Deck 16: Standard Costing, Variance Analysis, and Kaizen Costing

Question 1

Employee behavior may be adversely affected when standard cost variances are used as part of the employee reward structure.

Answer 1

True

Question 2

Perfection standards can be defined as standards that are "tight but attainable."

Answer 2

False

Question 3

Favorable variances need not be investigated because they do not cost the company money.

Answer 3

False

Question 4

Standards should be determined only by the accounting staff.

Question 5

The team involved in task analysis might include production engineers, production supervisors, cost managers, and sales managers.

Question 6

Perfection standards may encourage employees to sacrifice product quality to achieve lower costs.

Question 7

Practical standards assume the process is as efficient as possible under normal operating conditions.

Question 8

Standard costing systems provide information that can help managers reduce costs.

Question 9

When computing the direct-material price variance, it is not important to distinguish between the quantity purchased and the quantity used.

Question 10

A manager will be interested in investigating material price variances where the price of the material is set by an international market and tied into a long-term contract.

Question 11

Statistical quality control charts plot cost variances across time and compare them with multiples of the standard deviation.

Question 12

Standard Costing is not appropriate in service-industry firms

Question 13

Firms using standard costing systems do not use standards for product costing.

Question 14

Bar codes are one of the ways by which standard costing systems can help link the use of information technology to several business processes.

Question 15

To compute the direct labor rate variance, you take the difference between the actual and standard rate and multiply that amount by the standard hours allowed

Question 16

A standard cost is a budget for the production of one unit of product or service.

Question 17

When computing the direct material quantity variance, it is important to use the quantity actually used, rather than the quantity purchased.

Question 18

Because a key objective of cost management systems is the elimination of non-value-added costs, standards need to be revised frequently in order to remain valid for cost control purposes.

Question 19

A standard cost serves as a benchmark in the budgetary control system.

Question 20

Kaizen costing is the process of cost reduction during the manufacturing phase of a product.

Question 21

When manufacturing firms adopt advanced manufacturing methods, they totally discontinue their use of standard costing.

Question 22

Under kaizen costing the starting point for the kaizen goal cost reduction rate and amount for the current year is the actual cost performance at the end of the preceding year.

Question 23

Manufacturing processes using multiple types of direct material conduct additional analyses of the quantity variance because of the assumption of some degree of substitutability among the materials in the production process.

Question 24

Service organizations using different types of labor might apply the concepts of the production mix and yield variances to analyze the impact of substituting one type of labor for another.

Question 25

Which of the following are not part of a control system?

A) A predetermined or standard performance level
B) A measure of actual performance
C) A comparison between standard and actual performance
D) All of the above are part of a control system

Question 26

Which of the following methods are not used to set standards?

A) Analysis of historical data
B) Analysis of the process of manufacturing a product to determine what it should cost
C) Using data developed when standards were first put in place by the company
D) A combined approach of historical cost analysis and task analysis

Question 27

Practical standards assume

A) Everything will work perfectly
B) The system is operating at maximum efficiency
C) All material will be of expected-high quality standards
D) None of the Above

Question 28

During June, 90,000 units were produced. The standard quantity of material allowed per unit was 2 pounds at a standard cost of $5 per pound. If there was an unfavorable quantity variance of $5,000 for June, the actual quantity of materials used must have been

A) 179,000 pounds
B) 181,000 pounds
C) 84,000 pounds
D) 1,000 pounds

Question 29

Perfection standards assume which of the following:

A) Peak efficiency
B) No disruption to production due to machine breakdowns
C) Best-quality materials attainable
D) All of the above

Question 30

Generally a variance should be investigated if:

A) Benefits of investigation are greater than zero
B) The variance is unfavorable
C) The benefits of investigation exceed the cost of investigation
D) The variance is favorable

Question 31

Unfavorable material quantity variances

A) Could be caused by normal spoilage
B) Mean that smaller quantity discounts were taken on purchases
C) Mean that more direct materials were used than expected for actual output
D) Mean that less indirect materials were used than expected for actual output

Question 32

Use the following to answer questions:
The following standard cost information is available for Leah Co.'s only product: Direct material 9 feet at $5.00 per foot. Actual information for July: 2,000 units were produced; 20,000 feet of direct material were purchased at a cost of $92,000 and 19,000 feet of material were used.

