Question 1

If a company follows a practice of isolating variances at the earliest point in time,what would be the appropriate time to isolate and recognize a direct material price variance?
A) When material is issued.
B) When material is purchased.
C) When material is used in production.
D) When production is completed.

Accepted Answer

A direct material price variance is related to the cost of purchasing materials. Therefore, the appropriate time to isolate and recognize this variance would be when the materials are purchased.

Question 2

The Porter Company has a standard cost system.In July,the company purchased and used 22,500 kilograms of direct material at an actual cost of $53,000,the materials quantity variance was $1,875 unfavourable,and the standard quantity of materials allowed for July production was 21,750 kilograms.What was the materials price variance for July?
A) $2,725 favourable.
B) $2,725 unfavourable.
C) $3,250 favourable.
D) $3,250 unfavourable.

Accepted Answer

C

Question 3

What does a favourable labour rate variance indicate?
A) Actual hours exceed standard hours.
B) Standard hours exceed actual hours.
C) The actual rate exceeds the standard rate.
D) The standard rate exceeds the actual rate.

Accepted Answer

A favourable labour rate variance occurs when the standard rate (what was expected to be paid per hour) exceeds the actual rate (what was actually paid per hour), indicating that the company paid less for labour than it had anticipated.

Question 4

Which of the following refers to standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times?
A) Normal standards.
B) Practical standards.
C) Ideal standards.
D) Budgeted standards.

Accepted Answer

Ideal standards refer to standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times.

Question 5

A labour efficiency variance resulting from the use of poor quality materials should be charged to which/whom?
A) The production manager.
B) The purchasing agent.
C) Manufacturing overhead.
D) The engineering department.

Accepted Answer

The purchasing agent is responsible for selecting and acquiring the materials to be used in the production process. If poor quality materials were chosen or acquired, it would result in a labour efficiency variance as more time would be required to produce the same amount of output. Therefore, the variance should be charged to the purchasing agent as they are responsible for the quality of materials.

Question 6

Which department is usually held responsible for an unfavourable materials quantity variance?
A) Marketing.
B) Purchasing.
C) Engineering.
D) Production.

Accepted Answer

The Production department is typically held responsible for an unfavourable materials quantity variance because this variance reflects the efficiency and effectiveness with which materials are used during the manufacturing process.

Question 7

Tower Company planned to produce 3,000 units of its single product,Titactium,during November.The standards for one unit of Titactium specify six kilograms of materials at $0.30 per kilogram.Actual production in November was 3,100 units of Titactium.There was a favourable materials price variance of $380 and an unfavourable materials quantity variance of $120.Based on these variances,what could one assume?
A) That more materials were purchased than were used.
B) That more materials were used than were purchased.
C) That the actual cost per kilogram for materials was less than the standard cost per kilogram.
D) That the actual usage of materials was less than the standard allowed.

Accepted Answer

The favourable materials price variance indicates that the actual cost per kilogram for materials was less than the standard cost per kilogram.

Question 8

(Appendix 10B)Which of the following entries would correctly record the charging of direct labour costs to Work in Process given an unfavourable labour efficiency variance and a favourable labour rate variance?
A) A debit to Work in Process,and credits to Labour Efficiency Variance,Labour Rate Variance,and Wages Payable.
B) A debit to Work in Process and an equal credit to Wages Payable.
C) Debits to Work in Process and Labour Efficiency Variance,and credits to Labour Rate Variance and Wages Payable.
D) Debits to Work in Process and Labour Rate Variance,and credits to Labour Efficiency Variance and Wages Payable.

Accepted Answer

The unfavourable labour efficiency variance means that more labour hours were used than expected to complete the job, while the favourable labour rate variance means that the labour was paid at a lower rate than expected. Therefore, labour costs were higher than expected due to inefficiency but lower than expected due to favourable rates. To record this, we need to debit Work in Process for the actual labour cost (which is higher than expected due to inefficiency) and debit Labour Efficiency Variance for the difference between the actual hours used and the standard hours allowed (which is unfavourable). We also need to credit Wages Payable for the actual amount of wages paid (which is lower than expected due to favourable rates) and credit Labour Rate Variance for the difference between the actual rate paid and the standard rate (which is favourable). Therefore, the correct entry is debits to Work in Process and Labour Efficiency Variance, and credits to Labour Rate Variance and Wages Payable.

