Deck 10: Standard Costing and Analysis of Direct Costs

Question 1

Consider the following statements:
I) The standard cost per unit of materials is used to calculate a materials price variance.
II) The standard cost per unit of materials is used to calculate a materials quantity variance.
III) The standard cost per unit of materials cannot be determined until the end of the period.
Which of the above statements is (are) true?

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

Answer 1

D

Question 2

Variances are computed by taking the difference between the product cost and standard cost.

Answer 2

False

Question 3

When the quantity of materials purchased is not equal to the quantity of material used, most companies base the calculation of the material quantity variance on the:

A) quantity of direct materials purchased.
B) quantity of direct materials spoiled.
C) quantity of direct materials that should have been used in achieving actual production.
D) quantity of direct materials actually used.
E) none of the other answers are correct.

Answer 3

D

Question 4

Which of the following are methods for setting standards?

A) Analysis of historical data and goal congruence.
B) Task analysis and matrix application forms.
C) Task analysis and the analysis of historical data.
D) Matrix application forms and analysis of historical data.
E) Goal congruence and task analysis.

Question 5

Which of the following individuals is least likely to become involved in the setting of either direct material standards or direct labor standards?

A) The purchasing manager.
B) A production supervisor.
C) An engineer.
D) A machine operator.
E) A company's president.

Question 6

Which of the following choices correctly indicates the use of the standard price per unit of direct material when calculating the materials price variance and the material quantity variance?

A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Question 7

Which of the following choices correctly notes a characteristic associated with perfection standards and one associated with practical standards?

A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Question 8

Consider the following statements:
I) Behavioral scientists find that perfection standards often discourage employees and result in low worker morale.
II) Practical standards are also known as attainable standards.
III) Practical standards incorporate a certain amount of inefficiency such as that caused by an occasional machine breakdown.
Which of the above statements is (are) true?

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

Question 9

The Purchasing Department would normally begin an investigation regarding an unfavorable materials quantity variance.

Question 10

Which of the following is a predetermined estimated cost that can be used in the calculation of a variance?

A) Product cost.
B) Actual cost.
C) Standard cost.
D) Differential cost.
E) Marginal cost.

Question 11

Most companies base the calculation of the material price variance on the:

A) quantity of direct materials purchased.
B) quantity of direct materials spoiled.
C) quantity of direct materials that should have been used in achieving actual production.
D) quantity of direct materials actually used.
E) quantity of direct materials to be purchased during the next accounting period.

Question 12

Variances are computed by taking the difference between which of the following?

A) Product cost and period cost.
B) Actual cost and differential cost.
C) Price factors and rate factors.
D) Actual cost and standard cost.
E) Product cost and standard cost.

Question 13

A standard cost:

A) is the "true" cost of a unit of production.
B) is a budget for the production of one unit of a product or service.
C) can be useful in calculating equivalent units.
D) is normally the average cost within an industry.
E) is almost always the actual cost from previous years.

Question 14

A perfection standard:

A) tends to motivate employees over a long period of time.
B) is attainable in an ideal operating environment.
C) would make allowances for normal amounts of scrap and waste.
D) is generally preferred by behavioral scientists.
E) will result in a number of favorable variances on a performance report.

Question 15

Which of the following would not be considered if a company desires to establish a series of practical manufacturing standards?

A) Production time lost during unusual machinery breakdowns.
B) Normal worker fatigue.
C) Freight charges on incoming raw materials.
D) Production time lost during setup procedures for new manufacturing runs.
E) The historical 2% defect rate associated with raw material inputs.

Question 16

The term "management by exception" is best defined as:

A) choosing exceptional managers.
B) controlling actions of subordinates through acceptance of management techniques.
C) investigating unfavorable variances.
D) devoting management time to investigate significant variances.
E) controlling costs so that non-zero variances are treated as "exceptional."

Question 17

A favorable labor efficiency variance is created when actual labor hours worked exceed standard hours allowed.

Question 18

Which of the following would be considered if a company desires to establish a series of practical manufacturing standards?

A) The productivity loss associated with a short-term worker slowdown.
B) Normal defect rates in an assembly process.
C) Highly unusual spoilage rates of direct materials.
D) Quantity discounts associated with purchases of direct materials.
E) Both normal defect rates in an assembly process and quantity discounts associated with purchases of direct materials.

