Deck 8: Evaluating Variances From Standard Costs

Question 1

Standard costs should always be revised when they differ from actual costs.

Answer 1

False

Question 2

Standard costs serve as a device for measuring efficiency.

Answer 2

True

Question 3

Ideal standards are developed under conditions that assume no idle time, no machine breakdowns, and no materials spoilage.

Answer 3

True

Question 4

It is correct to rely exclusively on past cost data when establishing standards.

Question 5

The principle of exceptions allows managers to focus on correcting variances between standard costs and actual costs.

Question 6

Financial reporting systems that are guided by the principle of exceptions concept focus attention on variances from standard costs.

Question 7

Currently attainable standards do not allow for reasonable production difficulties.

Question 8

Accounting systems that use standards for product costs are called standard cost systems.

Question 9

In most businesses, cost standards are established principally by accountants.

Question 10

If employees are given bonuses for exceeding normal standards, the standards may be very effective in motivating employees.

Question 11

Standards are set for only direct labor and direct materials.

Question 12

Standards are performance goals used to evaluate and control operations.

Question 13

The difference between the standard cost of a product and its actual cost is called a variance.

Question 14

Accounting systems that use standards for product costs are called budgeted cost systems.

Question 15

A variable cost system is an accounting system where standards are set for each manufacturing cost element.

Question 16

The fact that workers are unable to meet a properly determined direct labor standard is sufficient cause to change the standard.

Question 17

Changes in technology, machinery, or production methods may make past cost data irrelevant when setting standards.

Question 18

Normally, standard costs should be revised when labor rates change to incorporate new union contracts.

Question 19

One reason not to depend solely on historical records to set standards is that there may be inefficiencies contained in past costs.

Question 20

The standard cost is how much a product should cost to manufacture.

Question 21

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials quantity variance was $2,200 unfavorable.

Question 22

The variance from standard for factory overhead cost resulting from operating at a level above or below 100% of normal capacity is termed volume variance.

Question 23

Standards are designed to evaluate price and quantity variances separately.

Question 24

If the standard to produce a given amount of product is 600 direct labor hours at $17 and the actual was 500 hours at $15, the time variance was $1,500 unfavorable.

Question 25

Standards are more widely used for nonmanufacturing activities than for manufacturing activities.

Question 26

The variance from standard for factory overhead resulting from incurring a total amount of factory overhead cost that is greater or less than the amount budgeted for the level of operations achieved is termed controllable variance.

Question 27

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials price variance was $800 favorable.

Question 28

A budget performance report compares actual results with the budgeted amounts and reports differences for possible investigation.

Question 29

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials price variance was $800 unfavorable.

Question 30

An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds actual cost.

Question 31

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials quantity variance was $1,000 unfavorable.

Question 32

Because accountants have financial expertise, they are the only ones that are able to set standard costs for the production area.

Question 33

A favorable cost variance occurs when the actual cost is less than the budgeted cost at actual volumes.

Question 34

If the standard to produce a given amount of product is 500 direct labor hours at $15 and the actual was 600 hours at $17, the rate variance was $1,200 favorable.

Question 35

If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 500 hours at $17, the time variance was $1,700 unfavorable.

Question 36

If the standard to produce a given amount of product is 2,000 units of direct materials at $12 and the actual was 1,600 units at $13, the direct materials quantity variance was $5,200 favorable.

Question 37

While setting standards,  managers should never allow for spoilage or machine breakdowns in their calculations.

Question 38

If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 600 hours at $17, the rate variance was $1,200 unfavorable.

Question 39

The direct labor time variance measures the efficiency of the direct labor force.

Question 40

Standard costs are determined by multiplying expected price by expected quantity.

Question 41

A company must choose either a standard system or nonfinancial performance measures to evaluate the performance of a company.

Question 42

Volume variance measures the use of fixed factory overhead resources.