Question 9

(Appendix 10B)What does a credit balance in a direct labour efficiency variance account indicate?
A) The average wage rate paid to direct labour employees was less than the standard rate.
B) The standard hours allowed for the units produced were greater than actual direct labour hours used.
C) The actual total direct labour costs incurred were less than standard direct labour costs allowed for the units produced.
D) The number of units produced was less than the number of units budgeted for the period.

Accepted Answer

A credit balance in a direct labour efficiency variance account indicates that the standard hours allowed for the units produced were greater than the actual direct labour hours used, meaning that the work was completed in less time than anticipated, which is a favorable efficiency variance.

Question 10

A favourable materials price variance coupled with an unfavourable materials quantity variance would MOST likely result from which of the following?
A) Problems with processing machines.
B) Purchase of low quality materials.
C) Problems with labour efficiency.
D) Changes in the product mix.

Accepted Answer

A favourable materials price variance means that the company was able to purchase materials at a lower cost than expected. However, an unfavourable materials quantity variance means that the company used more materials than expected. This could be caused by the purchase of low quality materials, which require more material to produce the same output. Therefore, option B is likely to result in a favourable materials price variance coupled with an unfavourable materials quantity variance.

Question 11

Cox Company's direct material costs for the month of January were as follows: $\begin{array}{lr}
\text { Actual quantity purchased } & 18,000 \text { kilograms } \
\text { Actual unit purchase price } & \$ 3.60 \text { per kilogram } \

\text { Materials price variance- } \
\quad \text { Unfavourable (based on purchases) }& \$ \$ 3,600\

\text { Standard quantity allowed } \
\text { for actual production }&16,000 \text { kilograms } \

\text { Actual quantity used } & \text { 15,000 kilograms }\

\end{array}$ What was the favourable direct materials quantity variance for January?
A) $3,360.
B) $3,375.
C) $3,400.
D) $3,800.

Accepted Answer

The answer of Cox Company's direct material costs for the...

Question 12

Which of the following statements concerning practical standards is NOT correct?
A) Practical standards can be used for product costing and cash budgeting.
B) Practical standards can be attained by the average worker.
C) When practical standards are used; there is no reason to adjust standards if an old machine is replaced by a newer,faster machine.
D) Under practical standards,large variances are less likely than under ideal standards.

Accepted Answer

This statement is not correct because practical standards may need to be adjusted if an old machine is replaced by a newer, faster machine, as the new machine may be capable of producing at a higher level than the old machine, which would require a new practical standard to be set.

Question 13

Under a standard cost system,who is usually held responsible for the materials price variances?
A) The production manager.
B) The sales manager.
C) The purchasing manager.
D) The engineering manager.

Accepted Answer

The purchasing manager is usually held responsible for the materials price variances because they are responsible for purchasing materials at the best possible prices. They are in a position to negotiate with suppliers and find the best deals, so it is their responsibility to ensure that materials are purchased at the expected or standard cost.

Question 14

Which of the following is the most probable reason a company would experience an unfavourable labour rate variance and a favourable labour efficiency variance?
A) The mix of workers assigned to the particular job was heavily weighted towards the use of higher paid,experienced individuals.
B) The mix of workers assigned to the particular job was heavily weighted towards the use of new,relatively low-paid,unskilled workers.
C) Because of the production schedule,workers from other production areas were assigned to assist this particular process.
D) Defective materials caused more labour to be used in order to produce a standard unit.

Accepted Answer

An unfavourable labour rate variance occurs when the actual rate paid is higher than the standard or expected rate, which can happen if a company uses higher-paid, experienced workers. A favourable labour efficiency variance happens when less time is needed to produce a unit than expected, which experienced workers can often achieve due to their higher efficiency and skill levels.

Question 15

What does an unfavourable labour efficiency variance indicate?
A) The actual labour rate was higher than the standard labour rate.
B) The labour rate variance must also be unfavourable.
C) Actual labour hours worked exceeded standard labour hours for the production level achieved.
D) Overtime labour was used during the period.

Accepted Answer

An unfavourable labour efficiency variance indicates that more actual labour hours were used than the standard labour hours for the production level achieved. This can be due to factors such as inefficient production processes, low employee morale or skills, or inadequate training. It does not necessarily mean that the actual labour rate was higher than the standard labour rate or that overtime was used.

Question 16

If the actual labour hours worked exceed the standard labour hours allowed,what type of variance will occur?
A) Favourable labour efficiency variance.
B) Favourable labour rate variance.
C) Unfavourable labour efficiency variance.
D) Unfavourable labour rate variance.

