Action Enterprises recently used 14,000 labor hours to produce 7,500 completed units. According to manufacturing specifications, each unit is anticipated to take two hours to complete. The company's actual payroll cost amounted to $158,200. If the standard labor cost per hour is $11, Action's labor rate variance is:

A) $4,200U.
B) $4,000F.
C) $4,300U.
D) $4,300F.
E) None of the answers is correct.

Question 55

Rickett Corporation had a favorable direct-labor efficiency variance of $6,000 for the period just ended. The actual wage rate was $0.50 more than the standard rate of $12.00. If the company's standard hours allowed for actual production totaled 9,500, how many hours did the firm actually work?

A) 9,000.
B) 9,020.
C) 9,980.
D) 10,000.
E) None of the answers is correct.

Question 56

Enrique Industries purchased and consumed 50,000 gallons of direct material that was used in the production of 11,000 finished units of product. According to engineering specifications, each finished unit had a manufacturing standard of five gallons. If a review of Enrique's accounting records at the end of the period disclosed a material price variance of $5,000U and a material quantity variance of $3,000F, what is the actual price paid for a gallon of direct material?

A) $0.50.
B) $0.60.
C) $0.70.
D) None of the answers is correct.
E) Not enough information to judge.

Question 57

Joiner Corporation recently purchased 25,000 gallons of direct material at $5.60 per gallon. Usage by the end of the period amounted to 23,000 gallons. If the standard cost is $6.00 per gallon and the company believes in computing variances at the earliest point possible, the direct-material price variance would be calculated as:

A) $800F.
B) $9,200F.
C) $9,200U.
D) $10,000F.
E) $10,000U.

Question 58

Use the following information to answer the following Questions
Thomas Enterprises purchased 56,000 pounds (cost = $420,000) of direct material to be used in the manufacture of the company's sole product. According the production specifications, each completed unit requires five pounds of direct material at a standard cost of $7.80 per pound. Direct materials consumed by the end of the period totaled 53,500 pounds in the manufacture of 10,900 finished units.
An examination of Thomas’ payroll records revealed that the company worked 22,000 labor hours (cost = $319,000) during the period, and specifications called for each completed unit requiring two hours of labor at a standard cost of $14.80 per hour. Assume that the company computes variances at the earliest point in time.


-Thomas' direct-labor efficiency variance was

A) $2,900F.
B) $2,900U.
C) $2,960F.
D) $2,960U.
E) None of the answers is correct.

Question 59

Davner Enterprises recently used 14,000 labor hours to produce 7,500 completed units. According to manufacturing specifications, each unit is anticipated to take two hours to complete. The company's actual payroll cost amounted to $158,200. If the standard labor cost per hour is $11, Davner's labor efficiency variance is:

A) $11,000U.
B) $11,000F.
C) $11,300U.
D) $11,300F.
E) None of the answers is correct.

Question 60

Use the following data that relate to product no. 33 of Volusia Corporation to answer the following Questions
Direct labor standard: 5 hours at $14 per hour
Direct labor used in production: 45,000 hours at a cost of $639,000
Manufacturing activity: 8,900 units completed



-The direct-labor rate variance is:

A) $8,900F.
B) $8,900U.
C) $9,000F.
D) $9,000U.
E) None of the answers is correct.

Question 61

When considering whether to investigate a variance, managers should consider all of the following except the variance's:

A) size.
B) pattern of recurrence.
C) trends over time.
D) nature, namely, whether it is favorable or unfavorable.
E) controllability.

Question 62

A statistical control chart is best used for determining:

A) direct-material price variances.
B) direct-labor variances.
C) whether a variance is favorable or unfavorable.
D) who should be held accountable for specific variances.
E) whether a particular variance should be investigated.

Question 63

Which department would normally begin an investigation regarding an unfavorable materials quantity variance?

A) Quality control.
B) Purchasing.
C) Engineering.
D) Production.
E) Receiving.

Question 64

Bender Corporation has a favorable materials quantity variance. Which department would likely be asked to explain the cause of this variance?

A) Engineering.
B) Purchasing.
C) Production.
D) Marketing.
E) None, because the variance is favorable.

Question 65

Loren Company recently purchased materials from a new supplier at a very attractive price. The materials were found to be of poor quality, and the company's laborers struggled significantly as they shaped the materials into finished product.
In a desperation move to make up for some of the time lost, the manufacturing supervisor brought in more-senior employees from another part of the plant. Which of the following variances would have a high probability of arising from this situation?

A) Material price variance, favorable.
B) Material quantity variance, unfavorable.
C) Labor rate variance, unfavorable.
D) Labor efficiency variance, unfavorable.
E) All of the answers are correct.

