Deck 11: Standard Costs and Variance Analysis

Question 1

A favorable labor efficiency variance indicates that employees worked more quickly than expected.

Answer 1

True

Question 2

An unfavorable overhead volume variance always indicates that overhead is overapplied during the period.

Answer 2

False

Question 3

The total variance for manufacturing overhead is the difference between the flexible budget for overhead and actual overhead costs.

Answer 3

False

Question 4

For planning purposes, ideal standards are more useful than attainable standards.

Question 5

A variance analysis generally involves decomposing the difference between standard and actual costs into three components-direct materials, direct labor, and manufacturing overhead.

Question 6

The labor rate variance is equal to the difference between the actual number of labor hours worked and the standard labor hours allowed, times the standard labor wage rate.

Question 7

The material quantity variance compares the actual quantity of material purchased with the quantity of material used.

Question 8

Ideal standards are synonymous with favorable variances, while attainable standards are synonymous with unfavorable variances.

Question 9

The material price variance is equal to the standard price per unit of material times the actual quantity of material used.

Question 10

Budgeted costs are the same as standard costs.

Question 11

A favorable overhead volume variance is a signal that the actual quantity produced was greater than the quantity anticipated.

Question 12

The labor rate variance measures whether the rate paid to employees is more or less than the company's standard rate.

Question 13

The use of standard costs is limited to manufacturing companies.

Question 14

An unfavorable controllable overhead variance indicates that more cost was incurred on overhead costs than allowed in the flexible budget.

Question 15

In a standard costing system, manufactured goods are recorded at the variable cost that should have been incurred to produce the items.

Question 16

Ideal standards are developed under the assumption that no obstacles to the production process will be encountered.

Question 17

Differences between standard and budgeted costs are referred to as standard cost variances.

Question 18

A material price variance measures whether more or less material was used in producing inventory.

Question 19

Unfavorable variances are red flags that a manager has performed poorly.

Question 20

The labor rate variance is also known as the labor efficiency variance.

Question 21

If a management by exception approach is used to investigate variances, only variances that cause costs to be more than expected are investigated.

Question 22

For which one of the following are standard production costs not developed?

A)Direct materials
B)Commission per unit
C)Manufacturing overhead
D)Fixed costs

Question 23

In some instances, process improvement can lead to unfavorable variances.

Question 24

What are standard cost variances?

A)Differences between standard and actual costs
B)Amounts that exceed budgeted amounts
C)Useful industry-developed amounts that can be used by companies to evaluate their performance
D)Differences between budgeted and standard amounts

Question 25

A company developed a standard cost for overhead.Which of the following involves standard development procedures that are similar to developing overhead standard costs?

A)Standard costs for materials
B)Total number of units to be produced
C)Predetermined overhead rates
D)Budgeted direct labor costs

Question 26

What is the cost that management believes should be incurred to produce a product under anticipated conditions called?

A)Budgeted cost
B)Ideal cost
C)Actual cost
D)Standard cost

Question 27

Which of the following is a method of determining the standard quantity of direct labor?

A)An analysis of past data regarding overhead required for various levels of production
B)Labor contract negotiated with the union employees
C)Time-and-motion studies conducted by industrial engineers
D)Suppliers' estimates of labor quantities to be used

Question 28

The materials storeroom clerk is responsible for material price variances.

Question 29

Variances that are large in absolute dollar value or as a percent of budgeted amounts are generally considered exceptional in a management by exception approach.

Question 30

The difference between standard costs and budgeted costs is that standard cost

A)refers to a single unit while budgeted costs refer to the cost, at standard, for the total number of budgeted units.
B)is calculated under ideal conditions, while budgeted costs are calculated for attainable conditions.
C)is calculated for raw material while budgeted costs are calculated for direct labor.
D)is part of the management accounting system, while budgets are part of the financial accounting system.

Question 31

What is a standard cost?

A)The difference between an attainable standard and an ideal standard
B)The budgeted cost of the total number of budgeted units
C)The budgeted cost of a single unit
D)None of these answer choices are correct.

Question 32

Which one of the following is often used to determine a standard price for materials?

A)Time-and-motion studies
B)A union labor contract
C)Price lists provided by suppliers
D)Materials requisition forms

Question 33

The controllable variable overhead variance is inappropriately named, because managers are not expected to be able to control it.

Question 34

In what industries are standard costs used?

A)Manufacturing companies only
B)Service companies only
C)Both manufacturing and service companies
D)None of these answer options are correct.

Question 35

For which one of the following will standard costs be most useful?

A)A soft drink bottling company
B)A caterer
C)A cabinet manufacturer
D)An event planner

Question 36

Which of the following statements is true of standard cost?

