Deck 10: Standard Costs, Flexible Budgets and Variance Analysis

Question 1

The variable overhead budget variance is the difference between allocated variable overhead cost and actual variable overhead cost.

Answer 1

True

Question 2

The fixed overhead spending variance is often zero because fixed costs are constant within a relevant range of activity.

Answer 2

True

Question 3

The standard cost of direct materials is computed as the standard price per unit of input times the standard quantity per unit of input.

Answer 3

True

Question 4

The cost categories that are measured and monitored in a given organisation depend, in part, on the costs that managers consider important.

Question 5

If a variance is considered material, it should be allocated to work in process inventory, finished goods inventory, and cost of goods sold.

Question 6

Errors in the accounting records related to actual production output could lead to a fixed overhead production volume variance.

Question 7

A contract with a new supplier may cause an unfavorable materials price variance.

Question 8

The fixed overhead budget variance can be broken down into two parts: the spending variance and the production volume variance.

Question 9

The total standard cost for a unit of output is the sum of the standard costs for the resources used in production.

Question 10

If the total variances in the accounting information system are favorable, accountants must adjust some accounts by decreasing costs during the closing process.

Question 11

A standard cost variance is the difference between a standard cost and an actual cost.

Question 12

Variance analysis is used for monitoring and performance evaluation.

Question 13

The direct materials price variance is often based on materials purchased, rather than on materials used.

Question 14

Calculating variances is a necessary, but not sufficient, step for completing a variance analysis.

Question 15

The direct materials efficiency variance tells managers about the efficiency of the purchasing process.

Question 16

The total direct labor variance can be broken down into two components: the efficiency variance and the price variance.

Question 17

Normal fluctuations in labor hours may cause a favorable direct labor efficiency variance.

Question 18

If a variance is unfavorable, it should be closed directly to cost of goods sold.

Question 19

Identifying the reasons for variances is usually a quick and easy process.

Question 20

Unreasonable standards may be the cause of direct materials variances, but not of direct labor variances.

Question 21

Welch Company budgeted the following cost standards for the current year: Direct materials = 1.40 kilos per unit @ $1.50 per kilo
Direct labor = 0.75 hours per unit @ $6 per hour
Actual production and costs were as follows:
Units produced = 2,800
Direct materials used = 4,500 kg.
Direct materials purchased = 5,000 kg. @ a cost of $5,850
Direct labor incurred = 2,000 hours at a cost of $13,000
The material efficiency variance was

A) $1,650 F
B) $870 U
C) $2,520 U
D) $780 F

Question 22

Hogle Manufacturing uses a standard costing system. The standard time to produce one unit is 4 hours, and normal production is 3,000 units monthly. Overhead costs were estimated to be $135,000. The standard variable overhead rate is $5 per machine hour. During April the following results were recorded: The combined fixed and variable overhead spending variance was

A) $1,000 U
B) $2,000 F
C) $7,000 U
D) $3,000 F

Question 23

Hogle Manufacturing uses a standard costing system. The standard time to produce one unit is 4 hours, and normal production is 3,000 units monthly. Overhead costs were estimated to be $135,000. The standard variable overhead rate is $5 per machine hour. During April the following results were recorded: The fixed overhead production volume variance was

A) $1,000 U
B) $2,500 F
C) $1,500 F
D) $5,000 U

Question 24

Hogle Manufacturing uses a standard costing system. The standard time to produce one unit is 4 hours, and normal production is 3,000 units monthly. Overhead costs were estimated to be $135,000. The standard variable overhead rate is $5 per machine hour. During April the following results were recorded: The variable overhead efficiency variance was

A) $8,000 U
B) $4,000U
C) $2,000 U
D) $4,000 F

Question 25

Burkett Company uses a standard cost system. Indirect costs were budgeted at $200,000 plus $15 per direct labor hour. The overhead rate is based on 10,000 hours. Actual results were: The variable overhead spending variance was

A) $10,000 F
B) $50,000 U
C) $35,000 U
D) $15,000 U

Question 26

Hyteck Ltd is a capital intensive firm. Indirect costs make up nearly 70% of the product costs. The company has no direct material costs because customers provide the direct materials used for each job. To plan and control such costs, the firm employs flexible budgets and standard costs. Overhead rates, based on direct labor hours, are derived from the master budget. The fixed overhead production volume variance was

A) $9,000 U
B) $2,000 F
C) $7,000 U
D) $2,800 U

Question 27

The direct materials price variance is the actual direct materials purchased at standard price less the actual direct materials purchased at actual price.