Question 19

One of the most important conditions for the successful use of standard costing is a stable production process.

Question 20

Normal defect rates in an assembly process would be considered if a company desires to establish a series of practical manufacturing standards.

Question 21

An unfavorable labor rate variance is created when:

A) actual labor hours worked exceed standard hours allowed.
B) actual hours worked are less than standard hours allowed.
C) actual wages paid are less than amounts that should have been paid.
D) actual units produced exceed budgeted production levels.
E) actual wages paid exceed amounts that should have been paid for the number of hours worked.

Question 22

Which of the following variances are most similar with respect to the manner in which they are calculated?

A) Labor rate variance and labor efficiency variance.
B) Material price variance and material quantity variance.
C) Material price variance, material quantity variance, and total material variance.
D) Material price variance and labor efficiency variance.
E) Material quantity variance and labor efficiency variance.

Question 23

Soloman Corporation recently purchased 25,000 gallons of direct material at $5.60 per gallon. Usage by the end of the period amounted to 23,000 gallons. If the standard cost is $6.00 per gallon and the company believes in computing variances at the earliest point possible, the direct-material price variance would be calculated as:

A) $800F.
B) $9,200F.
C) $9,200U.
D) $10,000F.
E) $10,000U.

Question 24

Denver Enterprises recently used 14,000 labor hours to produce 7,500 completed units. According to manufacturing specifications, each unit is anticipated to take two hours to complete. The company's actual payroll cost amounted to $158,200. If the standard labor cost per hour is $11, Denver's labor efficiency variance is:

A) $11,000U.
B) $11,000F.
C) $11,300U.
D) $11,300F.
E) none of the other answers are correct.

Question 25

Courtney purchased and consumed 50,000 gallons of direct material that was used in the production of 11,000 finished units of product. According to engineering specifications, each finished unit had a manufacturing standard of five gallons. If a review of Courtney's accounting records at the end of the period disclosed a material price variance of $5,000U and a material quantity variance of $3,000F, what is the actual price paid for a gallon of direct material?

A) $0.50.
B) $0.60.
C) $0.70.
D) None of the other answers are correct.
E) Not enough information to judge.

Question 26

Alexis Company recently completed 10,600 units of its single product, consuming 32,000 labor hours that cost the firm $480,000. According to manufacturing specifications, each unit should have required 3 hours of labor time at $15.40 per hour.
On the basis of this information, determine Alexis's labor rate variance and labor efficiency variance.

A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Question 27

An unfavorable labor efficiency variance is created when:

A) actual labor hours worked exceed standard hours allowed.
B) actual hours worked are less than standard hours allowed.
C) actual wages paid are less than amounts that should have been paid.
D) actual units produced exceed budgeted production levels.
E) actual units produced exceed standard hours allowed.

Question 28

A favorable labor rate variance is created when:

A) actual labor hours worked exceed standard hours allowed.
B) actual hours worked are less than standard hours allowed.
C) actual wages paid are less than amounts that should have been paid for the number of hours worked.
D) actual units produced exceed budgeted production levels.
E) actual units produced exceed standard hours allowed.

Question 29

The following data relate to product no. 89 of Des Moines Corporation:
Direct material standard: 3 square feet at $2.50 per square foot
Direct material purchased: 30,000 square feet at $2.60 per square foot
Direct material consumed: 29,200 square feet
Manufacturing activity: 9,600 units completed
Assume that the company computes variances at the earliest point in time.
The direct-material price variance is:

A) $2,880U.
B) $2,920F.
C) $2,920U.
D) $3,000F.
E) $3,000U.

Question 30

Alexis Company recently completed 10,600 units of its single product, consuming 32,000 labor hours that cost the firm $480,000. According to manufacturing specifications, each unit should have required 3 hours of labor time at $15.40 per hour.
On the basis of this information, determine Alexis's total labor variance.

A) $15,880U
B) $9,720F
C) $15,720F
D) $9,720U
E) $15,880F

Question 31

Dover Enterprises recently used 14,000 labor hours to produce 7,500 completed units. According to manufacturing specifications, each unit is anticipated to take two hours to complete. The company's actual payroll cost amounted to $158,200. If the standard labor cost per hour is $11, Dover's labor rate variance is:

A) $4,200U.
B) $4,000F.
C) $4,300U.
D) $4,300F.
E) none of the other answers are correct.

