Deck 10: Standard Costing and Analysis of Direct Costs

Question 1

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

Answer 1

False

Question 2

Product costs are used only in managerial accounting.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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 7

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

Question 8

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 9

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

Question 10

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 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

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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 22

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 23

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?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

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 other 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 efficiency variance.
E)Material quantity variance and labor efficiency variance.

Question 26

Which of the following choices correctly notes a characteristic associated with perfection standards and one associated with practical standards?

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 27

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 other answers are correct.

Question 28

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 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

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 31

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 32

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 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

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 35

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 36

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 37

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 38

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 other answers are correct, because all of these variance combinations are possible.

Question 39

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 40

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 41

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 42

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 43

Waterstone Industries is setting standard costs for one of its products.The main material is fiber board sold by the square foot.The current cost of fiber board is $4.00 per square foot from Waterstone's preferred supplier.Delivery costs are $0.25 per board foot.Waterstone's wages per hour are $25.00.Payroll costs are $3.60 per hour and benefits are $5.00 per hour.How much is the direct labor cost standard per hour?

A)$33.60 per hour.
B)$28.00 per hour.
C)$25.00 per hour.
D)$25.60 per hour.
E)None of the answers is correct.

Question 44

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 45

Van Buren Frames manufactures hardwood luxury picture frames.The company uses standard costs to prepare its flexible budget.For the company's the first quarter of 20x8, direct material and direct labor standards for one of their most popular frames were as follows: Materials: 1.5 board feet per unit; $4.00 per board foot Labor: 2.0 hours per unit; $18.00 per hour During the first quarter, Van Buren produced 5,000 units of this product.At the end of the quarter, an examination of the materials records showed that the company used 7,000 board feet of materials and the direct materials cost variance was $1,750 U.Which of the following would be a logical explanation for this variance?

A)The company paid a higher price for the materials than allowed by the standards.
B)The company used greater quantity of materials than allowed by the standards.
C)The company paid a higher rate for labor than allowed by the standards.
D)The company used more labor hours than allowed by the standards.
E)None of the answers is correct.

Question 46

Vasquez, Inc.is establishing the direct materials and direct labor standards for its leading product.Materials cost from the supplier are $5 per square foot, net of purchase discount.Freight-in amounts to $0.10 per square foot.Basic wages of the assembly line personnel are $10 per hour.Payroll taxes are approximately 20% of wages.Benefits amount to $2 per hour.How much is the direct material cost standard per square foot?

A)$5.00 per square foot.
B)$5.10 per square foot.
C)$12.00 per square foot.
D)$17.10 per square foot.
E)None of the answers is correct.

Question 47

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 48

Waterstone Industries is setting standard costs for one of its products.The main material is fiber board sold by the square foot.The current cost of fiber board is $4.00 per square foot from Waterstone's preferred supplier.Delivery costs are $0.25 per board foot.Waterstone's wages per hour are $25.00.Payroll costs are $3.60 per hour and benefits are $5.00 per hour.How much is the direct materials cost standard per square foot?

A)$9.25 per hour.
B)$4.00 per hour.
C)$4.25 per hour.
D)$7.85 per hour.
E)None of the answers is correct.

Question 49

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 50

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 51

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 52

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 53

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

Question 54

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.

Question 55

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.

A)Choice A
B)Choice B
C)Choice C
D)Choice D
E)Choice E

Question 56

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 57

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 58

Consider the following statements about variance investigation: BOLDariance 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 59

Vasquez, Inc.is establishing the direct materials and direct labor standards for its leading product.Materials cost from the supplier are $5 per square foot, net of purchase discount.Freight-in amounts to $0.10 per square foot.Basic wages of the assembly line personnel are $10 per hour.Payroll taxes are approximately 20% of wages.How much is the direct labor cost standard per hour?

A)$5.00 per hour.
B)$10.00 per hour.
C)$12.00 per hour.
D)$17.10 per hour.
E)None of the answers is correct.

Question 60

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 61

Quinton Company has set the following standards for one unit of product: Direct material Quantity: 6.2 pounds per unit Price per pound: $11 per pound Direct labor Quantity: 6 hours per unit Rate per hour: $23 per hour Actual costs incurred in the production of 2,800 units were as follows: Direct material: $194,350 ($11.50 per pound) Direct labor: $393,750 ($22.50 per hour) All materials purchased were consumed during the period. Required: Calculate the direct-material price and quantity variances, and the direct-labor rate and efficiency variances.Indicate whether each variance is favorable or unfavorable.

Question 62

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

Question 63

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 64

Due to evaporation during production, X-treme Building Styrofoam Company requires 5 pounds of material input for every 4 pounds of styrofoam sheets manufactured.During March, the company produced 3,800 pounds of good sheets. Required: Compute the total standard allowed input quantity, given the good output produced.

