Question 1

Reference: 11-11
The Clark Company makes a single product and uses standard costing. Variable overhead is assigned to production on the basis of direct labour hours. Some data concerning this product for the month of May follow: $$\begin{array} { | l | l | l | } 
\hline \text { Labour rate variance: } & \$ 7,000 & \mathrm {~F} \
\hline \text { Labour efficiency variance: } & \$ 12,000 & \mathrm {~F} \
\hline \text { Variable overhead efficiency variance: } & \$ 4,000 & \mathrm {~F} \
\hline \text { Number of units produced: } & 10,000 & \
\hline \text { Standard labour rate per direct labour hour: } & \$ 12 & \
\hline \text { Standard variable overhead rate per direct labour hour: } & \$ 4 & \
\hline \text { Actual labour hours used: } & 14,000 & \
\hline \text { Actual variable manufacturing overhead costs: } & \$ 58,290 & \
\hline
\end{array}$$
-The production manager is usually held responsible for the labour efficiency variance.

Accepted Answer

A) True 
 B)False

Question 2

Reference: 11-08
The following materials standards have been established for a particular product: $$\begin{array}{l}
\begin{array} { | l | l | l | } 
\hline \text { Standard quantity per unit of output } & 1.9 & \text { grams } \
\hline \text { Standard price } & \$ 18.00 & \text { per gram } \
\hline
\end{array}\
\text { The following data pertain to operations concerning the product for the last month: }\
\begin{array} { | l | l | l | } 
\hline \text { Actual materials purchased } & 5,800 & \text { grams } \
\hline \text { Actual cost of materials purchased } & \$ 108,460 & \
\hline \text { Actual materials used in production } & 5,200 & \text { grams } \
\hline \text { Actual output } & 2,700 & \text { units } \
\hline
\end{array}
\end{array}$$
-The variable overhead spending variance is?

Accepted Answer

A) $220 F. 
B) $240 U. 
C) $240 F. 
D) $220 U.

Question 3

Reference: 11-11
The Clark Company makes a single product and uses standard costing. Variable overhead is assigned to production on the basis of direct labour hours. Some data concerning this product for the month of May follow: $$\begin{array} { | l | l | l | } 
\hline \text { Labour rate variance: } & \$ 7,000 & \mathrm {~F} \
\hline \text { Labour efficiency variance: } & \$ 12,000 & \mathrm {~F} \
\hline \text { Variable overhead efficiency variance: } & \$ 4,000 & \mathrm {~F} \
\hline \text { Number of units produced: } & 10,000 & \
\hline \text { Standard labour rate per direct labour hour: } & \$ 12 & \
\hline \text { Standard variable overhead rate per direct labour hour: } & \$ 4 & \
\hline \text { Actual labour hours used: } & 14,000 & \
\hline \text { Actual variable manufacturing overhead costs: } & \$ 58,290 & \
\hline
\end{array}$$
-Which of the following statements is not true about the use of a standard cost system

Accepted Answer

A) Standards can be used by individuals to judge their own performance. 
B) A favourable variance will always be good thing for a business. 
C) The use of standard costs can greatly simplify bookkeeping. 
D) As long as costs do not fall significantly outside of standards managers can usually focus on other issues.

Question 4

Reference: 11-11
The Clark Company makes a single product and uses standard costing. Variable overhead is assigned to production on the basis of direct labour hours. Some data concerning this product for the month of May follow: $$\begin{array} { | l | l | l | } 
\hline \text { Labour rate variance: } & \$ 7,000 & \mathrm {~F} \
\hline \text { Labour efficiency variance: } & \$ 12,000 & \mathrm {~F} \
\hline \text { Variable overhead efficiency variance: } & \$ 4,000 & \mathrm {~F} \
\hline \text { Number of units produced: } & 10,000 & \
\hline \text { Standard labour rate per direct labour hour: } & \$ 12 & \
\hline \text { Standard variable overhead rate per direct labour hour: } & \$ 4 & \
\hline \text { Actual labour hours used: } & 14,000 & \
\hline \text { Actual variable manufacturing overhead costs: } & \$ 58,290 & \
\hline
\end{array}$$
-The static budget is a good tool for assessing whether variable costs are under control.