Question 28

Hyteck Ltd is a capital intensive firm. Indirect costs make up nearly 70% of the product costs. The company has no direct material costs because customers provide the direct materials used for each job. To plan and control such costs, the firm employs flexible budgets and standard costs. Overhead rates, based on direct labor hours, are derived from the master budget. The direct labor efficiency variance was

A) $2,000 F
B) $2,800 U
C) $1,000 U
D) $1,000 F

Question 29

Burkett Company uses a standard cost system. Indirect costs were budgeted at $200,000 plus $15 per direct labor hour. The overhead rate is based on 10,000 hours. Actual results were: The over- or underapplied overhead was

A) $50,000 under
B) $10,000 over
C) $55,000 under
D) $20,000 over

Question 30

Burkett Company uses a standard cost system. Indirect costs were budgeted at $200,000 plus $15 per direct labor hour. The overhead rate is based on 10,000 hours. Actual results were: The fixed overhead production volume variance was

A) $15,000 F
B) $20,000 U
C) $10,000 F
D) $10,000 U

Question 31

Hyteck Ltd is a capital intensive firm. Indirect costs make up nearly 70% of the product costs. The company has no direct material costs because customers provide the direct materials used for each job. To plan and control such costs, the firm employs flexible budgets and standard costs. Overhead rates, based on direct labor hours, are derived from the master budget. The variable overhead spending variance was

A) $1,200 F
B) $2,000 F
C) $2,800 U
D) $1,600 U

Question 32

Welch Company budgeted the following cost standards for the current year: Direct materials = 1.40 kilos per unit @ $1.50 per kilo
Direct labor = 0.75 hours per unit @ $6 per hour
Actual production and costs were as follows:
Units produced = 2,800
Direct materials used = 4,500 kg.
Direct materials purchased = 5,000 kg. @ a cost of $5,850
Direct labor incurred = 2,000 hours at a cost of $13,000
The labor efficiency variance was

A) $600 F
B) $400 U
C) $4,800 F
D) $1,000 U

Question 33

Hyteck Ltd is a capital intensive firm. Indirect costs make up nearly 70% of the product costs. The company has no direct material costs because customers provide the direct materials used for each job. To plan and control such costs, the firm employs flexible budgets and standard costs. Overhead rates, based on direct labor hours, are derived from the master budget. The direct labor price variance was

A) $2,000 F
B) $2,800 U
C) $1,000 U
D) $1,000 F

Question 34

The direct labour efficiency variance is the difference between the standard amount of labour hours that should have been used and the amount actually used, multiplied by the standard labour price per hour.

Question 35

Hyteck Ltd is a capital intensive firm. Indirect costs make up nearly 70% of the product costs. The company has no direct material costs because customers provide the direct materials used for each job. To plan and control such costs, the firm employs flexible budgets and standard costs. Overhead rates, based on direct labor hours, are derived from the master budget. The budget variance for variable overhead was

A) $2,800 U
B) $7,000 U
C) $4,400 U
D) $9,000 U

Question 36

Welch Company budgeted the following cost standards for the current year: Direct materials = 1.40 kilos per unit @ $1.50 per kilo
Direct labor = 0.75 hours per unit @ $6 per hour
Actual production and costs were as follows:
Units produced = 2,800
Direct materials used = 4,500 kg.
Direct materials purchased = 5,000 kg. @ a cost of $5,850
Direct labor incurred = 2,000 hours at a cost of $13,000
The material price variance for materials purchased was