Question 32

If a company has an unfavorable direct-material quantity variance, then:

A) the direct-material price variance is favorable.
B) the total direct-material variance is unfavorable.
C) the total direct-material variance is favorable.
D) the direct-labor efficiency variance is unfavorable.
E) any of the other answers can occur.

Question 33

Newbill Enterprises recently used 24,000 labor hours to produce 8,600 completed units. According to manufacturing specifications, each unit is anticipated to take 2.75 hours to complete. The company's actual payroll cost amounted to $456,000. If the standard labor cost per hour is $19.20, Newhart's labor rate variance is:

A) $1,920U.
B) $1,920F.
C) $4,800U.
D) $4,800F.
E) none of the other answers are correct.

Question 34

Consider the following information:
Direct material purchased and used, 80,000 gallons
Standard quantity of direct material allowed for May production, 76,000 gallons
Actual cost of direct materials purchased and used, $176,000
Unfavorable direct-material quantity variance, $9,400
The direct-material price variance is:

A) $11,400F.
B) $11,400U.
C) $12,000F.
D) $12,000U.
E) none of the other answers are correct.

Question 35

A favorable labor efficiency variance is created when:

A) actual labor hours worked exceed standard hours allowed.
B) actual hours worked are less than standard hours allowed.
C) actual wages paid are less than amounts that should have been paid.
D) actual units produced exceed budgeted production levels.
E) actual units produced exceed standard hours allowed.

Question 36

Which of the following variances cannot occur together during the same accounting period?

A) Unfavorable labor rate variance and favorable labor efficiency variance.
B) Unfavorable labor efficiency variance and favorable material quantity variance.
C) Favorable labor rate variance and unfavorable total labor variance.
D) Favorable labor efficiency variance and favorable material quantity variance.
E) None of the other answers are correct, because all of these variance combinations are possible.

Question 37

Which of the following variances are most similar with respect to the manner in which they are calculated?

A) Labor rate variance and labor efficiency variance.
B) Material price variance and material quantity variance.
C) Material price variance, material quantity variance, and total material variance.
D) Material price variance and labor rate variance.
E) Material price variance and labor efficiency variance.

Question 38

The following data relate to product no. 89 of Des Moines Corporation:
Direct material standard: 3 square feet at $2.50 per square foot
Direct material purchased: 30,000 square feet at $2.60 per square foot
Direct material consumed: 29,200 square feet
Manufacturing activity: 9,600 units completed
Assume that the company computes variances at the earliest point in time.
The direct-material quantity variance is:

A) $1,000F.
B) $1,000U.
C) $1,040F.
D) $1,040U.
E) $2,000F.

Question 39

Dana, Inc. recently completed 56,000 units of a product that was expected to consume four pounds of direct material per finished unit. The standard price of the direct material was $8.50 per pound. If the firm purchased and consumed 228,000 pounds in manufacturing (cost = $1,881,000), the direct-material quantity variance would be figured as:

A) $34,000U.
B) $34,000F.
C) $57,000U.
D) $57,000F.
E) none of the other answers are correct.

Question 40

Which of the following correctly lists all the information needed to calculate a labor rate variance?

A) Standard labor rate and actual hours worked.
B) Actual hours worked and actual units produced.
C) Standard labor rate, actual labor rate, and actual units produced.
D) Actual labor rate and actual hours worked.
E) Actual labor rate, standard labor rate, and actual hours worked.

Question 41

The individual generally responsible for the direct-material price variance is the:

A) sales manager.
B) production supervisor.
C) purchasing manager.
D) finance manager.
E) head of the human resources department.

Question 42

A statistical control chart is best used for determining:

A) direct-material price variances.
B) direct-labor variances.
C) whether a variance is favorable or unfavorable.
D) who should be held accountable for specific variances.
E) whether a particular variance should be investigated.

Question 43

The following data relate to product no. 33 of La Quinta Corporation:
Direct labor standard: 5 hours at $14 per hour
Direct labor used in production: 45,000 hours at a cost of $639,000
Manufacturing activity: 8,900 units completed
The direct-labor efficiency variance is:

A) $7,000F.
B) $7,000U.
C) $7,100F.
D) $7,100U.
E) None of the other answers are correct.