Accepted Answer

A) True 
 B)False

Question 5

Reference: 11-11
The Clark Company makes a single product and uses standard costing. Variable overhead is assigned to production on the basis of direct labour hours. Some data concerning this product for the month of May follow: $$\begin{array} { | l | l | l | } 
\hline \text { Labour rate variance: } & \$ 7,000 & \mathrm {~F} \
\hline \text { Labour efficiency variance: } & \$ 12,000 & \mathrm {~F} \
\hline \text { Variable overhead efficiency variance: } & \$ 4,000 & \mathrm {~F} \
\hline \text { Number of units produced: } & 10,000 & \
\hline \text { Standard labour rate per direct labour hour: } & \$ 12 & \
\hline \text { Standard variable overhead rate per direct labour hour: } & \$ 4 & \
\hline \text { Actual labour hours used: } & 14,000 & \
\hline \text { Actual variable manufacturing overhead costs: } & \$ 58,290 & \
\hline
\end{array}$$
-One cause of an unfavourable overhead volume variance would be increases in cost for fixed overhead items.

Accepted Answer

A) True 
 B)False

Question 6

Reference: 11-01
Bryan Company employs a standard cost system in which direct materials inventory is carried at standard cost. Bryan has established the following standards for the prime costs of one unit of product: $$\begin{array} { | l | c | l | c | } 
\hline & \text { Standard Quantity } & \text { Standard Price } & \text { Standard Cost } \
\hline \text { Direct materials } & 6.0 \text { grams } & \$ 3.50 / \text { gram } & \$ 21.00 \
\hline \text { Direct labour } & 1.3 \text { hours } & \$ 11.00 / \text { hour } & 14.30 \
\hline & & & \$ 35.30 \
\hline
\end{array}$$ During March, Bryan purchased 165,000 grams of direct material at a total cost of $585,750. The total factory wages for March were $400,000, 90 percent of which were for direct labour. Bryan manufactured 25,000 units of product during March using 151,000 grams of direct material and 32,000 direct labour hours.
-The direct material quantity variance for March is:

Accepted Answer

A) $3,550 unfavourable. 
B) $3,550 favourable. 
C) $3,500 favourable. 
D) $3,500 unfavourable.

Question 7

Reference: 11-04
Cole laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows: $$\begin{array} { | l | l | l | } 
\hline & \text { Standard Quantity } & \begin{array} { l } 
\text { Standard Cost per } \
\text { Bag }
\end{array} \
\hline \text { Direct material } & 20 \text { grams } & \$ 8.00 \
\hline \text { Direct labour } & 0.1 \text { hours } & \$ 1.10 \
\hline \text { Variable manuf. overhead } & 0.1 \text { hours } & \$ 0.40 \
\hline
\end{array}$$ The company had no beginning inventories of any kind on Jan. 1. Variable manufacturing overhead is applied to production on the basis of direct labour hours. During January, the following activity was recorded by the company:
Production of Fastgro: 4,000 bags
Direct materials purchased: 85,000 grams at a cost of $32,300
Direct labour worked: 390 hours at a cost of $4,875
Variable manufacturing overhead incurred: $1,475
Inventory of direct materials on Jan. 31: 3,000 grams
-The total variance for variable overhead for January is:

Accepted Answer

A) $40 F. 
B) $85 F. 
C) $125 F. 
D) $100 U.

