Question 1

Baker Company adopted a standard cost system several years ago. The standard costs for the prime costs of its single product follow: $\begin{array}{ll}
\text { Material: } 10 \mathrm{~kg} @ \$ 4.50 \text { per kilogram } & \$ 45.00 \
\text { Labour: } 6 \text { hours } @ \$ 8.50 \text { perhour } & \$ 51.00
\end{array}$ The following operating data were taken from the records for December:
1.
Units completed:
5,800 units
2.
Budgeted output:
6,000 units
3.
Materials purchased:
60,000 kg
4.
Total actual labour costs:
$306,600
5.
Actual hours of labour:
36,500 hours
6.
Material usage variance:
$2,250 unfavourable
7.
Total material variance:
$450 unfavourable
Required:
Compute the following:
A. Labour rate variance
B. Labour efficiency variance
C. Actual kilograms of material used in the production process
D. Actual cost paid per kilogram of material

Accepted Answer

The answer of Baker Company adopted a standard cost system...

Question 2

What is most characteristic of ideal standards?

Accepted Answer

A)  Demand minimum efficiency. 
B)  Can be achieved under efficient operations. 
C)  Can be achieved only if everything operates perfectly. 
D)  Allow for machine breakdowns, slack, or lack of momentary skill.

Question 3

Aqua Company
Aqua Company produces aquariums. During the year, 150,000 aquariums were produced. Materials and labour standards for producing the aquariums are as follows: $\begin{array}{ll}
\text { Direct materials (2 sheets of glass }(\$) \$ 2 \text { per sheet) } & \$ 4 \
\text { Direct labour (3 hours }(\$ 8 \text { per hour) } & 24
\end{array}$ The company purchased and used 310,000 sheets of glass at $1.50 per sheet, and its actual labour hours were 435,000 hours at a wage rate of $8.50 per hour.
-Refer to Aqua Company. What is the materials usage variance?

Accepted Answer

A)  $15,000 U 
B)  $20,000 U 
C)  $135,000 U 
D)  $170,000 U

Question 4

Serenity Equestrian Corporation
Serenity Equestrian Corporation produces high-quality leather saddles. The company has a standard cost system and has set the following standards for materials and labour: $$\begin{array} { l l } 
\text { Leather } ( 20 \text { strips } ( Q , \$ 15 \text { per strip) } & \$ 300 \
\text { Direct labour } ( 15 \text { hours } ( a ) \$ 15 \text { per hour } ) & \$ 225 \
\text { Total prime cost } & \$ 525
\end{array}$$ During the year, the company produced 150 saddles. Actual leather purchased was 3,100 strips at $12 per strip. There were no beginning or ending inventories of leather.Actual direct labour was 2,500 hours at $16 per hour.
-Refer to Serenity Equestrian Corporation. What is the materials usage variance?

Accepted Answer

A)  $1,200 U 
B)  $1,200 F 
C)  $1,500 U 
D)  $1,500 F

Question 5

High Fly Company
High Fly Company manufactures model airplanes. During the month, it manufactured 10,000 airplanes. Each airplane used an average of 6.5 direct labour hours and an average of 1.5 sheets of aluminum. The company normally manufactures 7,500 airplanes each month. Materials and labour standards for making the airplanes are as follows: $$\begin{array} { l l } 
\text { Direct materials (1 sheet of aluminum } ( @ ) 10.00 \text { per sheet) } & \$ 10.00 \
\text { Direct materials (other accessories } @ \$ 8.75 ) & \$ 8.75 \
\text { Direct labour } ( 6 \text { hours } @ \$7.00 \text { per hour) } & \$ 42.00
\end{array}$$
-Refer to High Fly Company. What is the standard number of sheets of aluminum allowed for a volume of 10,000 airplanes?

Accepted Answer

A)  7,500 sheets 
B)  10,000 sheets 
C)  11,250 sheets 
D)  15,000 sheets

Question 6

How do standard cost systems enhance operational control?

Accepted Answer

A)  through actual costs, which indicate the price received for units sold 
B)  through standard costs, which indicate the desired cost of a unit of input 
C)  through efficiency variances, which indicate the need for corrective action 
D)  through price variances, which indicate the need for better spending control

Question 7

What are price standards based on?

Accepted Answer

A)  the amount that should be paid per unit of output 
B)  the amount that should be used per unit of output 
C)  the amount that should be paid per unit of input purchased 
D)  the amount that should be paid for the total quantity of input to be used

Question 8

During March, 6,000 direct labour hours were worked at a standard cost of $22 per hour. Suppose the direct labour rate variance for March was $1,600 favourable. What was the actual cost per direct labour hour?

Accepted Answer

A)  $17.50 
B)  $20.00 
C)  $21.73 
D)  $22.50

Question 9

A favourable usage variance would occur when the actual usage of inputs is greater than the standard usage.

Accepted Answer

A) True 
 B)False

Question 10

During November, 10,000 direct labour hours were worked at a standard cost of $10 per hour. Suppose the direct labour rate variance for November was $4,000 unfavourable. What was the actual cost per direct labour hour?

Accepted Answer

A)  $9.20 
B)  $9.60 
C)  $10.00 
D)  $10.40

Question 11

Green Lawn Corporation
Green Lawn Corporation wants to produce a new lawnmower. The financial data is as follows: Target price: $\quad \$ 450$
Target profit: $\quad \$ 75$ Estimated cost given current product and process designs: $400
-Refer to Green Lawn Corporation. What is the target cost?

