Question 1

The standard price per unit for direct materials should reflect the final, delivered cost of the materials.

Accepted Answer

The standard price per unit for direct materials should include all costs associated with acquiring and delivering the materials, such as shipping and receiving fees, taxes, and any other costs incurred before the materials are used in the production process. This ensures that the standard cost accurately reflects the true cost of materials used in production.

Question 2

When more hours of labor time are necessary to complete a job than the standard allows, the labor efficiency variance is unfavorable.2017-09-13

Accepted Answer

When the actual labor hours required to complete a job exceed the standard labor hours, the labor efficiency variance is unfavorable because it indicates that the actual performance was less efficient than expected.

Question 3

If variable manufacturing overhead is applied based on direct labor-hours, it is impossible to have a favorable labor rate variance and unfavorable variable overhead rate variance for the same period.

Accepted Answer

It is possible to have a favorable labor rate variance (due to paying employees less than the standard rate) and an unfavorable variable overhead rate variance (due to using more variable overhead costs than anticipated) in the same period. These are two separate variances that measure different factors affecting the cost of production.

Question 4

The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the fixed part of the predetermined overhead rate.

Accepted Answer

The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate, not the fixed part.

Question 5

If demand is insufficient to keep everyone busy and workers are not laid off, an unfavorable (U) variable overhead efficiency variance often will be a result unless managers build excessive inventories.

Accepted Answer

If demand is insufficient and workers are not laid off, they will still be producing the same amount of output but with less demand to use it, leading to inefficiencies and an unfavorable variable overhead efficiency variance. To offset this variance, managers may choose to build up excessive inventories.

Question 6

Waste on the production line will result in an unfavorable materials price variance.

Accepted Answer

Materials price variance is calculated based on the difference between the actual price paid for materials and the standard price, and it is not directly affected by waste on the production line. Waste would more likely impact the materials quantity or usage variance.

Question 7

Material price variances are often isolated at the time materials are purchased, rather than when they are placed into production, to facilitate earlier recognition of variances.

Accepted Answer

Material price variances are typically isolated at the time materials are purchased to allow for quicker identification and analysis of any variances. By isolating the variance at the point of purchase, management can take action to correct any issues earlier in the supply chain.

Question 8

The materials price variance is computed based on the amount of materials purchased during the period.

Accepted Answer

The materials price variance is calculated by comparing the actual purchase price of materials to the standard price of materials. The amount of materials purchased does not factor into the calculation of the materials price variance.

Question 9

If demand is insufficient to keep everyone busy and workers are not laid off, a favorable (F) labor efficiency variance often will be a result.

Accepted Answer

A favorable labor efficiency variance typically results when workers produce more efficiently than expected, not from having insufficient demand and keeping workers without layoffs. Insufficient demand leading to underutilization of labor would more likely cause an unfavorable variance due to inefficiencies and idle time.

Question 10

The standard labor rate per hour should not include any employment taxes.

Accepted Answer

The standard labor rate per hour should include employment taxes such as social security, Medicare, and unemployment insurance taxes. These taxes are a cost of employing someone and should be factored into the labor rate.

Question 11

If skilled workers with high hourly rates of pay are given duties that require little skill and call for lower hourly rates of pay, this will result in a favorable labor rate variance.

Accepted Answer

If skilled workers are given duties that require little skill, they are being underutilized and their higher hourly rates of pay are being wasted on tasks that could be performed by lower-paid employees. This could result in an unfavorable labor rate variance.

Question 12

A quantity standard indicates how much of an input should be used to make a unit of product or provide a unit of service.

Accepted Answer

This statement is true. A quantity standard defines the amount of input needed to produce a unit of output, whether it is a product or a service. It helps organizations to determine the most efficient and effective way to produce their goods or services.

Question 13

If the actual hourly rate is greater than the standard hourly rate, the labor rate variance is labeled unfavorable (U).

Accepted Answer

This is true according to the formula for labor rate variance: (actual hourly rate - standard hourly rate) x actual hours worked. If the actual hourly rate is greater than the standard hourly rate, it will result in a negative value for the labor rate variance, which is considered unfavorable.

Question 14

In general, the production manager is responsible for the materials price variance.

Accepted Answer

The materials price variance is typically the responsibility of the purchasing or procurement department, not the production manager. The production manager may be responsible for the material usage variance, which measures the difference between the actual and standard quantities of materials used in production.

Question 15

The labor rate variance measures the difference between the actual hourly rate and the standard hourly rate, multiplied by the standard hours allowed for the actual output.

Accepted Answer

The labor rate variance measures the difference between the actual hourly rate and the standard hourly rate, multiplied by the actual hours worked, not the standard hours allowed for the actual output.

Question 16

An unfavorable materials quantity variance occurs when the actual quantity used in production is less than the standard quantity allowed for the actual output of the period.

Accepted Answer

An unfavorable materials quantity variance occurs when the actual quantity used in production is MORE than the standard quantity allowed for the actual output of the period.

Question 17

The variable overhead efficiency variance does not actually measure how efficiently variable manufacturing overhead resources were used.

Accepted Answer

The variable overhead efficiency variance measures the difference between the amount of variable overhead that should have been used for the actual level of output and the amount of variable overhead that was actually used for the actual level of output. It does not directly measure the efficiency of using variable overhead resources.

Question 18

When the materials price variance is recorded at the time of purchase, raw materials are recorded as inventory at standard cost.

Accepted Answer

The materials price variance is recorded at the time of purchase by adjusting the cost of the raw materials purchased. However, the raw materials are recorded as inventory at standard cost, not at the adjusted cost. This ensures that the variance is recognized in the period it is incurred, but the inventory is valued at the standard cost, which is used for financial reporting purposes.

Question 19

The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate.

Accepted Answer

This definition accurately describes the variable overhead efficiency variance formula.

Question 20

The labor efficiency variance is labeled favorable (F) if the actual hours used is less than the standard hours allowed for the actual output.

Accepted Answer

This statement is true. A favorable labor efficiency variance occurs when the actual hours used is less than the standard hours allowed for the actual output, indicating that the workforce was more efficient than expected.

Quiz 10: Standard Costs and Variances