Question 8

Reference: 11-09
The following materials standards have been established for a particular product: $$\begin{array}{l}
\begin{array} { | l | l | l | } 
\hline \text { Standard quantity per unit of output } & 6.8 & \text { metres } \
\hline \text { Standard price } & \$ 17.10 & \text { per metre } \
\hline
\end{array}\
\text { The following data pertain to operations concerning the product for the last month: }\
\begin{array} { | l | l | l | } 
\hline \text { Actual materials purchased } & 9,000 & \text { metres } \
\hline \text { Actual cost of materials purchased } & \$ 156,600 & \
\hline \text { Actual materials used in production } & 8,500 & \text { metres } \
\hline \text { Actual output } & 1,200 & \text { units } \
\hline
\end{array}
\end{array}$$
-The following materials standards have been established for a particular product: $$\begin{array}{l}
\begin{array} { | l | l | } 
\hline \text { Standard quantity per unit of output } & 8.3 \text { grams } \
\hline \text { Standard price } & \$ 19.15 \text { per gram } \
\hline
\end{array}\
\text { The following data pertain to operations concerning the product for the last month: }\
\begin{array} { | l | l | } 
\hline \text { Actual materials purchased } & 7,500 \text { grams } \
\hline \text { Actual cost of materials purchased } & \$ 141,375 \
\hline \text { Actual materials used in production } & 7,100 \text { grams } \
\hline \text { Actual output } & 700 \text { units } \
\hline
\end{array}
\end{array}$$ What is the materials price variance for the month?

Accepted Answer

A) $7,540 U. 
B) $24,317 U. 
C) $7,660U. 
D) $2,250 F.

Question 9

Reference: 11-05
The Dexon Company makes and sells a single product called a Mip and employs a standard costing system. The following standards have been established for one unit of Mip: $$\begin{array} { | l | l | l | } 
\hline & \text { Standard Quantity of Hours } & \text { Standard Cost per Mip } \
\hline \text { Direct materials } & 6 \text { board metres } & \$ 9.00 \
\hline \text { Direct labour } & 0.8 \text { hours } & \$ 9.60 \
\hline
\end{array}$$ There were no inventories of any kind on August 1. During August, the following events occurred: Purchased 15,000 board metres at the total cost of $24,000.
Used 12,000 board feet to produce 2,100 Mips.
Used 1,700 hours of direct labour time at a total cost of $20,060.
-To record the purchase of direct materials, the general ledger would include what entry to the materials price variance account?

Accepted Answer

A) $1,500 credit. 
B) $1,500 debit. 
C) $6,000 debit. 
D) $6,000 credit.

Question 10

Reference: 11-11
The Clark Company makes a single product and uses standard costing. Variable overhead is assigned to production on the basis of direct labour hours. Some data concerning this product for the month of May follow: $$\begin{array} { | l | l | l | } 
\hline \text { Labour rate variance: } & \$ 7,000 & \mathrm {~F} \
\hline \text { Labour efficiency variance: } & \$ 12,000 & \mathrm {~F} \
\hline \text { Variable overhead efficiency variance: } & \$ 4,000 & \mathrm {~F} \
\hline \text { Number of units produced: } & 10,000 & \
\hline \text { Standard labour rate per direct labour hour: } & \$ 12 & \
\hline \text { Standard variable overhead rate per direct labour hour: } & \$ 4 & \
\hline \text { Actual labour hours used: } & 14,000 & \
\hline \text { Actual variable manufacturing overhead costs: } & \$ 58,290 & \
\hline
\end{array}$$
-Which of the following is the most probable reason a company would experience an unfavourable labour rate variance and a favourable labour efficiency variance?

Accepted Answer

A) the mix of workers assigned to the particular job was heavily weighted towards the use of higher paid, experienced individuals. 
B) because of the production schedule, workers from other production areas were assigned to assist this particular process. 
C) defective materials caused more labour to be used in order to produce a standard unit. 
D) the mix of workers assigned to the particular job was heavily weighted towards the use of new relatively low paid, unskilled workers.

Question 11

Reference: 11-13
The Upton Company employs a standard costing system in which variable overhead is assigned to production on the basis of direct labour hours. Data for the month of February include the following:
Variable manufacturing overhead cost incurred: $48,700
Total variable overhead variance: $300 F
Standard hours allowed for actual production: 7,000
Actual direct labour hours worked: 6,840
-An unfavourable labour efficiency variance indicates that:

Accepted Answer

A) the actual labour rate was higher than the standard labour rate. 
B) actual labour hours worked exceeded standard labour hours for the production level achieved. 
C) the labour rate variance must also be unfavourable. 
D) overtime labour was used during the period.