Question 65

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 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

James at the Mill Barn Woods produces handcrafted frames.A standard-size 11 × 14 inch frame requires 6 board feet of rustic barn wood in the finished product.In addition, 1 board foot of scrap lumber is normally left from the production of one frame.James pays a demolition company $1.50 per board foot, plus $1.00 in transportation charges per board foot. Required: Compute the standard direct-material cost of a frame.

Question 68

Timber Enterprises purchased 67,000 pounds (cost = $616,400) of direct material to be used in the manufacture of the company's only product.According to the production specifications, each completed unit requires four pounds of direct material at a standard cost of $9 per pound.Direct materials consumed by the end of the period totaled 65,500 pounds in the manufacture of 16,050 finished units. An examination of Timber's payroll records revealed that the company worked 42,000 labor hours (cost = $621,600) during the period, and specifications called for each completed unit requiring 2.6 hours of labor at a standard cost of $15 per hour. Use the information to compute the following variances: Required: Calculate the direct-material price and quantity variances, and the direct-labor rate and efficiency variances.Indicate whether each variance is favorable or unfavorable.

Question 69

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 70

For the quarter just ended, Halston, Inc.reported the following variances in one of its manufacturing departments: Material price variance, U Material quantity variance, F Labor efficiency variance, F Labor rate variance, negligible Machine hours efficiency, F The sum of the favorable variances exceeded the unfavorable materials price variance by a considerable amount.The quality of the output from the department was the same as usual.Halston operates very close to a JIT system for materials purchases, with virtually all material acquired during the quarter being used in manufacturing activities. Required: Is there any connection among these variances? If so, explain.

Question 71

Situation 1: 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. Situation 2: In a desperate move to make up for some of the time lost, the Loren Company 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 both of these situations?

A)Situation 1: Material quantity variance, unfavorable; Situation 2: Material price variance, favorable.
B)Situation 1: Material quantity variance, favorable; Situation 2: Material price variance, unfavorable.
C)Situation 1: Material quantity variance, favorable; Situation 2: Labor rate variance favorable.
D)Situation 1: Labor rate variance, favorable; Situation 2: Labor efficiency variance, unfavorable.
E)Situation 1: Labor efficiency variance, favorable; Situation 2: Labor rate variance, favorable.

Question 72

Maki, Inc.manufactures a product that has the following standard costs: The following information pertains to July: Direct material purchased: 42,500 yards at $2.78 per yard, or $118,150 Direct material used: 36,000 yards Direct labor: 7,500 hours at $18.30 per hour, or $137,250 Actual completed production: 1,050 units Use the information to compute the following variances: Required: Calculate the direct-material price and quantity variances, and the direct-labor rate and efficiency variances.Indicate whether each variance is favorable or unfavorable.

Question 73

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

A)improper employee training.
B)acquisition of materials that are below standard quality.
C)adjustment problems with machines.
D)disgruntled workers.
E)All of these could result in a direct-materials quantity variance.

Question 74

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 BOLD,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 75

Too-Jay Enterprises recently experienced a fire, forcing the company to use incomplete information to analyze operations.Consider the following data and assume that all materials purchased during the period were used in production: Direct materials: Standard price per pound: $9 Actual price per pound: $8 Price variance: $20,000F Total of direct-material variances: $2,000F Direct labor: Actual hours worked: 40,000 Actual rate per hour: $15 Efficiency variance: $28,000F Total of direct-labor variances: $12,000U Halo completed 12,000 units. Required: Determine the following: (1) actual materials used, (2) direct-material quantity variance, (3) direct-labor rate variance, (4) standard labor rate per hour, and (5) standard labor time per finished unit.

Question 76

At the end of the accounting period, most companies close variance accounts to:

A)Raw-Material Inventory.
B)Work-in-Process Inventory.
C)Finished-Goods Inventory.
D)Cost of Goods Sold.
E)Income Summary.

Question 77

During June, Fraser Company's material purchases amounted to 6,000 pounds at a price of $7.35 per pound.Actual costs incurred in the production of 2,000 units were as follows: Required: Compute the direct-material price and quantity variances, the direct-material purchase price variance, and the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Question 78

The following events occurred at Eureka Manufacturing (EM), an assembler of engine parts, during March: 1.Because of a stock shortage at its regular supplier, EM had to rely on a new vendor for two purchases of raw material parts.The vendor required EM to pay air-freight charges; however, upon arrival, the company found the goods to be above-average in quality. 2.The local municipality raised its property tax rates by 2%. 3.A flu outbreak on the assembly line forced management to use more experienced, senior personnel to complete production orders on a timely basis.These workers more than made up for lost time. 4.A shoddy maintenance program resulted in an abnormally high number of breakdowns on machine no.76 and slowed production. 5.The implementation of a new program had positive effects for the company with respect to material usage and worker productivity. Required: Create a table with the following headings: material price variance, material quantity variance, labor rate variance, and labor efficiency variance.Determine which of these variances would be affected by the individual events and whether the variance would be favorable or unfavorable.