Question 44

Taylor Enterprises purchased 56,000 pounds (cost = $420,000) of direct material to be used in the manufacture of the company's sole product. According the production specifications, each completed unit requires five pounds of direct material at a standard cost of $7.80 per pound. Direct materials consumed by the end of the period totaled 53,500 pounds in the manufacture of 10,900 finished units.
An examination of Taylor's payroll records revealed that the company worked 22,000 labor hours (cost = $319,000) during the period, and specifications called for each completed unit requiring two hours of labor at a standard cost of $14.80 per hour.
Assume that the company computes variances at the earliest point in time.
Taylor's direct-labor efficiency variance was:

A) $2,900F.
B) $2,900U.
C) $2,960F.
D) $2,960U.
E) none of the other answers are correct.

Question 45

Which of the following combinations of direct-material variances might prompt management to undertake a detailed variance investigation?

A) Price, unfavorable; quantity, unfavorable.
B) Price, unfavorable; quantity, favorable.
C) Price, favorable; quantity, unfavorable.
D) Price favorable; quantity, favorable.
E) All of the other answers are correct.

Question 46

Sammons Corporation had a favorable direct-labor efficiency variance of $6,000 for the period just ended. The actual wage rate was $0.50 more than the standard rate of $12.00. If the company's standard hours allowed for actual production totaled 9,500, how many hours did the firm actually work?

A) 9,000.
B) 9,020.
C) 9,980.
D) 10,000.
E) None of the other answers are correct.

Question 47

Rogillo, Inc. had an unfavorable labor efficiency variance and an unfavorable materials quantity variance. Which department might be held accountable for these variances?

A) Purchasing, because bad materials can harm labor efficiency.
B) Production, because inefficient workers may use more materials than allowed.
C) Marketing.
D) Shipping.
E) Both Purchasing, because bad materials can harm labor efficiency and Production, because inefficient workers may use more materials than allowed.

Question 48

Consider the following statements about variance investigation:
I) Variance investigation involves a look at only unfavorable variances.
II) Variance investigation is typically based on a cost-benefit analysis.
III) Variance investigation is often performed by establishing guidelines similar to the following: Investigate variances that are greater than $X or greater than Y% of standard cost.
Which of the above statements is (are) true?

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

Question 49

Which department would normally begin an investigation regarding an unfavorable materials quantity variance?

A) Quality control.
B) Purchasing.
C) Engineering.
D) Production.
E) Receiving.

Question 50

Consider the following information: $$\begin{array} { l l } \text { Actual direct labor hours } & 34,500 \\\text { Standard direct labor hours } & 35,000 \\\text { Total actual direct labor cost } & \$ 241,500 \\\text { Direct-labor efficiency variance } & \$ 3,200 \mathrm {~F}\end{array}$$ The direct-labor rate variance is:

A) $17,250U.
B) $20,700U.
C) $20,700F.
D) $21,000F.
E) none of the other answers are correct.

Question 51

Taylor Enterprises purchased 56,000 pounds (cost = $420,000) of direct material to be used in the manufacture of the company's sole product. According the production specifications, each completed unit requires five pounds of direct material at a standard cost of $7.80 per pound. Direct materials consumed by the end of the period totaled 53,500 pounds in the manufacture of 10,900 finished units.
An examination of Taylor's payroll records revealed that the company worked 22,000 labor hours (cost = $319,000) during the period, and specifications called for each completed unit requiring two hours of labor at a standard cost of $14.80 per hour.
Assume that the company computes variances at the earliest point in time.
Taylor's direct-material price variance was:

A) $16,050F.
B) $16,050U.
C) $16,800F.
D) $16,800U.
E) none of the other answers are correct.

Question 52

Taylor Enterprises purchased 56,000 pounds (cost = $420,000) of direct material to be used in the manufacture of the company's sole product. According the production specifications, each completed unit requires five pounds of direct material at a standard cost of $7.80 per pound. Direct materials consumed by the end of the period totaled 53,500 pounds in the manufacture of 10,900 finished units.
An examination of Taylor's payroll records revealed that the company worked 22,000 labor hours (cost = $319,000) during the period, and specifications called for each completed unit requiring two hours of labor at a standard cost of $14.80 per hour.
Assume that the company computes variances at the earliest point in time.
Taylor's direct-material quantity variance was:

A) $7,800F.
B) $16,800F.
C) $7,800U.
D) $16,800U.
E) none of the other answers are correct.