Question 12

Reference: 11-04
Cole laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows: $$\begin{array} { | l | l | l | } 
\hline & \text { Standard Quantity } & \begin{array} { l } 
\text { Standard Cost per } \
\text { Bag }
\end{array} \
\hline \text { Direct material } & 20 \text { grams } & \$ 8.00 \
\hline \text { Direct labour } & 0.1 \text { hours } & \$ 1.10 \
\hline \text { Variable manuf. overhead } & 0.1 \text { hours } & \$ 0.40 \
\hline
\end{array}$$ The company had no beginning inventories of any kind on Jan. 1. Variable manufacturing overhead is applied to production on the basis of direct labour hours. During January, the following activity was recorded by the company:
Production of Fastgro: 4,000 bags
Direct materials purchased: 85,000 grams at a cost of $32,300
Direct labour worked: 390 hours at a cost of $4,875
Variable manufacturing overhead incurred: $1,475
Inventory of direct materials on Jan. 31: 3,000 grams
-Patridge Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labour-hours. The information below is taken from the company's flexible budget for manufacturing overhead: $$\begin{array} { | l | l | l | l | } 
\hline \text { Percent of capacity } & 70 \% & 80 \% & 90 \% \
\hline \text { Direct labour-hours } & 21,000 & 24,000 & 27,000 \
\hline \text { Variable overhead } & \$ 42,000 & \$ 48,000 & \$ 54,000 \
\hline \text { Fixed overhead } & 108,000 & 108,000 & 108,000 \
\hline \text { Total overhead } & \$ 150,000 & \$ 156,000 & \$ 162,000 \
\hline
\end{array}$$ During the year, the company operated at exactly 80% of capacity, but applied manufacturing overhead to products based on the 90% level. The company's fixed overhead volume variance for the year was:

Accepted Answer

A) $6,000 favourable. 
B) $12,000 unfavourable. 
C) $12,000 favourable. 
D) $6,000 unfavourable.

Question 13

Reference: 11-03
The Albright Company uses standard costing and has established the following standards for its single product: $$\begin{array} { | l | l | } 
\hline \text { Direct materials } & 2 \text { litres at } \$ 3 \text { per litre } \
\hline \text { Direct labour } & 0.5 \text { hours at } \$ 8 \text { per hour } \
\hline \text { Variable manuf. overhead } & 0.5 \text { hours at } \$ 2 \text { per hour } \
\hline \begin{array} { l } 
\text { During November, the company made } 4,000 \text { units } \
\text { and incurred the following costs: }
\end{array} & \
\hline \text { Direct materials purchased } & 8,100 \text { litres at } \$ 3.10 \
\hline & \text { per litre } \
\hline \text { Direct materials used } & 7,600 \text { litres } \
\hline \text { Direct labour used } & 2,200 \text { hours at } \$ 8.25 \text { per hour } \
\hline \text { Actual variable manuf. overhead } & \$ 4,175 \
\hline
\end{array}$$ The company applies variable manufacturing overhead to products on the basis of direct labour hours.
-To measure controllable production inefficiencies, which of the following is the bes? basis for a company to use in establishing the standard hours allowed for the output of one unit of product?

Accepted Answer

A) The hours per unit that would be required for the present workforce to satisfy expected demand over the long run. 
B) Average historical performance for the last several years. 
C) Engineering estimates based on attainable performance. 
D) Engineering estimates based on ideal performance.

Question 14

Reference: 11-13
The Upton Company employs a standard costing system in which variable overhead is assigned to production on the basis of direct labour hours. Data for the month of February include the following:
Variable manufacturing overhead cost incurred: $48,700
Total variable overhead variance: $300 F
Standard hours allowed for actual production: 7,000
Actual direct labour hours worked: 6,840
-For the month of April, Thorp Co.'s records disclosed the following data relating to direct labour: $$\begin{array} { | l | l | l | } 
\hline \text { Actual cost } & \$ 10,000 & \
\hline \text { Rate variance } & \$ 1,000 & \text { favourable } \
\hline \text { Efficiency variance } & \$ 1,500 & \text { unfavourable } \
\hline
\end{array}$$ For the month of April, actual direct labour hours amounted to 2,000. In April, Thorp's standard direct labour rate per hour was:

Accepted Answer

A) $4.50. 
B) $5.50. 
C) $4.75. 
D) $5.00.