A)It is equal to the actual cost of one unit of product.
B)It is the amount management thinks that one unit of product should cost.
C)It allows companies to generate more favorable than unfavorable variances.
D)It is often calculated after production for the period is complete.

Question 37

Which one of the following is true concerning standard and budgeted costs?

A)Standard cost times the expected production level equals the budgeted cost.
B)Standard cost times the predetermined overhead rate equals the budgeted cost.
C)Total budgeted cost divided by actual units equals the standard cost.
D)None of these answer choices are correct.

Question 38

The difference between standard and actual costs is

A)considered to be an ideal standard.
B)a variance by exception.
C)the budgeted cost of one item of product.
D)a standard cost variance.

Question 39

If actual demand is greater than anticipated, an overall favorable variance will exist for each of the three production costs.

Question 40

A purchasing manager might be tempted to buy inferior materials because it will create favorable material quantity variance.

Question 41

Electric Zero produces relay units for generators.Each relay has a standard material cost of $67.Standards call for two relays per generator.In July, the company purchased 120 relays for $7,560.The company used 104 relays in the production of 50 generators, with 4 relays damaged in the installation process.The standard quantity of labor is 20 hours per generator, with a standard wage rate of $23.The company incurred 1,020 labor hours at a cost of $22,950.How much is the material price variance?

A)$480 favorable
B)$268 unfavorable
C)$1,340 unfavorable
D)$592 unfavorable

Question 42

If the material quantity variance is favorable, the

A)material price variance will be unfavorable.
B)material price variance must also be favorable.
C)quantity purchased is less than the quantity used.
D)actual quantity used is less than the standard quantity allowed.

Question 43

Which variances are most important to investigate?

A)Variable costs variances, because they are controllable
B)Those that are material in amount
C)Those that are immaterial in amount
D)Those that are unfavorable

Question 44

Lander Foods applied management by exception.Which of the following would have occurred?

A)The company's managers prepared a flexible budget.
B)Management created a poorly conceived budget.
C)Management forecasted its sales for the budget period.
D)Management investigated all significant variances.

Question 45

Electric Zero produces relay units for generators.Each relay has a standard material cost of $67.Standards call for two relays per generator.In July, the company purchased 120 relays for $7,560.The company used 104 relays in the production of 50 generators, with 4 relays damaged in the installation process.The standard quantity of labor is 20 hours per generator, with a standard wage rate of $23.The company incurred 1,020 labor hours at a cost of $22,950.How much is the material quantity variance?

A)$480 favorable
B)$268 unfavorable
C)$1,340 unfavorable
D)$592 unfavorable

Question 46

Which one of the following determines the material price variance?

A)The difference between actual price per unit and standard price per unit times the quantity of material purchased from suppliers
B)The difference between actual price per unit and standard price per unit times standard quantity of material used for the achieved level of production
C)The difference between actual quantity of material purchased and the actual quantity of material used times the standard price of material per unit
D)The difference between actual quantity of material purchased and the actual quantity of material used times the actual price of material per unit purchased

Question 47

Scotto Designs has the following standards for the production of scarves: $\begin{array}{lrr} & {\text { Standard Quantity }} & \text { Standard Price } \\\text { Direct materials }& 1.2 \text { yards per scarf } & \$ 4.70 \text { per yard } \\\text { Direct labor } & 0.15 \text { hours per scarf } & \$ 11.00 \text { per hour }\end{array}$ The company used 985 yards of material in order to make 800 scarves in April.The company purchased 1,100 yards at $4.60 per yard.How much is the direct materials quantity variance?

A)$110 favorable
B)$118 unfavorable
C)$8 unfavorable
D)$705 unfavorable

Question 48

Scotto Designs has the following standards to make one scarf: $\begin{array}{lrr} & {\text { Standard Quantity }} & \text { Standard Price } \\\text { Direct materials }& 1.2 \text { yards per scarf } & \$ 4.70 \text { per yard } \\\text { Direct labor } & 0.15 \text { hours per scarf } & \$ 11.00 \text { per hour }\end{array}$ The company used 985 yards of material in order to make 800 scarves in April.The company purchased 1,100 yards at $4.60 per yard.How much is the direct materials price variance?

A)$110 favorable
B)$118 unfavorable
C)$8 unfavorable
D)$98.50 favorable

Question 49

Last month, Investly Widgets purchased 16,400 pounds of material and used 16,600 pounds in the production of 4,200 widgets.The actual cost per pound of the material was $7.80 and the standard price was $7.75 per pound.The company budgeted 4,500 widgets for production.How much is the material quantity variance?