Question 43

The principle of exceptions allows managers to focus on correcting variances between

A) standard costs and actual costs
B) variable costs and actual costs
C) competitor's costs and actual costs
D) competitor's costs and standard costs

Question 44

Standards that represent levels of operation that can be attained with reasonable effort are called

A) theoretical standards
B) ideal standards
C) variable standards
D) normal standards

Question 45

Nonfinancial performance output measures are used to improve the input measures.

Question 46

Standard costs are a useful management tool that can be used solely as a statistical device apart from the ledger or they can be incorporated in the accounts.

Question 47

An example of a nonfinancial measure is the number of customer complaints.

Question 48

Which of the following conditions normally would not indicate that standard costs should be revised?

A) The engineering department has revised product specifications in responding to customer suggestions.
B) The company has signed a new union contract that increases the factory wages on average by $3.50 an hour.
C) Actual costs differed from standard costs for the preceding week.
D) The average price of raw materials increased from $4.68 per pound to $4.82 per pound.

Question 49

A company should only use nonfinancial performance measures when financial measures cannot be calculated.

Question 50

An unfavorable fixed factory overhead volume variance may be due to a failure of supervisors to maintain an even flow of work.

Question 51

Standard cost variances are usually not reported in reports to stockholders.

Question 52

Favorable fixed factory overhead volume variances are never harmful, since achieving them encourages managers to run the factory above normal capacity.

Question 53

The most effective means of presenting standard factory overhead cost variance data is through a factory overhead cost variance report.

Question 54

Since the controllable variance measures the efficiency of using variable overhead resources, if budgeted variable overhead exceeds actual results, the variance is favorable.

Question 55

At the end of the fiscal year, the variances from standard are usually transferred to the finished goods account.

Question 56

Standard costs are used in companies for a variety of reasons. Which of the following is not one of the benefits for using standard costs?

A) used to indicate where changes in technology and machinery need to be made
B) used to estimate cost of inventory
C) used to plan direct materials, direct labor, and variable factory overhead
D) used to control costs

Question 57

Though favorable fixed factory overhead volume variances are usually good news, if inventory levels are too high, additional production could be harmful.

Question 58

The standard price and quantity of direct materials are separated because

A) GAAP and IFRS reporting requires separation
B) direct materials prices are controlled by the purchasing department and quantity used is controlled by the production department
C) standard prices are more difficult to estimate than standard quantities
D) standard quantities change more frequently than standard prices

Question 59

Periodic comparisons between planned objectives and actual performance are reported in:

A) zero-base reports
B) budget performance reports
C) master budgets
D) budgets

Question 60

Nonfinancial measures are often linked to the inputs or outputs of an activity or process.

Question 61

If the actual quantity of direct materials used in producing a commodity differs from the standard quantity, the variance is a

A) controllable variance
B) price variance
C) quantity variance
D) rate variance

Question 62

The Lucy Corporation purchased and used 129,000 board feet of lumber in production, at a total cost of $1,548,000. Original production had been budgeted for 22,000 units with a standard material quantity of 5.7 board feet per unit and a standard price of $12 per board foot. Actual production was 23,500 units.
The materials quantity variance is

A) 63,000 favorable
B) 63,000 unfavorable
C) 59,400 favorable
D) 59,400 unfavorable

Question 63

The following data is given for the Stringer Company: Overhead is applied on standard labor hours.
The direct materials price variance is:

A) $22,800 unfavorable
B) $22,800 favorable
C) $52,000 unfavorable
D) $52,000 favorable

Question 64

The standard costs and actual costs for direct materials for the manufacture of 2,500 actual units of product are The amount of the direct materials quantity variance is

A) $875 favorable variance
B) $850 unfavorable variance
C) $850 favorable variance
D) $875 unfavorable variance

Question 65

A favorable cost variance occurs when

A) actual costs are more than standard costs
B) standard costs are more than actual costs
C) standard costs are less than actual costs
D) actual costs are the same as standard costs

Question 66

The following data relate to direct labor costs for August: Actual costs: 5,500 hours at $24.00 per hour.
Standard costs: 5,000 hours at $23.70 per hour.
What is the direct labor rate variance?

