Deck 10: Standard Costing: a Managerial Control Tool

Question 1

Operating personnel can easily achieve standards set by engineering studies.

Answer 1

False

Question 2

The benefits of operational control may NOT extend to manufacturing environments that are emphasizing continuous improvement and just-in-time (JIT) purchasing and manufacturing.

Answer 2

True

Question 3

The actual quantity of input at the standard price less the standard quantity of input at the actual price equals the usage variance.

Answer 3

False

Question 4

Ideal standards demand maximum efficiency and can be achieved only if everything operates perfectly.

Question 5

Managers develop quantity standards when they decide what amount of input should be used per unit of output.

Question 6

The total budget variance is the difference between the actual cost of the input and its actual cost.

Question 7

Currently attainable standards can be achieved under efficient operating conditions.

Question 8

One reason for adopting a standard cost system is to make product costing easier.

Question 9

Historical experience may provide an initial guideline for setting standards, but it should be used with caution.

Question 10

Managers develop price standards when they determine what amount should be paid for the quantity of input to be used.

Question 11

The standard cost sheet provides the input standards needed to compute the total amount of inputs allowed for the actual output, an essential component in computing efficiency variances.

Question 12

If a process-costing system uses standard costing to assign product costs, it is essential to also compute a unit cost for each equivalent unit cost category.

Question 13

Standard costs are developed for direct materials, direct labour, and variable overhead only.

Question 14

Currently attainable standards offer the most behavioural benefits because higher performance levels are attained through challenging, yet achievable, standards.

Question 15

To compute the standard direct labour hours allowed, multiply the unit labour standard by the standard output.

Question 16

The standard cost per unit of output for a particular input is calculated by multiplying the standard price per unit by the standard number of units produced.

Question 17

The standard quantity of materials allowed can be calculated by multiplying the unit quantity standard by the actual price.

Question 18

The quantity of each input that should be used to produce one unit of output is documented on the standard cost sheet.

Question 19

Ideal standards allow for machine breakdowns, slack, or momentary lack of skill.

Question 20

The unit standard quantity of inputs is an essential component in the computation of total amount of inputs allowed for the actual output and efficiency variances.

Question 21

In kaizen costing, the cost reduction process is controlled by repetitive use of continuous improvements and maintenance.

Question 22

When accounting for variances, favourable variances are always debits to the variance account, and unfavourable variances are always credits to the variance account.

Question 23

The sum of the material price variance and the material usage variance will add up to the total materials variance even if the materials purchased are NOT equal to the materials used.

Question 24

What are sources of quantity standards?

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

Question 25

To determine whether variances are significant, managers set control limits, which represent the acceptable range, plus or minus an allowable deviation.

Question 26

The sum of the labour rate variance and the labour efficiency variance will NOT add up to the total labour variance.

Question 27

What are price standards based on?

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 28

Which standards are based on the amount of input that should be used per unit of output?

A) ideal standards
B) price standards
C) kaizen standards
D) quantity standards

Question 29

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

Question 30

For better control, the materials price variance is computed using the standard quantity of materials used.

Question 31

The actual quantity of input at the actual price less the actual quantity of input at the standard price is the price variance.

Question 32

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

Question 33

The materials price variance is computed using the actual quantity of materials used, and the materials usage variance is computed using the actual quantity of materials purchased.

Question 34

Kaizen costing provides fixed standards which reflect continuous improvement efforts.

Question 35

In kaizen costing, each period's kaizen standard is based on prior periods' improvements, thereby locking in these improvements.

Question 36

Why should historical experience be used with caution in a standard setting?

A) Historical experience can perpetuate inefficiencies.
B) Historical experience provides very rigorous guidelines.
C) Standards based on historical experience are better than standards based on engineering studies.
D) Operating personnel may not be able to achieve operating standards based on historical experience.

Question 37

Which of the following is NOT characteristic of engineering studies?

A) They are ideal standards.
B) They provide very rigorous guidelines.
C) They are often achievable by operating personnel.
D) They can determine the most efficient way to operate.

