Question 1

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

Accepted Answer

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

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

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 4

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

Accepted Answer

A) True 
 B)False

Question 5

Powerhorse, Inc., manufactures steel hitches for horse trailers. The company's direct labor rates have been set by the terms of the current labor contract. Direct labor rate standards have been assigned for each job classification. In July 20xx, a young apprentice was being trained during regular working hours to become a machine operator on one of the turret lathes. A timekeeper determined that the apprentice had spent a total of 48 hours as a novice machine operator in July. Standard time for the same work output is 34 hours. The apprentice earned $6.80 per hour in July. The standard direct labor rate for machine operators working on turret lathes is $9.50 per hour.
a. From the data provided, determine the direct labor efficiency variance and the direct labor rate variance that resulted from the temporary substitution of the apprentice for the regular machine operator. (Note that, according to the labor contract, the apprentice is not entitled to the same rate as a regular machine operator during the training period.)
b. Did the company benefit financially from the situation? Why or why not? (Show calculations.)

Accepted Answer

The answer of Powerhorse, Inc., manufactures steel hitches for horse...

Question 6

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. Direct labor haurs used  $\quad 4,950 $ hours
Total cost of direct labor $\quad \$ 53,460$
Number of good urits produced $\quad 9,000 $units

Accepted Answer

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

Question 7

Harrison, Inc., has computed direct labor standards for the manufacture of its product to be 4 hours of labor per product at a cost of $15 per hour. During March, Harrison produced 45 products in 190 hours and incurred direct labor costs of $2,720. Harrison's direct labor efficiency variance was

Accepted Answer

A)  $20 (U). 
B)  $130 (U). 
C)  $150 (U). 
D)  $130 (F).

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

Outdoors, Inc., manufactures steel hitches for camping trailers. The company's direct labor rates have been set by the terms of the current labor contract. Direct labor rate standards have been assigned for each job classification. In May 20xx, a young apprentice was being trained during regular working hours to become a machine operator on one of the turret lathes. A timekeeper determined that the apprentice had spent a total of 48 hours as a novice machine operator in May. Standard time for the same work output is 32 hours. The apprentice earned $6.25 per hour in May. The standard direct labor rate for machine operators working on turret lathes is $10 per hour.
a. From the data provided, determine the direct labor efficiency variance and the direct labor rate variance that resulted from the temporary substitution of the apprentice for the regular machine operator. (Note that, according to the labor contract, the apprentice is not entitled to the same rate as a regular machine operator during the training period.)
b. Did the company benefit financially from the situation? Why or why not? (Show calculations.)

Accepted Answer

The answer of Outdoors, Inc., manufactures steel hitches for camping...

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Sweet Dreams manufactures candy. Its records revealed the following data: $$\begin{array} { l l } 
\text { Number af urits produced } & 4,000 \
\text { Standard direct labor hours per unit } & 2 \
\text { Standard variable overhead rate } & \$ 2.50 \text { per hour } \
\text { Standard fixed overhead rate } & \$ 5.00 \mathrm { per } \text { hour } \
\text { Budgeted Eixed overhead costs } & \$ 40,800 \
\text { Actual variable cverhead costs } & \$ 16,800 \
\text { Actual fixed overhead costs } & \$ 40,400 \
\text { Actual labor hours } & 8,000 \text { direct labor hours } \
\text { Total actual dverhead } & \$ 57,200
\end{array}$$ The total fixed overhead variance is

Accepted Answer

A)  $800 (F). 
B)  $800 (U). 
C)  $400 (U). 
D)  $400 (F).

Question 12

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

Accepted Answer

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 13

Love-My-Lips specializes in manufacturing lipstick. Legally Pink, one of more than 75 shades produced by the company, is made from castor oil, beeswax, aloe vera, and a base compound.
For the next 12 months, the company's purchasing agent believes that the cost of ingredients will be as follows:
  The direct labor time standard is 4 hours per case at a standard direct labor rate of $10.00 per hour. The standard overhead rates are $16.00 per direct labor hour for the standard variable overhead rate and $12.00 per direct labor hour for the standard fixed overhead rate. 
a. Using these production standards, compute the standard unit cost of direct materials per case of Legally Pink lipstick if it takes 0.4 gallon of castor oil, 1 pound of beeswax, 0.2 gallon of aloe vera, and 1 gallon of base compound to produce one case.
b. Using the standard unit cost of direct materials per case determined in (a) and the production standards given for direct labor and overhead, compute the standard unit cost of one case of Legally Pink lipstick.

Accepted Answer

The answer of Love-My-Lips specializes in manufacturing lipstick. Legally Pink,...

Question 14

Variance analysis includes all of the following except

Accepted Answer

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

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Ewing Corporation's controller has developed the cost and usage data listed below in preparation of standard unit cost information for the coming year.  The total standard unit cost is

Accepted Answer

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

Question 18

During April 2010, production is expected to be 30,000 units with the following costs: direct materials, $195,000; direct labor, $300,000; variable overhead, $120,000; and fixed overhead, $150,000. Prepare a flexible budget for 25,000 and 35,000 units.

Accepted Answer

The answer of During April 2010, production is expected to...

Question 19

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

Accepted Answer

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 20

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?

Accepted Answer

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

Exam 26: Standard Costing and Variance Analysis

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

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

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

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

Harrison, Inc., has computed direct labor standards for the manufacture of its product to be 4 hours of labor per product at a cost of $15 per hour. During March, Harrison produced 45 products in 190 hours and incurred direct labor costs of $2,720. Harrison's direct labor efficiency variance was

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.

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

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

Variance analysis includes all of the following except

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

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

Ewing Corporation's controller has developed the cost and usage data listed below in preparation of standard unit cost information for the coming year. The total standard unit cost is

During April 2010, production is expected to be 30,000 units with the following costs: direct materials, $195,000; direct labor, $300,000; variable overhead, $120,000; and fixed overhead, $150,000. Prepare a flexible budget for 25,000 and 35,000 units.

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

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?