A) $1,650 favorable
B) $1,650 unfavorable
C) $1,500 favorable
D) $1,500 unfavorable

Question 67

The following data is given for the Stringer Company: Overhead is applied on standard labor hours.
The direct materials quantity variance is:

A) 22,800 favorable
B) 22,800 unfavorable
C) 52,000 favorable
D) 52,000 unfavorable

Question 68

If the actual direct labor hours spent producing a commodity differs from the standard hours, the variance is a

A) time variance
B) price variance
C) quantity variance
D) rate variance

Question 69

The following data relate to direct labor costs for the current period: What is the direct labor time variance?

A) $18,000 favorable
B) $18,000 unfavorable
C) $17,550 unfavorable
D) $17,550 favorable

Question 70

The total manufacturing cost variance is

A) the difference between actual costs and standard costs for units produced
B) the flexible budget variance plus the time variance
C) the difference between planned costs and standard costs for units produced
D) none of the answers are correct

Question 71

If the wage rate paid per hour differs from the standard wage rate per hour for direct labor, the variance is a

A) variable variance
B) rate variance
C) quantity variance
D) volume variance

Question 72

If the price paid per unit differs from the standard price per unit for direct materials, the variance is a

A) variable variance
B) controllable variance
C) price variance
D) volume variance

Question 73

Myers Corporation has the following data related to direct materials costs for November: actual costs for 5,000 pounds of material, $4.50; and standard costs for 4,800 pounds of material at $5.10 per pound.
What is the direct materials price variance?

A) $3,000 favorable
B) $3,000 unfavorable
C) $2,880 favorable
D) $2,880 unfavorable

Question 74

The Lucy Corporation purchased and used 129,000 board feet of lumber in production, at a total cost of $1,548,000. Original production had been budgeted for 22,000 units with a standard material quantity of 5.7 board feet per unit and a standard price of $12 per board foot. Actual production was 23,500 units.
The materials price variance is

A) $0
B) $59,400 unfavorable
C) $59,400 favorable
D) $6,000 unfavorable

Question 75

Standard costs are divided into which of the following components?

A) variance standard and quantity standard
B) materials standard and labor standard
C) quality standard and quantity standard
D) price standard and quantity standard

Question 76

Myers Corporation has the following data related to direct materials costs for November: actual costs for 5,000 pounds of material at $4.50; and standard costs for 4,800 pounds of material at $5.10 per pound.
What is the direct materials quantity variance?

A) $1,020 favorable
B) $1,020 unfavorable
C) $900 favorable
D) $900 unfavorable

Question 77

Jaxson Corporation has the following data related to direct labor costs for September: actual costs are 10,200 hours at $15.75 per hour and standard costs are 10,800 hours at $15.50 per hour.
What is the direct labor time variance?

A) $9,300 favorable
B) $9,300 unfavorable
C) $9,450 favorable
D) $9,450 unfavorable

Question 78

The total manufacturing cost variance consists of

A) direct materials price variance, direct labor cost variance, and fixed factory overhead volume variance
B) direct materials cost variance, direct labor rate variance, and factory overhead cost variance
C) direct materials cost variance, direct labor cost variance, and variable factory overhead controllable variance
D) direct materials cost variance, direct labor cost variance, and factory overhead cost variance

Question 79

Which of the following is not a reason standard costs are separated into two components?

A) The price and quantity variances need to be identified separately to correct the actual major differences
B) Identifying variances determines which manager must find a solution to major discrepancies
C) If a negative variance is overshadowed by a favorable variance, managers may overlook potential corrections
D) Variances bring attention to discrepancies in the budget and require managers to revise budgets closer to actual results

Question 80

The standard costs and actual costs for direct materials for the manufacture of 3,000 actual units of product are The amount of direct materials price variance is

A) $2,750 unfavorable variance
B) $2,750 favorable variance
C) $1,500 favorable variance
D) $1,500 unfavorable variance