Deck 8: Standard Costing and Variance Analysis

Question 1

The direct materials price standard is determined by averaging costs of current purchases.

Answer 1

False

Question 2

The direct materials price standard is a carefully derived estimate or projected amount of what a particular type of direct material will cost when purchased during the next accounting period.

Answer 2

True

Question 3

If standard costing is not economically feasible for a company, predetermined overhead rates should not be used.

Answer 3

False

Question 4

When a manufacturing company employs standard costs, all costs affecting the three inventory accounts and the Cost of Goods Sold account are stated in terms of standard or predetermined costs rather than in terms of actual costs incurred.

Question 5

Although expensive to install and maintain, a standard cost accounting system can save a company considerable amounts of money by reducing resource waste.

Question 6

The standard fixed overhead rate is usually based on the expected number of standard machine hours.

Question 7

Variance analysis involves computing the difference between standard and actual costs.

Question 8

The importance of direct labor standards and variances has been reduced.

Question 9

Service organizations use direct materials, direct labor, and overhead standard costs.

Question 10

The direct labor rate standard is either set by a labor contract or defined by the company.

Question 11

The purchasing agent is responsible for developing the direct materials quantity standard.

Question 12

The standard overhead cost is the sum of the estimates of variable and fixed overhead costs in the next accounting period.

Question 13

Even if a variance is insignificant, corrective action should be taken.

Question 14

Once standard costs for direct materials, direct labor, and variable and fixed overhead have been developed, a total standard unit cost can be determined at any time.

Question 15

Predetermined overhead costs are the same as standard costs.

Question 16

Standard costing is typically a sophisticated and inexpensive component to add to a company's existing cost accounting system.

Question 17

A variance is the difference between a standard cost and a budgeted cost.

Question 18

Direct labor time standards express the hourly labor cost per function or job classification that exists during the current accounting period.

Question 19

Standard costs are realistically predetermined costs of direct materials, direct labor, and overhead that usually are expressed as a cost per unit.

Question 20

Standard costs are based solely on expected future costs and conditions.

Question 21

The final step in variance analysis is determining the cause of the variance.

Question 22

In a standard costing system, standard costs eventually flow into the

A) Cost of Goods Sold account.
B) Standard Cost account.
C) Selling and Administrative Expenses account.
D) Sales account.

Question 23

The "flex" in the flexible budget formula occurs in the variable cost segment.

Question 24

Another name for a flexible budget is a variable budget.

Question 25

The direct labor rate variance is the difference between actual hours worked and standard hours allowed for good units produced, multiplied by the standard labor rate.

Question 26

It is not necessary to provide an area on the performance report for a manager's reasons for variances.

Question 27

The flexible budget formula is an equation that determines unexpected costs at any level of output.

Question 28

A production manager usually is responsible for direct materials used and direct labor hours used.

Question 29

The direct labor efficiency variance is the difference between the standard hours allowed and the actual hours multiplied by the actual labor rate.

Question 30

If actual capacity used exceeds expected capacity, the fixed overhead volume variance is favorable.

Question 31

The variable overhead spending variance is also called the variable overhead efficiency variance.

Question 32

The fixed overhead volume variance measures the use of existing facilities and capacity.

Question 33

The static budget can be adjusted automatically for changes in the level of output.

Question 34

The total overhead variance is the difference between standard variable overhead costs and standard fixed overhead costs.

Question 35

The direct materials quantity variance is the difference between the actual quantity used and the standard quantity times the standard price.

Question 36

Comparing "what did happen" with "what should have happened" aids in the performance evaluation of a company.

Question 37

A performance report should contain cost or revenue items that the manager receiving the report can control.

Question 38

The direct materials price variance is the difference between the actual price and the standard price, multiplied by the standard quantity.

Question 39

The variable overhead efficiency variance is the difference between actual total overhead costs incurred and the total overhead costs applied using the standard overhead rates.

Question 40

A flexible budget is a summary of expected costs for a range of activity levels and is geared to changes in the level of productive output.

Question 41

One drawback of using standard costing is that it is

A) expensive to use.
B) difficult to implement.
C) often inaccurate.
D) not applicable to most manufacturing systems.

Question 42

The use of realistic predetermined unit costs to facilitate product costing, cost control, cost flow, and inventory valuation is a description of the

A) flexible budget concept.
B) budgetary control concept.
C) capacity level concept.
D) standard cost accounting concept.