-What is the material purchase price variance for July?

A) $7,600 favorable
B) $7,600 unfavorable
C) $8,000 unfavorable
D) $8,000 favorable

Question 33

Use the following to answer questions:
The following standard cost information is available for Leah Co.'s only product: Direct material 9 feet at $5.00 per foot. Actual information for July: 2,000 units were produced; 20,000 feet of direct material were purchased at a cost of $92,000 and 19,000 feet of material were used.

-What is the material quantity variance for July?

A) $ 4,500 favorable
B) $ 4,500 unfavorable
C) $ 5,000 favorable
D) $ 5,000 unfavorable

Question 34

Use the following to answer questions:
Stanton Co. uses the following standards in the production of its only product:
Direct material 18 pounds at $25 per pound
Direct labor: 6 hours at $18 per hour.
During March company records showed the following:


-The material purchase price variance is

A) $36,000 unfavorable
B) $36,000 favorable
C) $15,000 unfavorable
D) $15,000 favorable

Question 35

Use the following to answer questions:
Stanton Co. uses the following standards in the production of its only product:
Direct material 18 pounds at $25 per pound
Direct labor: 6 hours at $18 per hour.
During March company records showed the following:


-The material quantity variance is

A) $36,000 unfavorable
B) $36,000 favorable
C) $15,000 unfavorable
D) $15,000 favorable

Question 36

Use the following to answer questions:
Stanton Co. uses the following standards in the production of its only product:
Direct material 18 pounds at $25 per pound
Direct labor: 6 hours at $18 per hour.
During March company records showed the following:


-The direct labor rate variance is

A) $1,800 unfavorable
B) $1,800 favorable
C) $14,100 unfavorable
D) $14,100 favorable

Question 37

Use the following to answer questions:
Stanton Co. uses the following standards in the production of its only product:
Direct material 18 pounds at $25 per pound
Direct labor: 6 hours at $18 per hour.
During March company records showed the following:


-The direct labor efficiency variance is

A) $1,800 unfavorable
B) $1,800 favorable
C) $14,100 unfavorable
D) $14,100 favorable

Question 38

How much direct material was purchased in March?
Duffy's records for March show the following information from its standard costing system:

A) 12,000 pounds
B) 13,500 pounds
C) 14,500 pounds
D) 15,000 pounds

Question 39

If the standard labor rate exceeds the actual labor rate and the actual labor hours exceed the standard number of hours allowed, the labor rate variance and the labor efficiency variance will be

A) Item A
B) Item B
C) Item C
D) Item D

Question 40

An unfavorable labor rate variance might be caused by

A) Using less skilled labor
B) Using higher quality materials
C) Using poorly maintained machinery
D) Using more highly skilled workers

Question 41

Use the following to answer questions:
Cabot Inc. uses a standard costing system for its only product. The standards are as follows:

Actual data for September are:


-Which of the following is the journal entry that was made when the material was purchased?

A) Item A
B) Item B
C) Item C
D) Item D

Question 42

Use the following to answer questions:
Cabot Inc. uses a standard costing system for its only product. The standards are as follows:

Actual data for September are:


-Which of the following is the journal entry to record the use of direct material?

A) Item A
B) Item B
C) Item C
D) Item D

Question 43

Use the following to answer questions:
Cabot Inc. uses a standard costing system for its only product. The standards are as follows:

Actual data for September are:


-Which of the following journal entries would be used to record direct labor for September?

A) Item A
B) Item B
C) Item C
D) Item D

Question 44

During March 20,000 direct labor hours were worked at a standard cost of $20per hour. The direct labor rate variance for March was $60,000 unfavorable. The actual cost for direct labor in March was:

A) $45
B) $27
C) $25
D) $23

Question 45

Which of the following is/are a signal that a variance should be investigated?

A) The size of the variance in relation to the standard, absolute or relative
B) A trend in a variance over time
C) The recurrence of a variance
D) All of the above are signals

Question 46

Which of the following does not affect a material purchase price variance?