A)$820 unfavorable
B)$730 favorable
C)$1,550 favorable
D)More information is needed to determine the answer.

Question 50

What will result if the actual price per unit of material is greater than the standard price?

A)A favorable material price variance
B)An unfavorable material quantity variance
C)An unfavorable material price variance
D)A favorable material quantity variance

Question 51

What are the two most likely reasons an unfavorable total materials variance may exist?

A)Inflation caused an increase in the cost to acquire materials of the same quality, and due to this inflation, the company purchased fewer materials than used.
B)The company used less material than it purchased, and the amount paid for the material was more than the standard price.
C)The price paid was more than the standard price, and the quantity budgeted was less than quantity used.
D)The price paid was more than the standard price, and the quantity used was less than the quantity budgeted

Question 52

Which of the following may cause an unfavorable material variance?
I)More material was used than planned.
II)A company paid a higher price for materials than expected.
III)More materials were used than purchased.

A)I and II
B)II and III
C)I and III
D)I, II, and III

Question 53

Which of the following is a reason that most managers support the use of attainable standards rather than ideal standards?

A)Attainable standards allow for an occasional equipment failure.
B)Attainable standards recognize that suppliers must provide raw materials with no defects.
C)Attainable standards are required in order to have zero variances.
D)Attainable standards motivate employees to achieve perfection.

Question 54

Blue Box Beach Chairs has the following standards to make beach chairs: $\begin{array}{lcc} & \text { Standard Quantity } & \text { Standard Price } \\\text { Direct materials } & 2.2 \text { pounds of polywood per chair }& \$ 3.50 \text { per pound } \\\text { Direct labor } & 0.65 \text { hours per chair } & \$ 13.00 \text { per hour }\end{array}$ The static budget was based on the production of 6,200 beach chairs.The company used 13,000 pounds of polywood in order to make 6,000 chairs in April.The company purchased 7,000 pounds of polywood at a total cost of $24,150.How much is the direct materials quantity variance?

A)$700 favorable
B)$2,240 favorable
C)$350 favorable
D)$1,050 favorable

Question 55

Siggy Inc.budgeted 12,000 and produced 11,000 tape dispensers during June.Resin used to make the dispensers is purchased by the pound.Manufacturing overhead is applied based on units produced.Manufacturing standards and actual costs follow: $\begin{array}{|l|c|c|}\hline & \text { Standards } & \text { Actual } \\\hline \text { Materials } & 2 \text { pounds } @ \$ 5.00 \text { a pound } & 20,900 \text { pounds } @ \$ 4.90 \text { per pound } \\\hline \text { Labor } & 0.25 \text { hours } @ \$ 15.00 \text { per hour } & 2,700 \text { hours } @ \$ 15.30 \text { per hour } \\\hline \text { Variable overhead } & \$ 39,000 & \$ 36,500\\\hline \text { Fixed overhead } & \$ 1.50 \text { per dispenser } & \$ 17,250 \\\hline\end{array}$ How much is the standard cost of a tape dispenser?

A)$18.50
B)$13.75
C)$24.75
D)$18.80

Question 56

Management of Wilson, Inc.developed standards under the assumption that a variety of factors may lead to less than perfect performance.Which type of standard was developed?

A)Ideal standards
B)Actual standards
C)Attainable standards
D)Questionable standards

Question 57

A manufacturing company has a standard quantity of direct materials of 7 pounds per unit at a standard price of $2.20 per pound.In April the actual material price was $2.40 per pound and the company produced 5,500 units.If the company experienced a favorable material quantity variance of $6,600 during the month, how much was the actual quantity of material used?

A)35,500 pounds
B)32,542 pounds
C)38,500 pounds
D)41,500 pounds

Question 58

Master Auto Parts has a standard labor rate of $10.50 per hour.In September, the company produced 10,000 gears using 24,000 labor hours.The company experienced a favorable labor rate variance of $18,000 during September.How much is Master Auto Parts' actual labor rate per hour?

A)$9.75
B)$11.25
C)$13.50
D)$7.50

Question 59

Blue Box Beach Chairs has the following standards to make beach chairs: $$\begin{array} { l c c } & \text { Standard Quantity } & \text { Standard Price } \\\text { Direct materials } & 2.2 \text { pounds of polywood per chair }& \$ 3.50 \text { per pound } \\\text { Direct labor } & 0.65 \text { hours per chair } & \$ 13.00 \text { per hour }\end{array}$$ The static budget was based on the production of 6,200 beach chairs.The company used 13,000 pounds of polywood in order to make 6,000 chairs in April.The company purchased 7,000 pounds of polywood at a total cost of $24,150.How much is the direct materials price variance?