A) $1,650 F
B) $870 U
C) $2,520 U
D) $780 F

Question 37

Burkett Company uses a standard cost system. Indirect costs were budgeted at $200,000 plus $15 per direct labor hour. The overhead rate is based on 10,000 hours. Actual results were: The variable overhead efficiency variance was

A) $10,000 F
B) $50,000 U
C) $35,000 U
D) $15,000 U

Question 38

Welch Company budgeted the following cost standards for the current year: Direct materials = 1.40 kilos per unit @ $1.50 per kilo
Direct labor = 0.75 hours per unit @ $6 per hour
Actual production and costs were as follows:
Units produced = 2,800
Direct materials used = 4,500 kg.
Direct materials purchased = 5,000 kg. @ a cost of $5,850
Direct labor incurred = 2,000 hours at a cost of $13,000
The labor price variance was

A) $600 F
B) $400 U
C) $4,800 F
D) $1,000 U

Question 39

Hyteck Ltd is a capital intensive firm. Indirect costs make up nearly 70% of the product costs. The company has no direct material costs because customers provide the direct materials used for each job. To plan and control such costs, the firm employs flexible budgets and standard costs. Overhead rates, based on direct labor hours, are derived from the master budget. The fixed overhead spending variance was

A) $9,000 U
B) $2,000 F
C) $7,000 U
D) $2,800 U

Question 40

A variance that is considered immaterial should be closed to the cost of goods sold account.

Question 41

Expected costs per unit of input are called

A) Standard prices
B) Standard costs
C) Standard quantities
D) Standard ideals

Question 42

Brodie Co. uses a standard job cost system and a denominator volume of 25,000 direct labor hours for allocating overhead. The actual output was 12,000 units, which cost $185,700 for direct labor (23,000 hours), $27,525 for variable overhead, and $136,400 for fixed overhead. The standard variable overhead per unit is $2 (2 hours @ $1 per hour), and the standard fixed overhead per unit is $10 (2 hours @ $5 per hour). All variances are immaterial and are closed to Cost of Goods Sold at the end of the period. The entry to close the variable overhead variances includes a

A) Credit to the variable overhead spending variance for $4,525
B) Credit to work in process for $24,000
C) Credit to the variable overhead efficiency variance for $1,000
D) Debit to Cost of Goods Sold for $5,525

Question 43

Mason Ltd uses a standard costing system. Overhead costs are allocated based on direct labor hours. The standard variable overhead and fixed overhead rates are $1 and $5 per direct labor hour, respectively. Data relevant for the current period include: The direct materials efficiency variance is

A) $60,000 Favorable
B) $60,000 Unfavorable
C) $65,000 Favorable
D) $65,000 Unfavorable

Question 44

Standard costing allows management to

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

Question 45

For overhead variances, the difference between the flexible budget amounts and actual costs incurred is called the

A) Efficiency variance
B) Budget variance
C) Favorable variance
D) Quantity variance

Question 46

Mason Ltd uses a standard costing system. Overhead costs are allocated based on direct labor hours. The standard variable overhead and fixed overhead rates are $1 and $5 per direct labor hour, respectively. Data relevant for the current period include: The direct labor price variance is

A) $30,000 Favorable
B) $30,000 Unfavorable
C) $75,000 Unfavorable
D) $78,000 Unfavorable

Question 47

Favorable price variances can occur because of

A) Rising prices of finished goods
B) Increases in raw materials efficiency
C) Price decreases in raw materials
D) Efficiency in the production department

Question 48

Which department is customarily responsible for an unfavorable material price variance?