A) Increases in the demand for the firm's output
B) Need to purchase component parts with precise engineering specifications
C) Rush order requests from the production department
D) World-wide shortages of critical input materials

Question 47

Which of the following variances might be affected by the purchase of off-standard materials?
I favorable material purchase price variance
II unfavorable material quantity variance
III unfavorable labor rate variance
IV unfavorable labor efficiency variance

A) I
B) I, II
C) I, II, IV
D) I, II, III, IV

Question 48

The following statements relate to standard costing systems:
I Computation of standard costs and cost variances enables managers to employ management by exception.
II Variances provide a means of performance evaluation and rewards for employees
III Short product life cycles mean that standards are relevant for only a short time
IV Use of standard costs in product costing results in more stable product costs than if actual product costs were used
Which of these statements are considered advantages of standard costing?

A) I, II
B) I, III
C) I, II, IV
D) I, III, IV

Question 49

The following statements relate to standard costing systems:
I Traditional standard costing systems focus too much on the cost and efficiency of direct labor which is rapidly becoming a relatively unimportant factor of production
II Traditional standard cost variances are too aggregated in the sense that they are not tied to specific product lines, production batches, or flexible manufacturing systems
III Traditional standard costing systems tend to focus too much on cost minimization rather than increasing product quality or customer service
IV Traditional standard costing is not defined broadly enough to capture various important aspects of performance
Which of these statements relate to disadvantages of standard costing under modern cost management systems?

A) I
B) I, II
C) I, II, III
D) I, II, III, IV

Question 50

Lopata Manufacturing uses a standard cost system for its guitar boxes. The standard labor rate per box is $1 per box. This standard was established on the basis of producing 8 boxes per hour. This month, Lopata produced 1,500 boxes using 580 direct labor hours at an actual direct labor cost of $5,800. The direct labor rate variance was

A) $ 1,600 favorable
B) $ 1,160 favorable
C) $ 1,600 unfavorable
D) $ 1,160 unfavorable

Question 51

Use the following to answer questions:
The Alperti Company manufactures surgical gowns for hospitals. Their controller, Ethell Hieken is preparing the variance analysis report for October. Standard Costs are as follows: Direct Material 2.0 yards at $6 per yard
Direct Labor 0.25 hours at $12 per hour
During October, Ms Hieken's report shows:
100,000 gowns produced
175,000 yards of fabric purchased at a cost of $1,137,500
185,000 yards of fabric used
Employees worked 24,000 hours at a cost of $276,000

-The material price variance is

A) $87,500 favorable
B) $87,500 unfavorable
C) $90,000 favorable
D) $90,000 unfavorable

Question 52

Use the following to answer questions:
The Alperti Company manufactures surgical gowns for hospitals. Their controller, Ethell Hieken is preparing the variance analysis report for October. Standard Costs are as follows: Direct Material 2.0 yards at $6 per yard
Direct Labor 0.25 hours at $12 per hour
During October, Ms Hieken's report shows:
100,000 gowns produced
175,000 yards of fabric purchased at a cost of $1,137,500
185,000 yards of fabric used
Employees worked 24,000 hours at a cost of $276,000

-The material quantity variance is

A) $87,500 favorable
B) $87,500 unfavorable
C) $90,000 favorable
D) $90,000 unfavorable

Question 53

Use the following to answer questions:
The Alperti Company manufactures surgical gowns for hospitals. Their controller, Ethell Hieken is preparing the variance analysis report for October. Standard Costs are as follows: Direct Material 2.0 yards at $6 per yard
Direct Labor 0.25 hours at $12 per hour
During October, Ms Hieken's report shows:
100,000 gowns produced
175,000 yards of fabric purchased at a cost of $1,137,500
185,000 yards of fabric used
Employees worked 24,000 hours at a cost of $276,000

-The direct labor rate variance is

A) $12,000 favorable
B) $12,000 unfavorable
C) $36,000 favorable
D) $36,000 unfavorable

Question 54

Use the following to answer questions:
The Alperti Company manufactures surgical gowns for hospitals. Their controller, Ethell Hieken is preparing the variance analysis report for October. Standard Costs are as follows: Direct Material 2.0 yards at $6 per yard
Direct Labor 0.25 hours at $12 per hour
During October, Ms Hieken's report shows:
100,000 gowns produced
175,000 yards of fabric purchased at a cost of $1,137,500
185,000 yards of fabric used
Employees worked 24,000 hours at a cost of $276,000

-The direct labor efficiency variance is

A) $12,000 favorable
B) $12,000 unfavorable
C) $36,000 favorable
D) $36,000 unfavorable

Question 55

During August, 10,000 pounds of raw material were purchased at a cost of $18.50 per pound. The direct material price variance was $1,000 favorable. What was the standard price per pound?

