Question 1

The Russell Company provides the following standard cost data per unit of product: $\begin{array}{ll}
  \text {Direct material ( 3 gallons @\$ 6  per gallon)  } &  \text {  \$ 18.00   }  \
 \text {Direct labor ( 2 hours @ \$ 10  per hour) } & \text { \$ 20.00 } 
\end{array}$ During the period,the company produced and sold 22,000 units incurring the following costs: $\begin{array}{ll}
  \text {Direct material } &  \text { 68,000 gallons@ \$ 5.90 per gallon  }  \
 \text {Direct labor } & \text {45,500  hours @ \$ 9.75  per hour } 
\end{array}$ The direct material price variance was:
A) $6,600 unfavorable.
B) $6,600 favorable.
C) $6,800 unfavorable.
D) $6,800 favorable.

Accepted Answer

The answer of The Russell Company provides the following standard...

Question 2

Which of the following is not an advantage of using a standard cost system?
A) Promotes the efficient use of management talent to control costs
B) Provides immediate feedback that permits rapid response to problems
C) The easiest cost system to develop and maintain
D) Can boost morale and motivate employees

Accepted Answer

The primary advantage of a standard cost system is efficient use of management talent to control costs.Secondary benefits include the following.Standard cost systems quickly alert management to trouble spots.If established and maintained properly,standard cost systems can boost morale and motivate employees.A standard cost system forces managers to plan,resulting in more effective operations with less waste.

Question 3

Which of the following equations can be used to compute the total materials variance? (A = Actual;S = Standard;Q = Quantity;P = Price)
A) (AQ × AP)- (SQ × SP)
B) (SQ × SP)- (SQ × SP)
C) (AQ × AP)- (AQ × SP)
D) (AQ × SP)- (SQ × SP)

Accepted Answer

The equation for total materials variance is (AQ × AP) − (SQ × SP). Choice A matches this equation, while the other choices do not.

Question 4

Standard cost systems facilitate the management practice known as:
A) Management by the numbers.
B) Management development.
C) Managing by exception.
D) Just-in-time management.

Accepted Answer

Standard cost systems provide a basis for comparison between actual costs and expected (standard) costs. This enables managers to identify significant variances or exceptions and take appropriate action to address them. Managing by exception involves focusing on areas that deviate significantly from expectations and taking corrective action as needed. Therefore, standard cost systems facilitate managing by exception.

Question 5

Shia Company makes a product that is expected to require 2 hours of labor per unit of product.The standard cost of labor is $5.20.Shia actually used 2.1 hours of labor per unit of product.The actual cost of labor was $5.30 per hour.Shia made 1,000 units of product during the period.Based on this information alone,the labor price variance is:
A) $200 unfavorable.
B) $200 favorable.
C) $210 favorable.
D) $210 unfavorable.

Accepted Answer

Price variance = (Actual price - Standard price)x Actual quantity
Price variance = ($5.30 per hour - $5.20 per hour)x (1,000 units x 2.1 hours per unit)
Price variance = $0.10 per hour x 2,100 hours = $210
Since the actual price was greater than the standard price,the variance is unfavorable.

Question 6

Which of the following factors should be considered in establishing standards for use with a standard costing system?
A) Historical data
B) Current and planned technology,plant layout,and operating procedures
C) Behavioral implications
D) All of these answers are correct.

Accepted Answer

In establishing standards for use with a standard costing system, all of the factors mentioned should be considered. Historical data will provide a basis for the standards, current and planned technology, plant layout, and operating procedures will impact the cost of production, and behavioral implications will affect the achievement of the standards. Therefore, all of these answers are correct.

Question 7

The Russell Company provides the following standard cost data per unit of product: $\begin{array}{ll }
  \text {Direct material ( 3 gallons @ \$ 6  per gallon)  } & \$ 18.00  \
 \text { Direct labor ( 2 hours @ \$ 10  per hour) } &\$ 20.00 
\end{array}$
 During the period,the company produced and sold 22,000 units incurring the following costs: $\begin{array}{ll}
  \text {Direct material } &  \text {  68,000 gallons @ \$ 5.90 per gallon }  \
 \text { Direct labor } & \text {   45,500 hours @ \$ 9.75 per hour  } 
\end{array}$
 The direct material usage variance was:
A) $12,000 unfavorable.
B) $12,000 favorable.
C) $11,800 unfavorable.
D) $11,800 favorable.