Question 38

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

Question 39

Kaizen means continuous improvement.

Question 40

A kaizen standard reflects the realized improvements for the past periods and a search for more improvements for the future.

Question 41

What formula is used to determine the usage variance?

A) (AQ - SQ) x SP
B) (SQ - AQ) x SP
C) (AQ - AQ) x SP
D) (SQ + AQ) x SP

Question 42

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?

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

Question 43

How are costs assigned in a standard cost system?

A) actual direct materials, actual direct labour, and actual manufacturing overhead
B) actual direct materials, actual direct labour, and budgeted manufacturing overhead
C) standard direct materials, standard direct labour, and standard manufacturing overhead
D) budgeted direct materials, standard direct labour, and standard manufacturing overhead

Question 44

What provides both the production data needed to calculate the standard unit cost and the underlying details for the standard cost per unit?

A) the balance sheet
B) the standard cost sheet
C) the standard production budget
D) the standard work-in-process account

Question 45

What is NOT characteristic of normal costing systems?

A) A normal costing system predetermines overhead costs.
B) A normal costing system has less capacity for control than a standard costing system.
C) In a normal costing system, overhead is assigned using a budgeted rate and actual activity.
D) A normal costing system assigns direct materials and direct labour to products using a predetermined rate.

Question 46

Which formula is used to compute standard hours allowed?

A) unit labour standard × actual input
B) unit labour standard × actual output
C) unit labour standard × standard input
D) unit labour standard × standard output

Question 47

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. How many standard hours are allowed for a volume of 10,000 airplanes?

A) 60,000 hours
B) 65,000 hours
C) 70,000 hours
D) 420,000 hours

Question 48

What is NOT characteristic of control limits?

A) Control limits are set objectively using standard formulas.
B) The upper control limit is the standard plus the allowable deviation.
C) The lower control limit is the standard minus the allowable deviation.
D) Control limits are the top and bottom measures of the allowable range.

Question 49

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?

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 50

Why are standard cost systems adopted?

A) to collect additional information
B) to increase efficiency in a just-in-time environment
C) to improve planning and control, and to facilitate product costing
D) to enhance the operational control of firms that emphasize continuous improvement

Question 51

How do standard cost systems enhance operational control?

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 52

Which statement best describes variances?

A) All variances should be investigated.
B) Variances indicate cause of deviations from plans.
C) Variances indicate who is responsible for deviations from plans.
D) Variances indicate that actual performance is not going according to plan.

Question 53

What is most characteristic of ideal standards?

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 54

Which formula is used to compute the standard quantity of materials allowed?

A) unit quantity standard × actual input
B) unit quantity standard × actual output
C) unit quantity standard × standard input
D) unit quantity standard × standard output

Question 55

Which statement best reflects the responsibility for setting price standards for materials and labour?

A) Purchasing must record price standards.
B) Personnel must consider discounts, freight, and quality.
C) Purchasing must consider payroll taxes, fringe benefits, and qualifications.
D) It is the joint responsibility of operations, purchasing, personnel, and accounting.

Question 56

What is an advantage of standard costing over normal costing and actual costing?

A) provides a greater capacity for control
B) provides limited availability of unit cost information
C) makes it necessary to compute a unit cost for each equivalent unit cost category
D) makes it easy to distinguish the FIFO and weighted average methods of accounting for beginning inventory costs

Question 57

How are costs assigned in a normal cost system?

A) actual direct materials, actual direct labour, and actual manufacturing overhead
B) actual direct materials, actual direct labour, and budgeted manufacturing overhead
C) budgeted direct materials, actual direct labour, and standard manufacturing overhead
D) budgeted direct materials, standard direct labour, and standard manufacturing overhead

Question 58

Which statement is characteristic of currently attainable standards?

A) They are challenging and not achievable.
B) They can be achieved under efficient operating conditions.
C) They tend to achieve lower performance levels from personnel.
D) No allowance is made for normal breakdowns, interruptions, etc.