Question 53

A production supervisor generally has little influence over the:

A) direct-material quantity variance.
B) direct-labor efficiency variance.
C) direct-material price variance.
D) number of units produced.
E) All of the others answers are correct.

Question 54

Listed below are five variances (and possible causes) that are under review by management of Knox Company. Which of the following is least likely to cause the variance indicated?

A) The need to ship goods acquired from a distant supplier via FedEx rather than via truck; material price variance.
B) The need to complete goods on a timely basis during a period of high absenteeism; labor rate variance.
C) A work-team that is very unhappy with its supervisor; labor efficiency variance.
D) The need to close a plant for two days because of blizzard conditions; material quantity variance, part no. 542.
E) A malfunctioning piece of manufacturing equipment; labor efficiency variance.

Question 55

Justin Company recently purchased materials from a new supplier at a very attractive price. The materials were found to be of poor quality, and the company's laborers struggled significantly as they shaped the materials into finished product. In a desperation move to make up for some of the time lost, the manufacturing supervisor brought in more-senior employees from another part of the plant. Which of the following variances would have a high probability of arising from this situation?

A) Material price variance, favorable.
B) Material quantity variance, unfavorable.
C) Labor rate variance, unfavorable.
D) Labor efficiency variance, unfavorable.
E) All of the other answers are correct.

Question 56

A direct-material quantity variance can be caused by all of the following except:

A) improper employee training.
B) changes in sales volume.
C) acquisition of materials that are below standard quality.
D) adjustment problems with machines.
E) disgruntled workers.

Question 57

When considering whether to investigate a variance, managers should consider all of the following except the variance's:

A) size.
B) pattern of recurrence.
C) trends over time.
D) nature, namely, whether it is favorable or unfavorable.
E) controllability.

Question 58

A direct-labor efficiency variance cannot be caused by:

A) inexperienced employees.
B) poor quality raw materials.
C) employee inefficiency.
D) an out-of-date labor time standard.
E) producing fewer finished units than originally planned.

Question 59

Cohlsen Corporation has a favorable materials quantity variance. Which department would likely be asked to explain the cause of this variance?

A) Engineering.
B) Purchasing.
C) Production.
D) Marketing.
E) None, because the variance is favorable.

Question 60

The following data relate to product no. 33 of La Quinta Corporation:
Direct labor standard: 5 hours at $14 per hour
Direct labor used in production: 45,000 hours at a cost of $639,000
Manufacturing activity: 8,900 units completed
The direct-labor rate variance is:

A) $8,900F.
B) $8,900U.
C) $9,000F.
D) $9,000U.
E) None of the other answers are correct.

Question 61

At the end of the accounting period, most companies close variance accounts to:

A) Raw-Material Inventory.
B) Work-in-Process Inventory.
C) Finished-Goods Inventory.
D) Cost of Goods Sold.
E) Income Summary.

Question 62

Chen Enterprises purchased 67,000 pounds (cost = $616,400) of direct material to be used in the manufacture of the company's only product. According the production specifications, each completed unit requires four pounds of direct material at a standard cost of $9 per pound. Direct materials consumed by the end of the period totaled 65,500 pounds in the manufacture of 16,050 finished units.
An examination of Chen's payroll records revealed that the company worked 42,000 labor hours (cost = $621,600) during the period, and specifications called for each completed unit requiring 2.6 hours of labor at a standard cost of $15 per hour.
Assume that the company computes variances at the earliest point in time.
Required:
Calculate the direct-material price and quantity variances, and the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Question 63

Standard cost systems can have motivational effects; some are desirable, some are not. Consider the following situation:
The materials purchasing manager is paid a salary plus a bonus based on the net favorable materials price variance. Generally, this bonus amounts to 30 - 40% of the manager's total compensation. Due to the bankruptcy of a company in a related field, there is an opportunity to buy a key raw material. The standards for this material call for grade 2A, usually purchased for $56 per ton. Because of the bankruptcy, the company can obtain a higher grade, 4A, for $62 per ton. While the quality of the final product will be the same regardless of the grade of material used, there will be substantial savings in material yield and labor productivity if 4A is used. These savings are expected to be two-to-three times the additional cost of $6 per ton.
Required:
A. How would an unfavorable price variance on a particular purchase affect the overall price variance for the year and the manager's bonus?
B. Would the use of the materials price variance as a basis for the manager's bonus lead to a desirable or undesirable behavioral outcome? Explain, being sure to note whether the manager would likely pursue acquisition of the grade 4A material.