A)$700 favorable
B)$2,240 favorable
C)$350 favorable
D)$1,050 favorable

Question 60

An automobile parts company has a standard material price of $2 per pound.In October the company produced 4,500 units using 6,000 pounds of material.The company experienced a favorable materials quantity variance of $1,200.How much is the standard quantity of materials per unit?

A)1.20 pounds
B)1 pound
C)2.4 pounds
D)1.47 pounds

Question 61

Which of the following values is used in the calculations for both the controllable overhead variance and the overhead volume variance?

A)Overhead applied to production using the predetermined overhead rate
B)Flexible budget level of overhead for the actual level of production
C)Actual overhead incurred
D)None of these answer choices are used in both calculations.

Question 62

Paradise Energy Company produces a product with a direct labor standard of 4.5 hours per unit at a rate of $13.50 per hour.During July 2,200 units were produced using 9,825 labor hours at an actual cost of $135,094.How much is the direct labor efficiency variance for July?

A)$2,456 unfavorable
B)$1,013 favorable
C)$1,444 favorable
D)$3,469 unfavorable

Question 63

For which of the following reasons does the volume variance arise?

A)Overhead costs incurred were greater or less than the amount budgeted.
B)The company operated at more or less units of production activity than expected during the period.
C)Actual activity equaled the volume used to establish the overhead cost per unit.
D)The company purchased more or less materials for production than the amount used.

Question 64

What is the difference between the actual amount of overhead and the amount of overhead that would be included in a flexible budget called?

A)Total overhead variance
B)Actual overhead variance
C)Controllable overhead variance
D)Overhead volume variance

Question 65

Paradise Energy Company produces a product with a direct labor standard of 4.5 hours per unit at a rate of $13.50 per hour.During July 2,200 units were produced using 9,825 labor hours at an actual cost of $135,094.How much is the total direct labor variance for July?

A)$2,456 unfavorable
B)$1,013 favorable
C)$1,444 unfavorable
D)$3,469 favorable

Question 66

Which of the following would cause a variance to be unfavorable?

A)The actual price is less than the standard price.
B)The standard hours allowed are less than the actual hours worked.
C)The overhead costs incurred are less than the flexible budget amount.
D)All of these answer choices are correct.

Question 67

Which of the following will determine the total variance for manufacturing overhead?

A)The difference between the overhead applied to inventory at standard and the actual overhead costs
B)The difference between fixed overhead and variable overhead
C)The difference between the efficiency variance and the rate variance
D)The difference between the controllable overhead variance and the overhead volume variance

Question 68

Blue Box Beach Chairs has the following standards to make beach chairs: $$\begin{array} { l c c } & \text { Standard Quantity } & \text { Standard Price } \\\text { Direct materials } & 2.2 \text { pounds of polywood per chair } & \$ 3.50 \text { per pound } \\\text { Direct labor } & 0.65 \text { hours per chair } & \$ 13.00 \text { per hour }\end{array}$$ The static budget was based on the production of 6,200 beach chairs.The company used 13,000 pounds of polywood in order to make 6,000 chairs in April.The company purchased 7,000 pounds of polywood at a total cost of $24,150.It also used 3,840 labor hours at a cost of $12.70 per hour.How much is the direct labor rate variance?

A)$1,932 unfavorable
B)$1,152 favorable
C)$780 favorable
D)$2,470 favorable

Question 69

In which of the following situations will the overhead volume variance be favorable?

A)When more units are produced than were originally planned
B)When actual overhead costs are less than the flexible budget
C)When the predetermined overhead rate was set too low
D)When there are units remaining in ending inventory

Question 70

Electric Zero produces relay units for generators.Each relay has a standard cost of $67.Standards call for two relays per generator.In July, the company purchased 120 relays for $7,560.The company used 104 relays in the production of 50 generators, with four relays damaged in the installation process.The standard quantity of labor is 20 hours per generator, with a standard wage rate of $23.In July, the company incurred 1,020 labor hours at a cost of $22,950.How much is the labor efficiency variance?

A)$460 unfavorable
B)$50 favorable
C)$510 favorable
D)$460 favorable

Question 71

What will result if the actual overhead costs incurred are greater than the amount in the flexible budget?

A)The controllable overhead variance will be unfavorable.
B)The overhead volume variance will be favorable.
C)The overhead volume variance will be unfavorable.
D)The controllable overhead variance will be favorable.