A) $18.60
B) $18.40
C) $17.60
D) $17.40

Question 56

Variance Accounts are

A) Temporary accounts
B) Closed at the end of each account period
C) Usually closed into Cost of Goods Sold
D) All of the Above

Question 57

Which of the following are possible reasons for altering the material mix?

A) A shortage of one of the materials arises
B) An attempt to improve yield
C) An attempt to reduce the material price variance
D) Both A and B

Question 58

Hirsch Co. uses three types of direct materials in producing one of its products. The overall material quantity variance is favorable. Which of the following combinations of mix and yield variance could not have occurred?

A) Item A
B) Item B
C) Item C
D) Item D

Question 59

Use the following to answer questions:
Zhons Corporation uses two materials and two types of labor in the production of one of its products. The following standard cost information is available


-What is the material mix variance?

A) $54,000 unfavorable
B) $30,000 favorable
C) $30,000 unfavorable
D) $24,000 unfavorable

Question 60

Use the following to answer questions:
Zhons Corporation uses two materials and two types of labor in the production of one of its products. The following standard cost information is available


-What is the material yield variance?

A) $54,000 unfavorable
B) $30,000 favorable
C) $30,000 unfavorable
D) $24,000 unfavorable

Question 61

Use the following to answer questions:
Zhons Corporation uses two materials and two types of labor in the production of one of its products. The following standard cost information is available


-What is material quantity variance?

A) $54,000 unfavorable
B) $30,000 favorable
C) $30,000 unfavorable
D) $24,000 unfavorable

Question 62

Use the following to answer questions:
Zhons Corporation uses two materials and two types of labor in the production of one of its products. The following standard cost information is available


-What is the labor mix variance?

A) $ 5,000 favorable
B) $20,000 unfavorable
C) $15,000 favorable
D) $15,000 unfavorable

Question 63

Use the following to answer questions:
Zhons Corporation uses two materials and two types of labor in the production of one of its products. The following standard cost information is available


-What is the labor yield variance

A) $ 5,000 favorable
B) $20,000 unfavorable
C) $15,000 favorable
D) $15,000 unfavorable

Question 64

Use the following to answer questions:
Zhons Corporation uses two materials and two types of labor in the production of one of its products. The following standard cost information is available


-What is the labor efficiency variance?

A) $ 5,000 favorable
B) $20,000 unfavorable
C) $15,000 favorable
D) $15,000 unfavorable

Question 65

Explain how standard are developed. As part of the discussion, differentiate between perfection and practical standards.

Question 66

The production manager at Danzig Co. has just returned from a conference where the concept of kaizen costing was discussed. The manager has asked you to develop a brief report showing why kaizen costing might be an improvement over the standard costing system now in place that can be presented to the Production Vice President.

Question 67

The following information comes from the accounting records

Required
Compute the appropriate direct material and direct labor variances. Prepare a memo outlining what items should be investigated and why.
Controller Tri Nuygen is analyzing the direct material and direct labor variances for 2008. He asks you to prepare a memo outlining what to investigate and why.

Question 68

What are some of the behavioral problems relating to traditional standard costing?

Question 69

Discuss the issues underlying the calculation of a mix and yield variance for direct materials.

Question 70

What are some of the advantages and disadvantages of the traditional standard cost system (list at least three of each)?

Question 71

The records for March showed the following actual results:
Slyman Manufacturing Inc. has developed the following standards for one of its products. The materials are not substitutable.

Required:
(1) Calculate the following variances
(a) Material purchase price variance for material 1
(b) Material quantity variance for material 1
(c) Material purchase price variance for material 2
(d) Material quantity variance for material 2
(e) Labor rate variance
(f) Labor efficiency variance
2) Give at least one possible cause for each of the following variances:
(a) material 2 quantity variance
(b) labor rate variance
(c) labor efficiency variance

Question 72

Actual results for September were:
Ruth Industries developed the following standards for one of its products:

Required:
(1) Calculate the following variances
(a) Material purchase price variance
(b) Material quantity variance
(c) Labor rate variance
(d) Labor efficiency variance
(2) Why would it be inappropriate to calculate the Material price variance at the time the material is used; might there be a situation when it might be all right to do so?