Question 64

Lucie Corporation's purchasing manager obtained a special price on an aluminum alloy from a new supplier, resulting in a direct-material price variance of $9,500F. The alloy produced more waste than normal, as evidenced by a direct-material quantity variance of $2,000U, and was also difficult to use. This slowed worker efficiency, generating a $2,500U labor efficiency variance. To help remedy the situation, the production manager used senior line employees, which gave rise to a $900U labor rate variance. If overall product quality did not suffer, what variance amount is best used in judging the appropriateness of the purchasing manager's decision to acquire substandard material?

A) $4,100F.
B) $5,000F.
C) $7,000F.
D) $7,500F.
E) $9,500F.

Question 65

Which of the following journal entries definitely contains an error?

A) $\begin{array}{lr}\text { Raw-Material Inventory } & 200,000 \\\text { Direct-Material Price Variance } & 5,000\\\text { Accounts Payable }&205,000\end{array}$
B) $\begin{array}{lr}\text { Raw-Material Inventory } & 38,000 \\\text { Direct-Material Price Variance } & 2,000 \\\text { Accounts Payable } & 36,000\end{array}$
C) $\begin{array}{lr}\text { Raw-Material Inventory } & 156,000 \\\text { Direct-Material Price Variance } & 8,000 \\\text { Work-in-Process Inventory } & 148,000\end{array}$
D) $\begin{array}{lr}\text { Work-in-Process Inventory } & 67,000 \\\text { Direct-Material Quantity Variance } & 3,000\\\text { Raw-Material Inventory }&70,000\end{array}$
E) $\begin{array}{lr}\text { Work-in-Process Inventory } & 79,000 \\\text { Direct-Material Quantity Variance } & 4,000 \\\text { Raw-Material Inventory } & 75,000\end{array}$

Question 66

The following events occurred at Crescent Manufacturing (CM), an assembler of engine parts, during May:
1. Because of a stock shortage at its regular supplier, CM had to rely on a new vendor for two purchases of raw material parts. The vendor required CM to pay air-freight charges; however, upon arrival, the company found the goods to be above-average in quality.
2. The local municipality raised its property tax rates by 2%.
3. A flu outbreak on the assembly line forced management to use more experienced, senior personnel to complete production orders on a timely basis. These workers more than made up for lost time.
4. A shoddy maintenance program resulted in an abnormally high number of breakdowns on machine no. 76 and slowed production.
5. The implementation of a new program had positive effects for the company with respect to material usage and worker productivity.
Required:
Create a table with the following headings: material price variance, material quantity variance, labor rate variance, and labor efficiency variance. Determine which of these variances would be affected by the individual events and whether the variance would be favorable or unfavorable.

Question 67

Vanderhaus Corporation manufactures a variety of liquid lawn fertilizers, including a very popular product called Lush 'N Green. Data about Lush 'N Green and Proctol, a major ingredient, follow.
Expected operations:
• Proctol is purchased in 55-gallon drums at a cost of $65 per drum. A 2% cash discount is offered by Proctol's manufacturer for prompt payment of invoices, and Vanderhaus takes advantage of all discounts offered.
• Vanderhaus normally purchases 200 drums of Proctol at a time, paying shipping fees of $2,660 per shipment.
• Each gallon of Lush 'N Green requires three quarts of Proctol; however, because of evaporation and spills, Vanderhaus loses 4% of all Proctol that enters production. (Recall that there are four quarts in a gallon.)
Actual operations:
• For the period just ended, Vanderhaus purchased 1,500 drums of Proctol at a total cost of $118,100, which reflects discounts and shipping. There was no beginning inventory, but an end-of-period inventory revealed that 30 drums were still on hand.
• Manufacturing activity output totaled 104,000 gallons of Lush 'N Green.
Assume that the company computes variances at the earliest point in time.
Required:
A. Compute the standard purchase price for one gallon of Proctol.
B. Compute the standard quantity of Proctol to be used in producing one gallon of Lush 'N Green. Express your answer in quarts.
C. Compute the direct-material price variance for Proctol.
D. How much Proctol was used in manufacturing activity and how much should have been used? Express your answer in quarts.