Question 43

A standard costing system

A) is not typically used by management for cost planning and cost control purposes.
B) is a system in which all costs affecting the three inventory accounts and the Cost of Goods Sold account are stated in terms of actual costs incurred.
C) depends on actual costs rather than planned costs.
D) is employed with an existing job order costing or process costing system and is not a full cost accounting system in itself.

Question 44

A purpose of standard costing is to

A) control costs.
B) allocate costs more accurately.
C) replace subjective decision making.
D) compute the breakeven point.

Question 45

Ewing Corporation's controller has developed the cost and usage data listed below in preparation of standard unit cost information for the coming year. $\begin{array}{|l|l|}\hline \text { Direct materials quantity standard } & 3 \text { pounds per prochuct } \\\hline \text { Direct labor time standard } & 5 \text { hours per product } \\\hline \text { Direct materials price standard } & \$ 10 \text { per pound } \\\hline \text { Direct labor rate standard } & \$ 9 \text { per hour } \\\hline \text { Standard variable overhead rate } & \$ 5 \text { per labor hour } \\\hline \text { Standard fixed overhead rate } & \$ 10 \text { per labor hour } \\\hline \end{array}$

-The standard unit cost for overhead is

A) $15.
B) $25.
C) $50.
D) $75.

Question 46

A standard cost accounting system can be used for

A) direct materials.
B) overhead.
C) direct labor.
D) all of these.

Question 47

Ewing Corporation's controller has developed the cost and usage data listed below in preparation of standard unit cost information for the coming year. $\begin{array}{|l|l|}\hline \text { Direct materials quantity standard } & 3 \text { pounds per prochuct } \\\hline \text { Direct labor time standard } & 5 \text { hours per product } \\\hline \text { Direct materials price standard } & \$ 10 \text { per pound } \\\hline \text { Direct labor rate standard } & \$ 9 \text { per hour } \\\hline \text { Standard variable overhead rate } & \$ 5 \text { per labor hour } \\\hline \text { Standard fixed overhead rate } & \$ 10 \text { per labor hour } \\\hline \end{array}$

- The total standard unit cost is

A) $105.
B) $150.
C) $260.
D) $34.

Question 48

An expression of the hourly labor pay cost per function or job classification that is expected to exist during the next accounting period is the definition of a

A) direct labor time standard.
B) direct materials quantity standard.
C) direct labor rate standard.
D) variable overhead rate.

Question 49

Ewing Corporation's controller has developed the cost and usage data listed below in preparation of standard unit cost information for the coming year. $\begin{array}{|l|l|}\hline \text { Direct materials quantity standard } & 3 \text { pounds per prochuct } \\\hline \text { Direct labor time standard } & 5 \text { hours per product } \\\hline \text { Direct materials price standard } & \$ 10 \text { per pound } \\\hline \text { Direct labor rate standard } & \$ 9 \text { per hour } \\\hline \text { Standard variable overhead rate } & \$ 5 \text { per labor hour } \\\hline \text { Standard fixed overhead rate } & \$ 10 \text { per labor hour } \\\hline \end{array}$

- The standard unit cost for direct materials is

A) $30.
B) $10.
C) $50.
D) $27.

Question 50

Using the following information, compute the standard unit cost of a 20 pound bag of dog food: $\begin{array}{lr}\text {Direct materials quantity standard }&\text { 20 pounds per unit}\\\text {Direct materials price standard }&\text {\( \$ 0.02 \) per pound }\\\text {Direct labor time standard }&\text { 0.1 hour per unit}\\\text {Direct labor rate standerd }&\text {\( \$ 11.60 \) per hour }\\\text {Variable overheadrate standard }&\text {\( \$ 2.50 \) per machine hour }\\\text { Fixed overhead rate standard}&\text {\( \$ 1.50 \) per machine hour }\\\text {Machine hour standard }&\text {0.25 hours per urit }\\\end{array}$

A) $2.56
B) $2.22
C) $2.16
D) $2.81

Question 51

A(n) ________ cost is synonymous with the product cost calculated in a conventional standard cost accounting system.

A) fixed
B) direct
C) joint
D) expected

Question 52

In standard costing,

A) the standards are developed only for overhead costs.
B) the standards are developed primarily from past costs.
C) comparisons with actual costs usually are not performed.
D) debit and credit entries to inventory accounts are made at standard costs.

Question 53

Standard costs are useful for all but which of the following?

A) Determining actual costs
B) Preparing budgets and forecasts
C) Evaluating the performance of workers and management
D) Helping to develop appropriate selling prices

Question 54

Service organizations do not develop standards for

A) any service costs.
B) overhead.
C) direct materials.
D) labor.

Question 55

Which of the following provides an explanation of why the variable overhead rate is separated from the fixed overhead rate in standard costing?