Question 59

Which variance is the difference between the actual cost of the input and its planned cost?

A) the price variance
B) the usage variance
C) the efficiency variance
D) the total budget variance

Question 60

What results from implementing standard cost systems in manufacturing environments that emphasize continuous improvement and just-in-time manufacturing and purchasing?

A) The standard cost system enhances the operational control.
B) The operational level will benefit from the detailed computation of variances.
C) Variances can be computed and presented in reports to higher-level managers.
D) The materials price variance may encourage the purchasing department to buy in smaller quantities to reduce inventories.

Question 61

Bi-land Company
Bi-land Company's standard cost is $150,000. The allowable deviation is ±10%. The actual costs for six months are as follows: $$\begin{array} { l l } \text { January } & \$ 130,000 \\\text { February } & \$ 120,000 \\\text { March } & \$ 145,000 \\\text { April } & \$ 160,000 \\\text { May } & \$ 170,000 \\\text { June } & \$ 180,000\end{array}$$

-Refer to Bi-land Company. How many months resulted in a variance that is lower than the lower control limit?

A) 0
B) 1
C) 2
D) 3

Question 62

Min Company
Min Company has developed the following standards for one of its products. $$\begin{array} { l l } \text { Direct materials: } & 15 \mathrm {~kg} \times \$ 17.50 \text { per kilogram } \\\text { Direct labour: } & 4 \text { hours } \times \$ 24 \text { per hour } \\\text { Variable manufacturing overhead: } & 4 \text { hours } \times \$ 14 \text { per hour }\end{array}$$ The following activity occurred during the month of November: $\begin{array}{ll}\text { Materials purchased: } & 20,000 \mathrm{~kg} \text { costing } \$ 340,000 \\\text { Materials used: } & 7,200 \mathrm{~kg} \\\text { Units produced: } & 500 \text { units } \\\text { Direct labour: } & 2,300 \text { hours at } \$ 23.60 \text { per hour }\end{array}$ The company records materials price variances at the time of purchase.

-What is the direct materials price variance?

A) $10,000 U
B) $10,000 F
C) $50,000 U
D) $50,000 F

Question 63

Refer to RJB Builders. What was the materials price variance?

A) $49,900 U
B) $49,900 F
C) $50,000 U
D) $50,000 F

Question 64

Refer to RJB Builders. What was the materials usage variance?

A) $2,000 U
B) $2,000 F
C) $1,900 U
D) $1,900 F

Question 65

Refer to Cakers Express. Assuming the company found that it had an unfavourable materials price variance of $1,000, what is the standard cost of flour?

A) $0.95 /kg
B) $1.00 /kg
C) $1.95 /kg
D) $2.05 /kg

Question 66

During August, 40,000 units were produced. The standard quantity of material allowed per unit was 5 kg at a standard cost of $2.50 per kilogram. Suppose the company had a favourable usage variance of $25,000. What would have been the actual quantity of materials used?

A) 95,000 kg
B) 105,000 kg
C) 190,000 kg
D) 210,000 kg

Question 67

Refer to Royal Company. What is the material usage variance?

A) $850 U
B) $850 F
C) $1,950 F
D) $2,850 F

Question 68

What is characteristic of direct materials variances?

A) The materials usage variance uses the actual quantity of materials purchased.
B) The materials price variance uses the actual quantity of materials purchased rather than the actual quantity of materials used.
C) The materials price variance always uses the actual quantity of materials used rather than the actual quantity of materials purchased.
D) The sum of the price and usage variances will add up to the total materials variance even if the amount of materials purchased is different from the amount of materials used.

Question 69

Bi-land Company
Bi-land Company's standard cost is $150,000. The allowable deviation is ±10%. The actual costs for six months are as follows: $$\begin{array} { l l } \text { January } & \$ 130,000 \\\text { February } & \$ 120,000 \\\text { March } & \$ 145,000 \\\text { April } & \$ 160,000 \\\text { May } & \$ 170,000 \\\text { June } & \$ 180,000\end{array}$$

-Refer to Bi-land Company. What are the upper and lower control limits, respectively?