Question 68

Upstart, Inc. manufactures a product that has the following standard costs:
The following information pertains to July:
Direct material purchased: 42,500 yards at $2.78 per yard, or $118,150
Direct material used: 36,000 yards
Direct labor: 7,500 hours at $18.30 per hour, or $137,250
Actual completed production: 1,050 units
Assume that the company computes variances at the earliest point in time.
Required:
Calculate the direct-material price and quantity variances, and the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Question 69

Quicksilver Company has set the following standards for one unit of product:
Direct material
Quantity: 6.2 pounds per unit
Price per pound: $11 per pound
Direct labor
Quantity: 6 hours per unit
Rate per hour: $23 per hour
Actual costs incurred in the production of 2,800 units were as follows:
Direct material: $194,350 ($11.50 per pound)
Direct labor: $393,750 ($22.50 per hour)
All materials purchased were consumed during the period.
Required:
Calculate the direct-material price and quantity variances, and the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

Question 70

Roberto Ventura operates a commercial painting business in Sacramento, which has a very tight labor market. Much of his work focuses on newly constructed apartments and townhouses.
The following data relate to crew no. 5 for a recently concluded period when 85 apartment units were painted:
• Three new employees were assigned to crew no. 5. Wages averaged $18.80 per hour for each employee; the crew took 2,550 hours to complete the work.
• Based on his knowledge of the operation, articles in trade journals, and conversations with other painters, Ventura established the following standards:
Typical hourly wage rate of crew personnel: $15
Anticipated crew time for each unit: 34 hours
• The paint quantity variance was $6,070F.
• The operation did not go as smoothly as planned, with customer complaints and problems being much higher than expected.
Required:
A. Compute Ventura's direct-labor variances.
B. Is the direct-labor rate variance consistent with what you might expect in a tight labor market? Explain.
C. Analyze the information given and that you calculated, and determine what likely happened that would give rise to customer complaints.

Question 71

A manufacturing company is expected to complete a task in 45 minutes. During a recent accounting period, 3,200 completed units were produced, resulting in the following labor variances:
Labor rate variance: $520 favorable
Labor efficiency variance: $2,800 unfavorable
The standard labor rate is $14 per hour.
Required:
Calculate (1) the standard hours allowed for the work performed, (2) the actual hours worked, and (3) the actual wage rate.

Question 72

Marcie Simone is the long-time catering director of Naples-on-the-Beach, a hotel noted throughout the industry for quality, profitability, and cost control. The hotel recently catered a steak dinner for a 2,000-person convention. Strict standards were in place for the dinner: 0.75 pounds of beef per plate at $9 per pound. A review of the accounting records shortly after the convention showed that 1,680 pounds of beef were purchased and consumed, costing the hotel $13,440.
Required:
A. Calculate the cost of beef budgeted for the dinner and the total beef variance (i.e., the difference between budgeted and actual cost). Should this variance be of concern to the hotel? Why?
B. Assess the job that Simone did in "managing" the beef purchase by performing a variance analysis. Comment on your findings.
C. Assume that the hotel received a number of complaints shortly after the dinner concluded.
Explain a possible reason behind the conventioneers' unhappiness.

Question 73

For the quarter just ended, Bojangles, Inc. reported the following variances in one of its manufacturing departments:
Material price variance, U
Material quantity variance, F
Labor efficiency variance, F
Labor rate variance, negligible
Machine hours efficiency, F
The sum of the favorable variances exceeded the unfavorable materials price variance by a considerable amount. The quality of the output from the department was the same as usual. Bojangles operates very close to a JIT system for materials purchases, with virtually all material acquired during the quarter being used in manufacturing activities.
Required:
Is there any connection among these variances? If so, explain.