Question 73

During May, the following actual activities occurred: Material purchased, 12,000 pounds for $45,600; material used in the production of 2,000 units of product, 13,000 pounds; direct labor, 3,500 hours costing $56,000.
Required:
(1) Compute the following variances:
(a) material quantity variance
(b) labor rate variance
(c) labor efficiency variance
2) Give one possible explanation for each of the 3 variances computed.
O'Malley Company manufactures a single product. The following standards have been developed for it:

Question 74

Yield 63,000 units Required:
(1) Calculate the material quantity, mix and yield variances.
(2) Based on the actual mix numbers and standard prices, above, what does it seem as if the company was trying to do and did it succeed?
Yield 9,000 units
During March, the following actual production information was available:
ShuengLee CO. produces a product that uses three different materials. The standards are

Question 75

Yield 96,600 units Required:
(1) Calculate the material quantity, mix and yield variances.
(2) Based on the actual mix numbers and standard prices, above, what does it seem as if the company was trying to do and did it succeed?
Yield 9,000 units
During July, the following actual production information was available:
Koach CO. produces a product that uses three different materials. The standards are

Question 76

The following actual production information was recorded in May:
Lilac Company uses two different types of labor in the manufacture of its only product. The standards are as follows:

Required: Yield 8,000 units
(1) Calculate the labor efficiency, mix and yield variances.
(2) Based on the actual mix numbers and standard prices, above, what does it seem as if the company was trying to do and did it succeed?
Yield 63,000 units

Question 77

Mercury Company is meeting with the consultants it hired to help it with problems arising from its increasing sales and increasing production to meet them. The consultants have informed the company that they need to make price concessions in order to have their product sold over a large area. To do this, costs need to be reduced and controlled. They recommended installation of a standard costing system and a flexible budgeting system.
The CEO took the recommendations back to the company management, explained to all, and a team was set up to develop the standards. The team was composed of the purchasing manager, processing manager, production engineer, and V.P. of sales. Each member of the team rather than working to develop standards came up with reasons why they wouldn't work. The team made its report to the CEO who told them to come up with the standards or he would have the consultants set them.
Required:
(1) What are the advantages and disadvantages of standard costing?
(2) What has gone wrong in this situation and will having the outside consultant do the work change anything?

Question 78

Coiller Company uses a standard cost system for its only product. The bickering between purchasing and production that occurs every month after the material variances are developed has the production vice president, Mr. Adath, at his wits end. He has checked the job descriptions of the individuals involved and notes that the purchasing department is responsible for the price at which materials and supplies are purchased and the manufacturing department is responsible for the quantity of material used. This seems very clear cut to him so he has gone to the cost accountant for some additional help.
Required: As the cost accountant, explain to Mr. Adath why, or why not, this division of duties solves the conflict between price and quantity variances.

Question 79

Az Company currently uses a traditional standard costing system. During the past two years the company has been modernizing its plant and has tried to keep the old standard costing system in place by changing some of the features to reflect the more automated situation. It has now come to a point, however, where the old system just isn't providing useful information for product costing, pricing, decision making, etc.
The CEO Ms. Yamaguchi has set up a team to look into the situation and initially come up with reasons why the old system isn't working anymore.
Required: What are the problems with traditional standard costing under the current manufacturing environment?

Question 80

The standard rate for direct labor was established at $15 per hour at the beginning of the year at Rodriguez Inc. In September a new labor contract was negotiated that raised the rate to $18.50 per hour. Mr. Garcia, the controller, decided not to change the standard rate since the end of the year was relatively close and new standards would be developed, effective January 1.
During October 16,000 labor hours were used at an average cost of $19 per hour. The labor rate variance was $64,000 unfavorable. The production manager was understandably upset by this variance and wanted an explanation from Mr. Garcia.
Required:
(1) Assume you are Mr. Garcia. Explain to the production manager why the unfavorable rate variance was so high.
(2) In general, can variances be analyzed to separate out items that cannot be controlled from those that can be?