A) $165,000 and $105,000
B) $165,000 and $135,000
C) $175,000 and $150,000
D) $205,000 and $95,000

Question 70

Refer to Cakers Express. Assuming the company found that it had a favourable materials price variance of $1,000, what is the flour's standard cost per kilogram?

A) $0.95 /kg
B) $1.00 /kg
C) $1.95 /kg
D) $2.05 /kg

Question 71

What is characteristic of the use of materials variance information?

A) The production manager is generally responsible for acquiring quality materials.
B) The production manager is generally responsible for the materials usage variance.
C) The production manager is generally responsible for the materials price variance.
D) The purchasing department is generally concerned with minimizing scrap, waste, and rework.

Question 72

Refer to Risco Company. Assuming the company determined that it had a favourable materials usage variance of $2,000, what was the actual quantity of materials used? (Round your answer to the nearest kg)

A) 11,875 kg
B) 12,125 kg
C) 25,778 kg
D) 27,778 kg

Question 73

Which formula is used to calculate the materials price variance?

A) (actual price × actual quantity) - (standard price × actual quantity)
B) (standard price × actual quantity) - (actual price × actual quantity)
C) (actual price × actual quantity) - (standard price × standard quantity)
D) (standard price × standard quantity) - (actual price × actual quantity)

Question 74

During November, Rubix Company produced 10,000 units. The standard quantity of material allowed per unit was 10 kg at a standard cost of $3 per kilogram. Suppose the company had an unfavourable usage variance of $18,750 for November. What would have been the actual quantity of materials used?

A) 23,438 kg
B) 31,875 kg
C) 93,750 kg
D) 106,250 kg

Question 75

Which statement best describes the material price variance?

A) It is the difference between the actual and standard unit price of an input multiplied by the number of inputs used.
B) It is the difference between the actual and standard unit price of an output multiplied by the number of inputs used.
C) It is the difference between the actual and standard unit price of an input multiplied by the number of inputs purchased.
D) It is the difference between the actual and standard unit price of an output multiplied by the number of inputs purchased.

Question 76

Which statements best describes a characteristic of variances?

A) Favourable variances are always debits to the variance account.
B) Unfavourable variances are always credits to the variance account.
C) Favourable variances occur whenever actual prices or actual usage of inputs are greater than standard prices or standard usage.
D) Unfavourable variances occur whenever actual prices or actual usage of inputs are greater than standard prices or standard usage.

Question 77

Which formula is used to calculate the materials usage variance?

A) (actual price × actual quantity) - (standard price × actual quantity)
B) (actual price × standard quantity) - (standard price × actual quantity)
C) (standard price × actual quantity) - (standard price × standard quantity)
D) (standard price × standard quantity) - (standard price × actual quantity)

Question 78

Bi-land Company
Bi-land Company's standard cost is $150,000. The allowable deviation is ±10%. The actual costs for six months are as follows: $$\begin{array} { l l } \text { January } & \$ 130,000 \\\text { February } & \$ 120,000 \\\text { March } & \$ 145,000 \\\text { April } & \$ 160,000 \\\text { May } & \$ 170,000 \\\text { June } & \$ 180,000\end{array}$$

-Refer to Bi-land Company. How many months resulted in a variance that is higher than the upper control limit?

A) 0
B) 1
C) 2
D) 3

Question 79

Which statement best describes variances?

A) A favourable labour rate variance could result from lower wage workers quitting.
B) A favourable materials price variance could result from purchasing materials from another supplier at a lower price.
C) A favourable materials usage variance could result from increased waste caused by not efficiently utilizing raw materials.
D) An unfavourable labour efficiency variance could result from using higher quality materials that result in fewer inspections.

Question 80

Refer to Risco Company. Suppose the actual cost was $87 per kilogram and the company purchased 27,500 kg of steel. All materials purchased were used. What is the materials usage variance?

A) $13,500 U
B) $13,500 F
C) $10,500 U
D) $10,500 F