Question 74

DiAngelo Products uses a standard costing system to assist in the evaluation of operations. The company has had considerable employee difficulties in recent months, so much so that management has hired a new production supervisor (Joe Simms). Simms has been on the job for six months and has seemingly brought order to an otherwise chaotic situation.
The vice-president of manufacturing recently commented that "¼ Simms has really done the trick. Joe's team-building/morale-boosting exercises have truly brought things under control." The vice-president's comments were based on both a plant tour, where he observed a contented work force, and review of a performance report that showed a total labor variance of $14,000F. This variance is truly outstanding, given that it is less than 2% of the company's budgeted labor cost. Additional data follow.
• Total completed production amounted to 20,000 units.
• A review of the firm's standard cost records found that each completed unit requires 2.75 hours of labor at $14 per hour. DiAngelo's production actually required 42,000 labor hours at a total cost of $756,000.
Required:
A. As judged by the information contained in the performance report, should the vice-president be concerned about the company's labor variances? Why?
B. Calculate DiAngelo's direct-labor variances.
C. On the basis of your answers to requirement "B," should DiAngelo be concerned about its labor situation? Why?
D. Briefly analyze and explain the direct-labor variances.

Question 75

Howard Company has established the following standards:
Direct materials: 2.0 pounds at $4.10
Direct labor: 1.5 hours at $7 per hour
Additional information was extracted from the accounting records:
Actual production: 32,000 completed units
Direct materials purchased: 70,000 pounds at $3.82, or $267,400
Direct materials consumed: 65,000 pounds
Actual labor incurred: 51,000 hours at $6.30, or $321,300
Direct-labor rate variance: $35,700 favorable
Direct-labor efficiency variance: $21,000 unfavorable
Assume that the company computes variances at the earliest point in time.
Required:
Prepare journal entries to record the:
A. Purchase of direct materials.
B. Usage of direct materials.
C. Incurrence of direct labor costs.

Question 76

Cloverleaf, Inc. produces glass shelves that are used in furniture. Each shelf requires 3.6 pounds of raw material at a cost of $2 per pound. Unfortunately, given the nature of the manufacturing process, one out of every five shelves is chipped, scratched, or broken at the beginning of production and has to be scrapped.
On average, 20 good shelves are completed during each hour. Laborers who work on these units are paid $15 per hour.
Required:
A. Distinguish between perfection standards and practical standards.
B. Who within an organization would be in the best position to assist in setting the:
1. direct-material price standard?
2. direct-material quantity standard?
3. direct-labor efficiency standard?
C. Calculate a practical direct-material and direct-labor standard for each good shelf produced.

Question 77

Standard costs:

A) allow a manager to assess the efficiency of operations.
B) allow a company to practice management by exception.
C) provide management with a basis for performance evaluations.
D) if set correctly, can provide a motivational tool for employees.
E) all of the other answers are correct.

Question 78

Which of the following is a criticism of standard costing, as applied to today's manufacturing environment?

A) Standards tend to be relevant for only a short period of time because of shorter product life cycles.
B) Variance information is usually aggregated (i.e., combined) rather than associated with a particular batch of goods or a specific product line.
C) Traditional standard costing has a fairly narrow orientation, failing to focus on broader issues such as the overall costs of ownership.
D) Standard costing pays considerable attention to labor cost and labor efficiency, which are becoming a relatively unimportant factor of production.
E) All of the other answers are correct.

Question 79

Standard costs are said to be useful in performance evaluation. Assume that the standard direct materials cost per unit of finished product is $6 (three pounds at $2 per pound).
Required:
A. Explain how such a standard can be used to evaluate performance.
B. Why is the degree of controllability important when utilizing standard costs to evaluate performance?

Question 80

Halo Enterprises recently experienced a fire, forcing the company to use incomplete information to analyze operations. Consider the following data and assume that all materials purchased during the period were used in production:
Direct materials:
Standard price per pound: $9
Actual price per pound: $8
Price variance: $20,000F
Total of direct-material variances: $2,000F
Direct labor:
Actual hours worked: 40,000
Actual rate per hour: $15
Efficiency variance: $28,000F
Total of direct-labor variances: $12,000U
Halo completed 12,000 units.
Required:
Determine the following: (1) actual materials used, (2) direct-material quantity variance, (3) direct-labor rate variance, (4) standard labor rate per hour, and (5) standard labor time per finished unit.