A) Sales
B) Purchasing
C) Engineering
D) Production

Question 49

Hogle Manufacturing uses a standard costing system. The standard time to produce one unit is 4 hours, and normal production is 3,000 units monthly. Overhead costs were estimated to be $135,000. The standard variable overhead rate is $5 per machine hour. During April the following results were recorded: The total overhead allocated was

A) $135,000
B) $139,500
C) $141,500
D) $137,000

Question 50

Given the following account balances at the end of the first year of operations: Assuming that variances are considered material, the entry and amount of the direct material price variance allocated to Cost of Goods Sold is

A) Debit $40,625
B) Debit $41,082
C) Credit $43,333
D) Debit $39,935

Question 51

In a traditional manufacturing accounting system, the standard cost of a unit of output is the sum of the standard costs of

A) Direct material, direct labor, and variable overhead
B) Direct material, direct labor, and fixed overhead
C) Direct material, direct labor, and period costs
D) Direct material, direct labor, variable overhead, and fixed overhead

Question 52

Given the following account balances at the end of the first year of operations: Assuming that variances are considered material, the entry and amount of the direct material efficiency variance allocated to work in process inventory is

A) Credit $26,000
B) Credit $24,375
C) Debit $17,333
D) Debit $8,125

Question 53

Brodie Co. uses a standard job cost system and a denominator volume of 25,000 direct labor hours for allocating overhead. The actual output was 12,000 units, which cost $185,700 for direct labor (23,000 hours), $27,525 for variable overhead, and $136,400 for fixed overhead. The standard variable overhead per unit is $2 (2 hours @ $1 per hour), and the standard fixed overhead per unit is $10 (2 hours @ $5 per hour). All variances are immaterial and are closed to Cost of Goods Sold at the end of the period. The entry to close the fixed overhead variances includes a

A) Credit to work in process for $120,000
B) Debit to fixed overhead control for $125,000
C) Debit to Cost of Goods Sold for $16,400
D) Debit to the fixed overhead production volume variance for $5,000

Question 54

Mason Ltd uses a standard costing system. Overhead costs are allocated based on direct labor hours. The standard variable overhead and fixed overhead rates are $1 and $5 per direct labor hour, respectively. Data relevant for the current period include: The variable overhead spending variance is

A) $930 Favorable
B) $2,070 Unfavorable
C) $33,000 Unfavorable
D) $33,000 Unfavorable

Question 55

The budget that reflects the level of activity management expects to attain is the

A) Flexible budget
B) Standard budget
C) Master budget
D) Expected budget

Question 56

Which of the following is a possible cause of an unfavorable materials efficiency variance?

A) Using materials that do not meet specifications
B) Using a higher class of labor than called for
C) Using a higher quality of material than called for
D) Using fewer hours of labor than labor specifications call for

Question 57

Mason Ltd uses a standard costing system. Overhead costs are allocated based on direct labor hours. The standard variable overhead and fixed overhead rates are $1 and $5 per direct labor hour, respectively. Data relevant for the current period include: The cost of direct materials added to work in process would be

A) $540,000
B) $585,000
C) $600,000
D) $650,000

Question 58

Given the following account balances at the end of the first year of operations: Assuming that variances are considered material, the entry and amount of direct labor variances allocated to the Finished Goods Inventory is

A) Credit $3,740
B) Debit $2,160
C) Credit $770
D) Debit $3,960

Question 59

Standard costs should be reviewed

A) Daily
B) Monthly
C) Annually
D) As often as managers and accountants deem necessary

Question 60

Mason Ltd uses a standard costing system. Overhead costs are allocated based on direct labor hours. The standard variable overhead and fixed overhead rates are $1 and $5 per direct labor hour, respectively. Data relevant for the current period include: The purchase of direct materials would be recorded in direct materials inventory at

A) $540,000
B) $585,000
C) $600,000
D) $650,000

Question 61

Variance analysis involves the steps listed below. In which order should the steps be performed? 1 Calculate variances
2 Choose variances for further investigation
3 Draw conclusions and take action
4 Identify reasons for variances

A) 1, 2, 3, 4
B) 2, 1, 3, 4
C) 2, 1, 4, 3
D) 1, 2, 4, 3

Question 62

If a variance analysis shows that operations are better than expected, managers should

A) Do nothing
B) Revise standard costs to make them harder to achieve
C) Distribute extra dividends to shareholders
D) Monitor quality to ensure it was maintained

Question 63

Variance analysis includes which of the following processes?