Question 66

Listed below are five variances (and possible causes) that are under review by management of Knight Company. Which of the following is least likely to cause the variance indicated?

A) The need to ship goods acquired from a distant supplier via overnight carrier than via common carrier truck; material price variance.
B) The need to complete goods on a timely basis during a period of high absenteeism; labor rate variance.
C) A work-team that is very unhappy with its supervisor; labor efficiency variance.
D) The need to close a plant for two days because of blizzard conditions; material quantity variance, part no. 542.
E) A malfunctioning piece of manufacturing equipment; labor efficiency variance.

Question 67

Use the following information to answer the following Questions


-The direct-labor rate variance is:

A) $7,800F.
B) $7,950F.
C) $8,020F.
D) $8,000U.
E) None of the answers is correct.

Question 68

A direct-material quantity variance can be caused by all of the following except:

A) improper employee training.
B) changes in sales volume.
C) acquisition of materials that are below standard quality.
D) adjustment problems with machines.
E) disgruntled workers.

Question 69

Use the following information to answer the following Questions


-The direct-material price variance is:

A) $4,620F.
B) $4,620U.
C) $5,200F.
D) $5,200U.
E) None of the answers is correct.

Question 70

A direct-labor efficiency variance cannot be caused by:

A) inexperienced employees.
B) poor quality raw materials.
C) employee inefficiency.
D) an out-of-date labor time standard.
E) producing fewer finished units than originally planned.

Question 71

Standard costs:

A) allow a manager to assess the efficiency of operations.
B) allow a company to practice management by exception.
C) provide management with a basis for performance evaluations.
D) if set correctly, can provide a motivational tool for employees.
E) All of the answers are correct.

Question 72

Which of the following is a criticism of standard costing, as applied to today's manufacturing environment?

A) Standards tend to be relevant for only a short period of time because of shorter product life cycles.
B) Variance information is usually aggregated (i.e., combined) rather than associated with a particular batch of goods or a specific product line.
C) Traditional standard costing has a fairly narrow orientation, failing to focus on broader issues such as the overall costs of ownership.
D) Standard costing pays considerable attention to labor cost and labor efficiency, which are becoming a relatively unimportant factor of production.
E) All of the answers are correct.

Question 73

Consider the following statements about variance investigation:
I) Variance investigation involves a look at only unfavorable variances.
II) Variance investigation is typically based on a cost-benefit analysis.
III) Variance investigation is often performed by establishing guidelines similar to the following: Investigate variances that are greater than $X or greater than Y% of standard cost.
Which of the above statements is (are) true?

A) I only.
B) II only.
C) III only.
D) II and III.
E) I, II, and III.

Question 74

Vito, Inc. had an unfavorable labor efficiency variance and an unfavorable materials quantity variance. Which department might be held accountable for these variances?

A) Engineering
B) Production only, because inefficient workers may use more materials than allowed.
C) Marketing.
D) Shipping.
E) Both Purchasing, because bad materials can harm labor efficiency and Production, because inefficient workers may use more materials than allowed.

Question 75

The individual generally responsible for the direct-material price variance is the:

A) sales manager.
B) production supervisor.
C) purchasing manager.
D) finance manager.
E) head of the human resources department.

Question 76

Use the following information to answer the following Questions


-The standard hours allowed for the work performed are:

A) 5.
B) 5.14.
C) 39,000.
D) 40,100.
E) None of the answers is correct.

Question 77

Lamar Corporation's purchasing manager obtained a special price on an aluminum alloy from a new supplier, resulting in a direct-material price variance of $9,500F. The alloy produced more waste than normal, as evidenced by a direct-material quantity variance of $2,000U, and was also difficult to use. This slowed worker efficiency, generating a $2,500U labor efficiency variance.
To help remedy the situation, the production manager used senior line employees, which gave rise to a $900U labor rate variance. If overall product quality did not suffer, what variance amount is best used in judging the appropriateness of the purchasing manager's decision to acquire substandard material?

A) $4,100F.
B) $5,000F.
C) $7,000F.
D) $7,500F.
E) $9,500F.

Question 78

Which of the following combinations of direct-material variances might prompt management to undertake a detailed variance investigation?

A) Price, unfavorable; quantity, unfavorable.
B) Price, unfavorable; quantity, favorable.
C) Price, favorable; quantity, unfavorable.
D) Price favorable; quantity, favorable.
E) All of the answers are correct.

Question 79

Use the following information to answer the following Questions


-The direct-labor efficiency variance is:

A) $8,000F.
B) $8,000U.
C) $8,250F.
D) $8,250U.
E) None of the answers is correct.

Question 80

A production supervisor generally has little influence over the:

A) direct-material quantity variance.
B) direct-labor efficiency variance.
C) direct-material price variance.
D) number of units produced.
E) All of the answers are correct.