Deck 23: Performance Evaluation Using Variances From Standard Costs

Question 1

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

Answer 1

True

Question 2

Cost systems using detailed estimates of each element of manufacturing cost entering into the finished product are called budgeted cost systems.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

Standards are performance goals used to evaluate and control operations.

Question 9

Standard costs can be used with both the process cost and job order cost systems.

Question 10

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

Question 11

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

Question 12

Currently attainable standards do not allow for reasonable production difficulties.

Question 13

Cost systems using detailed estimates of each element of manufacturing cost entering into the finished product are called standard cost systems.

Question 14

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

Question 15

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

Question 16

Standard costs serve as a device for measuring efficiency.

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

Standards are set for only direct labor and direct materials.

Question 20

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

Question 21

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

Question 22

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

Question 23

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 24

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

Question 25

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 26

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

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

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 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 quantity variance was $2,200 unfavorable.

Question 30

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

Question 31

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 32

Standards are designed to evaluate price and quantity variances separately.

Question 33

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 34

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 35

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 36

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 37

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

Question 38

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

Question 39

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

Question 40

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 41

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 42

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

Question 43

Non-financial measures are often lined to the inputs or outputs of an activity or process.

Question 44

Volume variance measures fixed factory overhead.

Question 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

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

Question 53

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 which increases the factory wages on average by $5.00 an hour.
C) Actual costs differed from standard costs for the preceding week.
D) The world price of raw materials increased.

Question 54

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 55

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 identify inventory
C) Used to plan direct materials, direct labor, and factory factory overhead.
D) Used to control costs.

Question 56

Standards are more widely used for nonmanufacturing expenses than for manufacturing costs.

Question 57

The principle of exceptions allows managers to

A) focus on correcting variances between standard costs and actual costs.
B) focus on correcting variances between variable costs and actual costs.
C) focus on correcting variances between competitor's costs and actual costs.
D) focus on correcting variances between competitor's costs and standard costs.

Question 58

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

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

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

Question 61

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. Compute the material price variance.

A) 0
B) 59,400U
C) 59,400F
D) 6,000U

Question 62

Which of the following is not a reason standard costs are separated in 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 over-shadowed by a favorable variance, managers may overlook potential corrections.
D) variances brings attention to discrepancies in the budget and requires managers to revise budgets closer to actual.

Question 63

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

A) 22,800U
B) 22,800F
C) 52,000U
D) 52,000F

Question 64

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

A) $2,250.00 unfavorable
B) $2,125.00 unfavorable
C) $2,250.00 favorable
D) $2,125.00 favorable

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) None of the above.

Question 66

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

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

Question 67

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

A) $2,250 unfavorable
B) $1,950 favorable
C) $1,875 favorable
D) $1,950 unfavorable

Question 68

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

A) $ 4,500 favorable
B) $18,000 unfavorable
C) $ 3,600 favorable
D) $17,100 favorable

Question 69

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

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

Question 70

The following data relate to direct materials costs for November: What is the direct materials price variance?

A) $3,600 favorable
B) $160 favorable
C) $3,760 favorable
D) $3,600 unfavorable

Question 71

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 72

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

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

Question 73

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

A) $18,000 unfavorable
B) $ 4,500 favorable
C) $17,100 unfavorable
D) $ 3,600 favorable

Question 74

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

A) 22,800F
B) 22,800U
C) 52,000F
D) 52,000U

Question 75

The standard price and quantity of direct materials are separated because:

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

Question 76

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. Compute the material quantity variance.

A) 63,000F
B) 63,000U
C) 59,400F
D) 59,400U

Question 77

The following data relate to direct materials costs for November: What is the direct materials quantity variance?

A) $3,600 favorable
B) $1,240 favorable
C) $3,600 favorable
D) $1,240 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, variable factory overhead controllable variance
D) Direct materials cost variance, direct labor cost variance, factory overhead cost variance

Question 79

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

A) $875 favorable
B) $800 unfavorable
C) $800 favorable
D) $875 unfavorable

Question 80

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

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