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

Question 64

Which of the following statements regarding trade-offs among variances is true?

A) Managers generally do not need to consider trade-offs in variance analysis
B) Managers may sometimes make trade-offs between favorable and unfavorable variances
C) Unfavorable direct material price variances often lead to unfavorable direct labor efficiency variances
D) Favorable direct material price variances often lead to favorable direct material efficiency variances

Question 65

The process of calculating variances and analysing the reasons they occurred is called

A) Variance analysis
B) Budget analysis
C) Historical analysis
D) Activity-based analysis

Question 66

At the end of 2010, ELM's production manager estimated direct labor overtime hours at 200 for the first quarter of 2010. At the end of the first quarter, actual overtime hours totaled 180. This difference is most likely to lead to

A) Favorable variable overhead spending variance
B) Unfavorable production volume variance
C) Favorable labor efficiency variance
D) Unfavorable labor efficiency variance

Question 67

Which of the following is not a typical step in variance analysis?

A) Calculate variances
B) Identify reasons for variances
C) Report variances in financial statements
D) Draw conclusions and take action

Question 68

A favorable variance in one area might be offset by

A) Favorable variance in another area
B) Unfavorable variance in another area
C) Increase in period costs
D) Decrease in period costs

Question 69

ELM introduced a new automated production process that has reduced the amount of labour needed, but not affected the use of materials. The standard cost system has not been changed yet to reflect this new process. Assuming the machinery is functioning properly and that workers were properly trained in its use, which of the following variances is most likely to result?

A) Favorable variable overhead spending variance
B) Favorable direct labor efficiency variance
C) Unfavorable direct labor efficiency variance
D) Favorable direct materials price variance

Question 70

The production manager of CLR calculated a material and unfavorable variance of $4,000 with respect to the cost of direct materials. Which of the following is a likely next step for the production manager?

A) Identify and discipline the responsible employee
B) Take actions to prevent the variance from recurring
C) Ascertain the cause of the variance
D) Switch suppliers for direct materials

Question 71

If a variance is investigated and determined to be random, managers should

A) Write off the variance against cost of goods sold
B) Do nothing
C) Identify and discipline the employee(s) responsible
D) Write off the variance against work in process

Question 72

Unattainable standards are likely to lead to

A) I only
B) II only
C) III only
D) I and III only

Question 73

Accountants investigate manufacturing overhead spending variances to determine

A) Which specific overhead costs differ from expectations, and whether corrections are needed
B) Which specific direct costs differ from expectations, and whether corrections are needed
C) Which specific marketing costs differ from expectations, and whether corrections are needed
D) Whether the variance is material

Question 74

Managers investigate

A) All variances
B) All unfavorable variances
C) Variances they consider important
D) Variances that are reported in the financial statements

Question 75

How do managers decide which variances are important enough to investigate?

A) I only
B) II only
C) III only
D) I and III only

Question 76

Theft of raw materials is most likely to lead to

A) Direct materials price variance
B) Favorable direct materials price variance
C) Unfavorable direct materials efficiency variance
D) Favorable direct materials efficiency variance

Question 77

Intentional worker damage is most likely to result in which type of variance?

A) Direct materials price variance
B) Direct materials efficiency variance
C) Direct labor price variance
D) Variable overhead spending variance

Question 78

Rewarding employees in one production department for meeting or exceeding standard cost benchmarks can create new sets of problems for organisations. Which of the following is not one of them?

A) An unfavorable efficiency variance because of rework needed on work from another department
B) Variances in another production department
C) Unmotivated employees in that production department
D) Poor quality finished goods

Question 79

Variances can be caused by

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

Question 80

LST entered into a new contract with one of its raw material suppliers. The new contract required the supplier to deliver raw materials with a 24-hour notice from LST. This reduces LST's material handling costs, but has increased the cost of the raw materials delivered. Which of the following variances is most likely to result?

A) Unfavorable direct material price variance
B) Favorable direct price variance
C) Unfavorable variable overhead spending variance
D) Unfavorable fixed overhead spending variance