Accepted Answer

An unfavourable labour efficiency variance occurs when the actual labour hours worked exceed the standard labour hours allowed. This means that more labour hours were needed to complete the work than originally planned, which indicates inefficiency in the use of labour.

Question 17

Dahl Company,a clothing manufacturer,uses a standard costing system.Each unit of a finished product contains 2 metres of cloth.However,there is unavoidable waste of 20%,calculated on input quantities,when the cloth is cut for assembly.The cost of the cloth is $3 per metre.What is the standard direct material cost for cloth per unit of finished product?
A) $4.80.
B) $6.00.
C) $7.00.
D) $7.50.

Accepted Answer

The answer of Dahl Company,a clothing manufacturer,uses a standard costing...

Question 18

What do the terms "standard quantity allowed" or "standard hours allowed" mean?
A) The actual output in units multiplied by the standard output allowed.
B) The actual input in units multiplied by the standard output allowed.
C) The actual output in units multiplied by the standard input allowed.
D) The standard output in units multiplied by the standard input allowed.

Accepted Answer

Standard quantity allowed or standard hours allowed represent the amount of output in units or hours that should have been produced given the standard input. Therefore, the actual output in units (or hours) is multiplied by the standard input allowed to calculate the standard quantity allowed (or standard hours allowed). Thus, option C correctly represents the formula for standard quantity/hours allowed.

Question 19

(Appendix 10B)Drake Company purchased materials on account.The entry to record the purchase of materials having a standard cost of $1.50 per kilogram from a supplier at $1.60 per kilogram would include which of the following?
A) A credit to Raw Materials Inventory.
B) A debit to Work in Process.
C) A credit to Materials Price Variance.
D) A debit to Materials Price Variance.

Accepted Answer

The purchase of materials at a price higher than the standard cost results in an unfavorable materials price variance. To record this, the entry should include a debit to Materials Price Variance. The entry would also include a debit to Raw Materials Inventory for the actual cost of the materials purchased (1.60 per kilogram), and a credit to Accounts Payable or Cash for the same amount. However, since none of the answer choices include all three of these accounts, the best choice is D, which includes the debit to Materials Price Variance.

Question 20

To measure controllable production inefficiencies,which of the following is the best basis for a company to use in establishing the standard hours allowed for the output of one unit of product?
A) Average historical performance for the last several years.
B) Engineering estimates based on ideal performance.
C) Engineering estimates based on attainable performance.
D) The hours per unit that would be required for the present workforce to satisfy expected demand over the long run.

Accepted Answer

Engineering estimates based on attainable performance would take into account the specific capabilities and limitations of the current workforce, as well as other controllable factors such as equipment and materials. This would provide a more accurate and realistic standard for measuring controllable production inefficiencies. Historical performance may not be reflective of current capabilities and ideal performance may not be attainable in practice. The hours required to satisfy expected demand may also not take into account controllable inefficiencies.

Quiz 10: Standard Costs and Overhead Analysis

If a company follows a practice of isolating variances at the earliest point in time,what would be the appropriate time to isolate and recognize a direct material price variance?

What does a favourable labour rate variance indicate?

Which of the following refers to standards that allow for no machine breakdowns or other work interruptions and that require peak efficiency at all times?

A labour efficiency variance resulting from the use of poor quality materials should be charged to which/whom?

Which department is usually held responsible for an unfavourable materials quantity variance?

(Appendix 10B) Which of the following entries would correctly record the charging of direct labour costs to Work in Process given an unfavourable labour efficiency variance and a favourable labour rate variance?

(Appendix 10B) What does a credit balance in a direct labour efficiency variance account indicate?

A favourable materials price variance coupled with an unfavourable materials quantity variance would MOST likely result from which of the following?

Which of the following statements concerning practical standards is NOT correct?

Under a standard cost system,who is usually held responsible for the materials price variances?

Which of the following is the most probable reason a company would experience an unfavourable labour rate variance and a favourable labour efficiency variance?

What does an unfavourable labour efficiency variance indicate?

If the actual labour hours worked exceed the standard labour hours allowed,what type of variance will occur?

What do the terms "standard quantity allowed" or "standard hours allowed" mean?

(Appendix 10B) Drake Company purchased materials on account.The entry to record the purchase of materials having a standard cost of $1.50 per kilogram from a supplier at $1.60 per kilogram would include which of the following?

To measure controllable production inefficiencies,which of the following is the best basis for a company to use in establishing the standard hours allowed for the output of one unit of product?