Accepted Answer

The answer of The Russell Company provides the following standard...

Question 8

The resources used in the manufacturing process are frequently called:
A) Variances.
B) Standards.
C) Inputs.
D) Outputs.

Accepted Answer

The resources used in the manufacturing process are inputs, which are materials, labor, and other resources used to produce goods or services. Variances refer to deviations from expected results or standards, while standards refer to the expected level of performance or quality. Outputs refer to the final products or services that result from the manufacturing process.

Question 9

The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00.Actual sales for April were 149,000 units and average selling price was $6.12. The sales revenue flexible budget variance was:
A) $6,120 favorable.
B) $6,000 unfavorable.
C) $17,880 favorable.
D) $17,880 unfavorable.

Accepted Answer

Sales revenue flexible budget variance = Actual sales - Flexible budget
Sales revenue flexible budget variance = (Actual units x Actual selling price)- (Actual units x Expected selling price)
Sales revenue flexible budget variance = (149,000 units x $6.12 per unit)- (149,000 units x $6.00 per unit)
Sales revenue flexible budget variance = $911,880 - $894,000 = $17,880 favorable
Since actual sales were greater than the flexible budget amount,the variance is favorable.

Question 10

White Company budgeted for $200,000 of fixed overhead cost and volume of 40,000 units.During the year,the company produced and sold 39,000 units and spent $210,000 on fixed overhead. The fixed overhead cost volume variance is:
A) $10,000 favorable.
B) $10,000 unfavorable.
C) $5,000 favorable.
D) $5,000 unfavorable.

Accepted Answer

Predetermined overhead rate per unit = Budgeted fixed cost from the static budget ÷ Planned volume of activity
Predetermined overhead rate per unit = $200,000 ÷ 40,000 units = $5.00 per unit
Applied fixed cost = Predetermined overhead rate x Actual volume
Applied fixed cost = $5.00 per unit x 39,000 units = $195,000
Fixed overhead volume variance = Applied fixed cost based on actual volume - Budgeted fixed cost based on planned volume
Fixed overhead volume variance = $195,000 - $200,000 = $5,000
Since actual volume is less than the planned volume,the variance is unfavorable.

Question 11

Select the correct statement from the following,assuming Carmichael Company had a favorable direct materials price variance of $3,000 and an unfavorable direct materials usage variance of $2,000.
A) The total direct materials variance is $1,000 unfavorable.
B) The total direct materials variance is $5,000 favorable.
C) The total direct materials variance is $5,000 unfavorable.
D) The total direct materials variance is $1,000 favorable.

Accepted Answer

Total materials variance = Materials price variance + Materials usage variance
Total materials variance = $3,000 favorable + $2,000 unfavorable = $1,000 favorable

Question 12

The Landrum Company provides the following standard cost data per unit of product: $\begin{array}{ll}
  \text { Variable overhead } &  \text {  \$ 8.00 }  \
\end{array}$ Landrum anticipated that they would produce and sell 24,000 units.During the period,the company produced and sold 25,000 units incurring $210,000 of variable overhead costs. The variable overhead flexible budget variance was:
A) $8,000 unfavorable.
B) $10,000 unfavorable.
C) $8,000 favorable.
D) $10,000 favorable.

Accepted Answer

The answer of The Landrum Company provides the following standard...

Question 13

The Russell Company provides the following standard cost data per unit of product: $\begin{array}{llcc}
  \text {  Direct material ( 3 gallons @ \$ 6 per gallon)  } & \$ 18.00 \
 \text {Direct labor ( 2 hours @  \$ 10 per hour) } & \$ 20.00
\end{array}$
 During the period,the company produced and sold 22,000 units incurring the following costs: $\begin{array}{llcc}
  \text {Direct material } & \text { 68,000 gallons @  \$ 5.90  per gallon  }  \
 \text { Direct labor  } &\text {  45,500  hours @ \$ 9.75 per hour } 
\end{array}$
 The direct labor price variance was:
A) $11,000 unfavorable.
B) $11,000 favorable.
C) $11,375 unfavorable.
D) $11,375 favorable.