Question 72

Steep, Inc.budgeted 6,000 cup holders for March.Each holder is sold for $12.Actual production for March was 6,300 cup holders.Standards and actual costs follow for March: $\begin{array}{|l|c|c|}\hline & \text { Standards } & \text { Actual } \\ \hline \text { Materials } & 1.1 \text { pounds } @ \$ 2.40 \text { a pound }&6,400 \text { pounds purchased for } \$ 15,040 \text {; }\\&& 6,450 \text { pounds used }\\\hline \text { Labor } & 0.10 \text { hours } @ \$ 14.00 \text { per hour } & 620 \text { hours } @ \$ 14.30 \text { per hour } \\\hline \text { Variable overhead } & \$ 16,800 & \$ 18,400 \\\hline \text { Eixed overhead } & \$ 9,600 & \$ 10,300 \\\hline\end{array}$ How much is the labor rate variance?

A)$140 favorable
B)$186 unfavorable
C)$46 unfavorable
D)$280 favorable

Question 73

Which one of the following is a possible cause of an unfavorable labor rate variance?

A)The company used attainable standards rather than ideal standards.
B)The company hired new, inexperienced employees.
C)The company produced fewer units than had been planned.
D)The company used more experienced workers than planned.

Question 74

Why is the point of purchase the best time to compute material price variances?

A)This is when the company is able to determine the total cost of production.
B)This is when the cost of material will be known.
C)This is when the company knows the amount of materials used in production.
D)This is the only point when the company is able to determine a standard material price.

Question 75

What does an unfavorable overhead volume variance indicate?

A)The quantity of production was less than what was anticipated.
B)The company spent more costs on overhead than expected.
C)Production took longer than expected.
D)The company produced more units than it budgeted.

Question 76

Steep, Inc.budgeted 6,000 cup holders for March.Each holder is sold for $12.Actual production for March was 6,300 cup holders.Standards and actual costs follow for March: $\begin{array}{|l|c|c|}\hline & \text { Standards } & \text { Actual } \\ \hline \text { Materials } & 1.1 \text { pounds } @ \$ 2.40 \text { a pound }&6,400 \text { pounds purchased for } \$ 15,040 \text {; }\\&& 6,450 \text { pounds used }\\\hline \text { Labor } & 0.10 \text { hours } @ \$ 14.00 \text { per hour } & 620 \text { hours } @ \$ 14.30 \text { per hour } \\\hline \text { Variable overhead } & \$ 16,800 & \$ 18,400 \\\hline \text { Eixed overhead } & \$ 9,600 & \$ 10,300 \\\hline\end{array}$ How much is the labor efficiency variance?

A)$140 favorable
B)$186 unfavorable
C)$46 unfavorable
D)$280 favorable

Question 77

Blue Box Beach Chairs has the following standards to make beach chairs: $$\begin{array} { l c c } & \text { Standard Quantity } & \text { Standard Price } \\\text { Direct materials } & 2.2 \text { pounds of polywood per chair } & \$ 3.50 \text { per pound } \\\text { Direct labor } & 0.65 \text { hours per chair } & \$ 13.00 \text { per hour }\end{array}$$ The static budget was based on the production of 6,200 beach chairs.The company used 13,000 pounds of polywood in order to make 6,000 chairs in April.The company purchased 7,000 pounds of polywood at a total cost of $24,150.It also used 3,840 labor hours at a cost of $12.70 per hour.How much is the direct labor efficiency variance?

A)$1,932 unfavorable
B)$1,152 favorable
C)$780 favorable
D)$2,470 favorable

Question 78

Electric Zero produces relay units for generators.Each relay has a standard cost of $67.Standards call for two relays per generator.In July, the company purchased 120 relays for $7,560.The company used 104 relays in the production of 50 generators, with four relays damaged in the installation process.The standard quantity of labor is 20 hours per generator, with a standard wage rate of $23.In July, the company incurred 1,020 labor hours at a cost of $22,950.How much is the labor rate variance?

A)$460 unfavorable
B)$50 favorable
C)$510 favorable
D)$460 favorable

Question 79

Standard Faucets uses standard costing and recorded the following data for the month of August: $\begin{array}{lr}\text { Standard direct labor rate } & \$ 10.00 \text { per hour } \\\text { Standard hours allowed for actual production } & 20,000 \text { hours } \\\text { Actual direct labor rate } & \$ 10.50 \text { per hour } \\\text { Labor efficiency variance } & \$ 5,000 \text { favorable }\end{array}$ How much is the labor rate variance for August?

A)$9,750 unfavorable
B)$14,750 unfavorable
C)$4,750 unfavorable
D)$0

Question 80

If the controllable overhead variance is favorable, the overhead volume variance

A)will be favorable.
B)may be favorable or unfavorable.
C)will not be significant and may be omitted from the analysis.
D)will be zero.