A) There is no justifiable reason; their separation is merely to simplify entries.
B) Both calculations divide by the same direct labor hours, but the numerator is different for each calculation.
C) The variable overhead rate is calculated using actual direct labor hours, whereas the fixed overhead rate is calculated using normal capacity direct labor hours.
D) Different application bases are generally appropriate.

Question 56

Multiplying the standard price of direct materials by the standard quantity for direct materials yields

A) the direct materials price variance.
B) the direct materials quantity variance.
C) the standard direct materials cost.
D) nothing; the two components should be added together.

Question 57

Under which of the following circumstances would the base used to calculate the variable overhead rate be the same as that used for the fixed overhead rate?

A) When actual labor hours are the same as budgeted labor hours
B) When standard indirect labor hours agree with standard direct labor hours
C) In most circumstances; the base used for each calculation is normally the same.
D) When the number of labor hours expected to be incurred for the period is the same as normal capacity direct labor hours

Question 58

Standard costs for company products are typically used for all except which of the following?

A) Variance analysis and cost control
B) Computing production costs in operating budgets
C) Determining actual costs per unit
D) Determining the cost of goods completed and transferred to finished goods inventory

Question 59

Ewing Corporation's controller has developed the cost and usage data listed below in preparation of standard unit cost information for the coming year. $\begin{array}{|l|l|}\hline \text { Direct materials quantity standard } & 3 \text { pounds per prochuct } \\\hline \text { Direct labor time standard } & 5 \text { hours per product } \\\hline \text { Direct materials price standard } & \$ 10 \text { per pound } \\\hline \text { Direct labor rate standard } & \$ 9 \text { per hour } \\\hline \text { Standard variable overhead rate } & \$ 5 \text { per labor hour } \\\hline \text { Standard fixed overhead rate } & \$ 10 \text { per labor hour } \\\hline \end{array}$

- The standard unit cost for direct labor is

A) $45.
B) $27.
C) $135.
D) $9.

Question 60

Standard unit costs generally do not include which of the following?

A) Direct materials costs
B) Indirect materials costs
C) President's salary
D) Depreciation on machinery

Question 61

Using the labor time standard of 0.5 labor hour per unit and a labor cost standard of $10 per labor hour for a 10 pound bag of chocolate and the following actual cost and usage data, compute the direct labor rate variance. $\begin{array}{ll}\text { Direct labor hours used } & 4,950 \text { hours } \\\text { Total cost of direct labor } & \$ 53,460 \\\text { Number of good units prochuced } & 9,000 \text { units }\end{array}$

A) $4,500 (U)
B) $4,500 (F)
C) $3,960 (F)
D) $3,960 (U)

Question 62

The difference between actual quantity used and standard quantity multiplied by standard price is the equation for computing the

A) direct labor efficiency variance.
B) direct materials price variance.
C) direct labor rate variance.
D) direct materials quantity variance.

Question 63

The direct materials price variance is best measured and reported to appropriate management personnel at the time

A) purchased quantities exceed standard order size.
B) quarterly financial statements are prepared.
C) shipments are received and recorded as purchases.
D) direct materials are issued to production areas.

Question 64

Variance analysis includes all of the following except

A) taking corrective action.
B) investigating all variances.
C) developing performance measures to track activities causing the variance.
D) identification of the cause.

Question 65

Lucas Company has set standards for the manufacturing of clay pots to be 2 pounds of direct materials, per pot, at a cost of $3 per pound. During the current period, 600 pounds of direct materials were purchased for $1842. All of the direct materials were used to manufacture 295 pots. Lucas's direct materials price variance was

A) $72 (U).
B) $42 (U).
C) $72 (F).
D) zero.

Question 66

A summary of expected costs for a range of activity levels that is geared to changes in the level of productive output is the definition of a

A) continuous budget.
B) flexible budget.
C) master budget.
D) period budget.

Question 67

Using the labor time standard of 0.5 labor hour per unit and a labor cost standard of $10 per labor hour for a 10 pound bag of chocolate and the following actual cost and usage data, compute the direct labor variance. $\begin{array}{lr}\text {Direct labor hours used }&\text {4,950 hours }\\\text { Total cost of direct labor}&\text {\$ 53,460 }\\\text {Number of good units prochuced }&\text { 9,000 units}\\\end{array}$

A) $3,960 (F)
B) $8,460 (U)
C) $3,960 (U)
D) $8,460 (F)

Question 68

Using the standard costs of $5 per pound for a 10 pound bag of chocolate and the following actual cost and usage data, compute the direct materials variance. $\begin{array}{lr}\text { Direct materials purchased and used}&\text {99,000 pounds }\\\text {Price paid for direct materials }&\text { \( \$ 4.00 \) per pound}\\\text {Number of good units prochuced }&\text {9,000 units }\\\end{array}$

A) $45,000 (F)
B) $45,000 (U)
C) $54,000 (F)
D) $99,000 (F)

Question 69

A flexible budget is most useful

A) for budgeting and planning purposes.
B) when actual output equals budgeted output.
C) as a cost control tool to help evaluate performance.
D) when a product's cost structure includes variable costs only.

