Question 1

A variance is the difference between actual costs and standard costs.

Accepted Answer

A variance is defined as the difference between actual costs and standard costs, so the statement is true.

Question 2

An advantage of standard costs is that they simplify costing of inventories and reduce clerical costs.

Accepted Answer

Standard costs provide a predetermined cost per unit for materials, labor, and overhead, making it easier to calculate the cost of inventory. This also reduces the need for extensive record-keeping and the associated clerical costs.

Question 3

A direct labour price standard is frequently called the direct labour efficiency standard.

Accepted Answer

False

Question 4

Standard cost cards are the subsidiary ledger for the Work in Process account in a standard cost system.

Accepted Answer

The answer of Standard cost cards are the subsidiary ledger...

Question 5

Normal standards incorporate normal contingencies of production into the standards.

Accepted Answer

Normal standards are set by incorporating normal contingencies of production into the standards, which includes factors such as machine breakdowns, material shortages, and other typical disruptions. This allows for a more realistic and achievable standard to be set for production.

Question 6

In developing a standard cost for direct materials, a price factor and a quantity factor must be considered.

Accepted Answer

A standard cost for direct materials takes into account both the price of the materials and the quantity of materials needed for production. The price factor reflects the expected cost of purchasing the materials, while the quantity factor considers how much material is expected to be used in producing each unit of product. Combined, these factors establish a standard cost that can be used to evaluate actual costs and performance.

Question 7

A standard is a unit amount, whereas a budget is a total amount.

Accepted Answer

The answer of A standard is a unit amount, whereas...

Question 8

If actual costs are less than standard costs, the variance is favourable.

Accepted Answer

When actual costs are less than standard costs, it means that the company spent less than it anticipated, which is a favourable outcome. Therefore, the variance is considered favourable.

Question 9

Setting standard costs is relatively simple because it is done entirely by accountants.

Accepted Answer

While accountants do play a role in setting standard costs, it is not solely their responsibility as it requires input from various departments such as manufacturing, purchasing, and engineering.

Question 10

A materials quantity variance is calculated as the difference between the standard direct materials price and the actual direct materials price multiplied by the actual quantity of direct materials used.

Accepted Answer

A materials quantity variance is calculated as the difference between the standard quantity of materials that should have been used for the production output and the actual quantity used, multiplied by the standard price per unit of materials.

Question 11

Ideal standards will generally result in favourable variances for the company.

Accepted Answer

The answer of Ideal standards will generally result in favourable...

Question 12

An unfavourable labour quantity variance indicates that the actual number of direct labour hours worked was greater than the number of direct labour hours that should have been worked for the output attained.

Accepted Answer

An unfavourable labour quantity variance occurs when the actual number of direct labour hours exceeds the standard number of hours required to produce a given level of output. This means that more hours were spent on production than were budgeted for, resulting in higher labour costs than anticipated.

Question 13

Once set, normal standards should not be changed during the year.

Accepted Answer

Normal standards may need to be adjusted or improved upon as circumstances change throughout the year. Flexibility is important in ensuring that standards remain relevant and effective.

Question 14

The standard predetermined overhead rate must be based on direct labour hours as the standard activity index.

Accepted Answer

The answer of The standard predetermined overhead rate must be...

Question 15

Standard costs may be incorporated into the accounts in the general ledger.

Accepted Answer

Standard costs can be used to calculate variances between actual costs and expected costs, and these variances may be recorded in the general ledger. Therefore, standard costs may be incorporated into the accounts in the general ledger.

Question 16

Normal standards should be rigorous but attainable.

Accepted Answer

Standards that are too easy to attain may result in complacency and mediocre performance, while standards that are too difficult to attain may lead to discouragement and lack of motivation. Therefore, normal standards should strike a balance between being challenging and achievable.

Question 17

Standard cost + price variance + quantity variance = Budgeted cost.

Accepted Answer

Standard cost + price variance + quantity variance = Actual cost. Budgeted cost is what was planned or budgeted, not necessarily what was actually spent.

Question 18

Actual costs that vary from standard costs always indicate inefficiencies.

Accepted Answer

Actual costs can vary from standard costs due to a variety of factors, not just inefficiencies. These factors can include changes in market prices, unexpected events, or changes in production methods.

Question 19

Standard cost is the industry average cost for a particular item.

Accepted Answer

Standard cost is not necessarily the industry average cost, but rather it is a pre-determined cost that a company sets as a target cost for a product or service based on its estimated costs and other factors. The actual cost may differ from the standard cost due to variations in material prices, labor costs, overhead, and other factors.

Question 20

Inventories cannot be valued at standard cost in financial statements.

Accepted Answer

Inventories can be valued at standard cost in financial statements according to Generally Accepted Accounting Principles (GAAP) as long as the standard cost reflects the actual cost of goods sold and there is no significant variance between the standard cost and the actual cost. However, if there is a significant difference between the standard cost and the actual cost, the inventory must be adjusted to reflect the lower of cost or market value.

Quiz 12: Standard Costs and Balanced Scorecard