Accepted Answer

A)  $225 
B)  $275 
C)  $300 
D)  $375

Question 12

What are sources of quantity standards?

Accepted Answer

A)  benchmarks 
B)  budget studies 
C)  historical experience 
D)  input from interested personnel

Question 13

Wiltshire Limited produces woollen blankets and clothing. During Year 1, Wiltshire produced 10,000 items of blankets and clothing using 4,250 bundles of wool at a price of $10 per bundle. $\begin{array}{ll}
\text { Standard bundles of wool } & 4,000 \
\text { Standard price } & \$ 20 \text { per bundle }
\end{array}$ The difference between the actual quantity of materials and the standard quantity of materials is due to waste. At the end of Year 1, Wiltshire developed a new process that would cut down on the waste by 60%. By the end of Year 2, the company had actually cut down its waste by 50%.
Required:
A. Identify the kaizen and materials standards in place at the beginning of Year 2. Express the standards in both physical and financial terms.
B. Calculate the expected cost reduction.
C. Calculate the actual cost reduction.

Accepted Answer

The answer of Wiltshire Limited produces woollen blankets and clothing....

Question 14

Action Company
Action Company's standard cost is $600,000. The allowable deviation is ±10%. Its actual costs for three months are as follows: $$\begin{array} { l l } 
\text { April } & \$ 520,000 \
\text { May } & \$ 550,000 \
\text { June } & \$ 575,000
\end{array}$$
-Refer to Action Company. What are the upper and lower control limits, respectively?

Accepted Answer

A)  $575,000 and $520,000 
B)  $640,000 and $500,000 
C)  $660,000 and $540,000 
D)  $660,000 and $600,000

Question 15

A favourable price variance occurs whenever the actual prices are greater than the standard prices.

Accepted Answer

A) True 
 B)False

Question 16

Match each of the following terms with their correct description from the items listed below.* Each term may be used more than once, and it is possible that one or more of the classifications may not be used at all.
-This reflects the planned improvement that is set, which will help reduce non-value-added costs.

Accepted Answer

A) Quantity standards 
B) Ideal standards 
C) Price standards 
D) Standard cost sheet 
E) Upper control limit
F)Currently attainable standards
G)Kaizen standards

Question 17

MacDowell Company manufactures 100 kg bags of fertilizer that have the following unit standard costs for direct materials and direct labour: $\begin{array}{lr}
\text { Direct materials (100 kg }(\$ 1.00 \text { per kilogram) } & \$ 100.00 \
\text { Direct labour }(0.5 \text { hours at } \$ 24 \text { per hour) } & 12.00 \
\text { Total standard direct cost per } 100 \mathrm{~kg} \text { bag } & \$ 112.00
\end{array}$ The following activities were recorded for October:
• 1,000 bags were manufactured.
• 95,000 kg of materials costing $76,000 were purchased.
• 102,500 kg of materials were used.
• $12,000 was paid for 475 hours of direct labour.
There were no beginning or ending work-in-process inventories.
Required:
A. Compute the direct materials variances.
B. Compute the direct labour variances.
C. Give possible reasons for the occurrence of each of the preceding variances.

Accepted Answer

The answer of MacDowell Company manufactures 100 kg bags of...

Question 18

Aqua Company
Aqua Company produces aquariums. During the year, 150,000 aquariums were produced. Materials and labour standards for producing the aquariums are as follows: $\begin{array}{ll}
\text { Direct materials (2 sheets of glass }(\$) \$ 2 \text { per sheet) } & \$ 4 \
\text { Direct labour (3 hours }(\$ 8 \text { per hour) } & 24
\end{array}$ The company purchased and used 310,000 sheets of glass at $1.50 per sheet, and its actual labour hours were 435,000 hours at a wage rate of $8.50 per hour.
-Refer to Aqua Company. What is the labour rate variance?

Accepted Answer

A)  $97,500 U 
B)  $217,500 U 
C)  $217,500 F 
D)  $225,000 U

Question 19

Refer to Roofus Company. What is the journal entry to record the purchase of materials?

Accepted Answer

A)  Materials 18,900
Materials Price Variance 5,600
Accounts Payable 24,500 
B)  Materials 19,575
Materials Price Variance 5,800
Accounts Payable 25,375 
C)  Materials 24,500
Materials Price Variance 5,600
Accounts Payable 18,900 
D)  Materials 25,375
Materials Price Variance 5,800
Accounts Payable 19,575

Question 20

Kaizen costing focuses on the continuous reduction of manufacturing costs of existing products and processes.

Accepted Answer

A) True 
 B)False

Exam 10: Standard Costing: a Managerial Control Tool

What is most characteristic of ideal standards?

How do standard cost systems enhance operational control?

What are price standards based on?

During March, 6,000 direct labour hours were worked at a standard cost of $22 per hour. Suppose the direct labour rate variance for March was $1,600 favourable. What was the actual cost per direct labour hour?

A favourable usage variance would occur when the actual usage of inputs is greater than the standard usage.

During November, 10,000 direct labour hours were worked at a standard cost of $10 per hour. Suppose the direct labour rate variance for November was $4,000 unfavourable. What was the actual cost per direct labour hour?

What are sources of quantity standards?

A favourable price variance occurs whenever the actual prices are greater than the standard prices.

Refer to Roofus Company. What is the journal entry to record the purchase of materials?

Kaizen costing focuses on the continuous reduction of manufacturing costs of existing products and processes.