Question 15

Reference: 11-08
The following materials standards have been established for a particular product: $$\begin{array}{l}
\begin{array} { | l | l | l | } 
\hline \text { Standard quantity per unit of output } & 1.9 & \text { grams } \
\hline \text { Standard price } & \$ 18.00 & \text { per gram } \
\hline
\end{array}\
\text { The following data pertain to operations concerning the product for the last month: }\
\begin{array} { | l | l | l | } 
\hline \text { Actual materials purchased } & 5,800 & \text { grams } \
\hline \text { Actual cost of materials purchased } & \$ 108,460 & \
\hline \text { Actual materials used in production } & 5,200 & \text { grams } \
\hline \text { Actual output } & 2,700 & \text { units } \
\hline
\end{array}
\end{array}$$
-Tower Company planned to produce 3,000 units of its single product, Titactium, during November. The standards for one unit of Titactium specify six grams of materials at
$0.30 per gram. Actual production in November was 3,100 units of Titactium. There was a favourable materials price variance of $380 and an unfavourable materials quantity variance of $120. Based on these variances, one could conclude that:

Accepted Answer

A) the actual cost per gram for materials was less than the standard cost per gram. 
B) the actual usage of materials was less than the standard allowed. 
C) more materials were used than were purchased. 
D) more materials were purchased than were used.

Question 16

Reference: 11-04
Cole laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows: $$\begin{array} { | l | l | l | } 
\hline & \text { Standard Quantity } & \begin{array} { l } 
\text { Standard Cost per } \
\text { Bag }
\end{array} \
\hline \text { Direct material } & 20 \text { grams } & \$ 8.00 \
\hline \text { Direct labour } & 0.1 \text { hours } & \$ 1.10 \
\hline \text { Variable manuf. overhead } & 0.1 \text { hours } & \$ 0.40 \
\hline
\end{array}$$ The company had no beginning inventories of any kind on Jan. 1. Variable manufacturing overhead is applied to production on the basis of direct labour hours. During January, the following activity was recorded by the company:
Production of Fastgro: 4,000 bags
Direct materials purchased: 85,000 grams at a cost of $32,300
Direct labour worked: 390 hours at a cost of $4,875
Variable manufacturing overhead incurred: $1,475
Inventory of direct materials on Jan. 31: 3,000 grams
-The Adlake Company makes and sells a single product and uses a standard cost system. During October, the company budgeted $300,000 in fixed manufacturing overhead cost at a denominator activity of 20,000 machine-hours. At standard, each unit of finished product requires 5 machine-hours. The following cost and activity were recorded during October: $$\begin{array} { | l | l | } 
\hline \text { Total actual fixed manufacturing overhead cost incurred } & \$ 294,000 \
\hline \text { Units of product completed } & 3,800 \
\hline \text { Actual machine-hours worked } & 19,422 \
\hline
\end{array}$$ The amount of fixed overhead cost that the company applied to work in process for
October was:

Accepted Answer

A) $294,000. 
B) $291,330. 
C) $285,000. 
D) $279,300.

Question 17

Reference: 11-02
The Litton Company has established standards as follows:
Direct material 3 kg @ $4/kg = $12 per unit
Direct labour 2 hrs. @ $8/hr. = $16 per unit
Variable manuf. overhead 2 hrs. @ $5/hr. = $10 per unit
Actual production figures for the past year are given below. The company records the materials price variance when materials are purchased.
 $\begin{array} { | l | l | l |  } 
\hline\quad\quad\quad&\quad\quad\quad&\quad\quad\\hline\quad\quad\quad&\quad\quad\quad&\quad\quad\\hline\quad\quad\quad&\quad\quad\quad&\quad\quad\\hline\quad\quad\quad&\quad\quad\quad&\quad\quad\\hline\quad\quad\quad&\quad\quad\quad&\quad\quad\\hline\quad\quad\quad&\quad\quad\quad&\quad\quad\
\hline
\end{array}$
 Units produced 600
Direct material used 2,000 kg
Direct material purchased (3,000 kg) $11,400
Direct labour cost (1,100 hrs.) $ 9,240
Variable manuf. overhead cost incurred $ 5,720
The company applies variable manufacturing overhead to products on the basis of direct labour hours.
-The labour efficiency variance is?