Question 70

A direct labor rate variance would occur in which of the following situations?

A) When a production employee takes an unplanned break
B) When a production employee spends more time producing one product than was expected
C) When a low-paid production employee performs a task higher than his or her assigned level
D) When a production employee incurs overtime hours at the same hourly rate as regular pay

Question 71

Using the standard costs of $5 per pound for a 10 pound bag of chocolate and the following actual cost and usage data, compute the direct materials quantity variance. $\begin{array}{lr}\text { Direct materials purchased and used}&\text {99,000 pounds }\\\text {Price paid for direct materials }&\text { \( \$ 4.00 \) per pound}\\\text {Number of good units prochuced }&\text {9,000 units }\\\end{array}$

A) $45,000 (F)
B) $45,000 (U)
C) $54,000 (F)
D) $99,000 (F)

Question 72

The formula used to compute budgeted total cost at any level of activity is presented in the

A) flexible budget.
B) performance report.
C) static budget.
D) cash flow forecast.

Question 73

Using the standard costs of $5 per pound for a 10 pound bag of chocolate and the following actual cost and usage data, compute the direct materials price variance. $\begin{array}{lr}\text { Direct materials purchased and used}&\text {99,000 pounds }\\\text {Price paid for direct materials }&\text { \( \$ 4.00 \) per pound}\\\text {Number of good units prochuced }&\text {9,000 units }\\\end{array}$

A) $45,000 (F)
B) $45,000 (U)
C) $54,000 (F)
D) $99,000 (F)

Question 74

Suppose the standard for a given cost during a period was $80,000. The actual cost for the period was $72,000. Under what circumstances would you consider the variance from budget to be a positive performance indication?

A) The cost is fixed, and actual production was 90 percent of the standard level of budgeted production.
B) The cost is variable, and the standard cost noted above is the cost at a production level lower than the actual production level.
C) The cost is variable, and actual production was 90 percent of the standard level of production.
D) The cost is variable, and actual production was 75 percent of the standard level of production.

Question 75

The direct materials standards for the main product of Duchess Company are 8 grams of direct materials per product at a cost of $3 per gram. During April, 974 grams of direct materials were used to produce 120 products at a direct materials cost of $2,900. The direct materials quantity variance for April was

A) $72 (U).
B) $92 (U).
C) $42 (U).
D) $112 (F).

Question 76

"The difference between actual hours worked and standard hours allowed for the good units produced, multiplied by the standard labor rate" is a description of the

A) direct labor rate variance.
B) direct labor efficiency variance.
C) total direct labor cost variance.
D) direct labor quantity variance.

Question 77

If the actual amount of direct materials used equals the standard amount of direct materials that should have been used, the difference between the standard cost and actual cost of direct materials is called the

A) price variance.
B) rate variance.
C) quantity variance.
D) efficiency variance.

Question 78

The primary difference between a fixed (static) budget and a flexible budget is that a fixed budget

A) cannot be changed after the period begins, whereas a flexible budget can be changed after the period begins.
B) is concerned only with future acquisitions of fixed assets, whereas a flexible budget is concerned with expenses that vary with sales.
C) is a plan for a single level of production, whereas a flexible budget is several plans (one for each of several production levels).
D) includes only fixed costs, whereas a flexible budget includes only variable costs.

Question 79

If a company's flexible budget formula is $9.50 per unit plus $69,800, what would be the total budget for evaluating operating performance if 23,850 units were sold and 28,460 units were produced?

A) $296,375
B) $340,170
C) $311,235
D) $226,575

Question 80

During the current month, Ringo Company started 50,000 units of product and transferred 40,000 fully completed units to finished goods. The final work in process inventory was 41 percent complete as to labor operations. There was no initial work in process, and actual labor hours were 180,000 for the period. Each unit should have required 4 direct labor hours to be produced at standard. The total standard hours allowed for the period are

A) 180,400.
B) 176,400.
C) 171,400.
D) 186,400.