Accepted Answer

A) $840 F. 
B) $840 U. 
C) $800 U. 
D) $800 F.

Question 18

Reference: 11-11
The Clark Company makes a single product and uses standard costing. Variable overhead is assigned to production on the basis of direct labour hours. Some data concerning this product for the month of May follow: $$\begin{array} { | l | l | l | } 
\hline \text { Labour rate variance: } & \$ 7,000 & \mathrm {~F} \
\hline \text { Labour efficiency variance: } & \$ 12,000 & \mathrm {~F} \
\hline \text { Variable overhead efficiency variance: } & \$ 4,000 & \mathrm {~F} \
\hline \text { Number of units produced: } & 10,000 & \
\hline \text { Standard labour rate per direct labour hour: } & \$ 12 & \
\hline \text { Standard variable overhead rate per direct labour hour: } & \$ 4 & \
\hline \text { Actual labour hours used: } & 14,000 & \
\hline \text { Actual variable manufacturing overhead costs: } & \$ 58,290 & \
\hline
\end{array}$$
-A favourable labour efficiency variance would result in a credit balance in the labour
efficiency variance account.

Accepted Answer

A) True 
 B)False

Question 19

Reference: 11-05
The Dexon Company makes and sells a single product called a Mip and employs a standard costing system. The following standards have been established for one unit of Mip: $$\begin{array} { | l | l | l | } 
\hline & \text { Standard Quantity of Hours } & \text { Standard Cost per Mip } \
\hline \text { Direct materials } & 6 \text { board metres } & \$ 9.00 \
\hline \text { Direct labour } & 0.8 \text { hours } & \$ 9.60 \
\hline
\end{array}$$ There were no inventories of any kind on August 1. During August, the following events occurred: Purchased 15,000 board metres at the total cost of $24,000.
Used 12,000 board feet to produce 2,100 Mips.
Used 1,700 hours of direct labour time at a total cost of $20,060.
-If the actual labour hours worked exceed the standard labour hours allowed, what type of variance will occur?

Accepted Answer

A) Unfavourable labour rate variance. 
B) Favourable labour rate variance. 
C) Unfavourable labour efficiency variance. 
D) Favourable labour efficiency variance.

Question 20

Reference: 11-02
The Litton Company has established standards as follows:
Direct material 3 kg @ $4/kg = $12 per unit
Direct labour 2 hrs. @ $8/hr. = $16 per unit
Variable manuf. overhead 2 hrs. @ $5/hr. = $10 per unit
Actual production figures for the past year are given below. The company records the materials price variance when materials are purchased. $$\begin{array} { | l | l | l | } 
\hline \text { Units produced } & 600 & \
\hline \text { Direct material used } & 2,000 & \mathrm {~kg} \
\hline \text { Direct material purchased } ( 3,000 \mathrm {~kg} ) & \$ 11,400 & \
\hline \text { Direct labour cost } ( 1,100 \mathrm { hrs } . ) & \$ 9,240 & \
\hline \text { Variable manuf. overhead cost incurred } & \$ 5,720 & \
\hline
\end{array}$$ The company applies variable manufacturing overhead to products on the basis of direct labour hours.
-The following labour standards have been established for a particular product: $$\begin{array}{l}
\begin{array} { | l | l | } 
\hline \text { Standard labour hours per unit of output } & 8.3 \text { hours } \
\hline \text { Standard labour rate } & \$ 12.10 \text { per hour } \
\hline
\end{array}\
\text { The following data pertain to operations concerning the product for the last month: }\
\begin{array} { | l | l | } 
\hline \text { Actual hours worked } & 6,100 \text { hours } \
\hline \text { Actual total labour cost } & \$ 71,370 \
\hline \text { Actual output } & 900 \text { units } \
\hline
\end{array}
\end{array}$$ What is the labour efficiency variance for the month?

Accepted Answer

A) $16,029 F. 
B) $19,017 F. 
C) $16,577 F. 
D) $19,017 U.

Exam 11: Standard Costs and Variance Analysis