Accepted Answer

The direct labor price variance is calculated as the difference between the actual price paid and the standard price, multiplied by the actual quantity used. In this case, the actual price paid is $9.75 per hour, the standard price is $10 per hour, and the actual quantity used is 45,500 hours. Therefore, the direct labor price variance is:(Actual price - Standard price) x Actual quantity= ($9.75 - $10) x 45,500 hours= -$0.25 x 45,500 hours= -$11,375 unfavorable

Question 14

Abbot Company spent less than expected for materials and more than expected for labor.Select the incorrect statement from the following.
A) You can always expect unfavorable labor variances if you have favorable material variances.
B) In order to facilitate cost control,it will be necessary to analyze the price and quantity of each resource used in production.
C) It cannot be determined from the information provided whether employees were paid higher wages or if they worked more hours.
D) It cannot be determined from the information provided whether the company paid a lower purchase price for materials or if workers used less materials.

Accepted Answer

A favorable materials variance could mean purchasing agents were shrewd in negotiating price concessions,discounts,or delivery terms and therefore reduced the price the company paid for materials.Similarly,production employees may have used materials efficiently,using less than expected.The unfavorable labor variance could mean managers failed to control employee wages or motivate employees to work hard.Using substandard materials could have required additional labor in the production process,which would explain the unfavorable labor variance;however,this is only one possible explanation.

Question 15

Which range of difficulty should normally be used to develop standards?
A) Practical standards
B) Lax standards
C) Ideal standards
D) Inflated standards

Accepted Answer

Practical standards should be used to ensure that standards are achievable and realistic. Setting lax standards would result in poor performance, while setting ideal or inflated standards may be too difficult to achieve and demotivating for employees. Therefore, practical standards are the most appropriate range of difficulty to develop standards.

Question 16

Kokko Company makes a product that is expected to require 2 hours of labor per unit of product.The standard cost of labor is $6.00.Kokko actually used 2.1 hours of labor per unit of product.The actual cost of labor was $6.25 per hour.Kokko made 1,100 units of product during the period.Based on this information alone,the labor usage variance is:
A) $190 favorable.
B) $660 unfavorable.
C) $600 favorable.
D) $660 favorable.

Accepted Answer

Usage variance = (Actual quantity - Standard quantity)x Standard price
Usage variance = [(1,100 units x 2.1 hours per unit)- (1,100 units x 2.00 hours per unit)] x $6.00 per hour
Usage variance = (2,310 hours - 2,200 hours)x $6.00 per hour = $660
Since the actual quantity is greater than the standard quantity,the variance is unfavorable.

Question 17

The standard amount of materials required to make one unit of Product Q is 4 pounds.Tusa's static budget showed a planned production of 3,800 units.During the period the company actually produced 4,100 units of product.The actual amount of materials used averaged 3.9 pounds per unit.The standard price of material is $1 per pound.Based on this information,the materials usage variance was:
A) $410 favorable.
B) $380 unfavorable.
C) $410 unfavorable.
D) $380 favorable.

Accepted Answer

Usage variance = (Actual quantity - Standard quantity)x Standard price
Usage variance = [(4,100 units x 3.9 pounds per unit)- (4,100 units x 4 pounds per unit)] x $1.00 per pound
Usage variance = (15,990 pounds - 16,400 pounds)x $1.00 per pound = $410
Since the actual quantity is less than the standard quantity,the variance is favorable.

Question 18

Global Company makes a product that is expected to use 2.2 pounds of material per unit of product.The material has a standard cost of $2 per pound.Global actually used 2.3 pounds of material per unit of product made in January.The actual cost of material was $1.95 per pound.Based on this information alone,the materials variances for the January production would be:
A) Favorable for price and unfavorable for usage.
B) Unfavorable for price and favorable for usage.
C) Unfavorable for price and unfavorable for usage.
D) Favorable for price and favorable for usage.

Accepted Answer

Since the actual price of $1.95 per pound was less than the standard price of $2 per pound,the variance is favorable.Since the actual quantity of 2.3 pounds per unit is greater than the standard quantity of 2.2 pounds per unit,the variance is unfavorable.

Question 19

The Russell Company provides the following standard cost data per unit of product: $\begin{array}{llcc}
  \text { Direct material ( 3 gallons @ \$ 6  per gallon) } & \$ 18.00 \
 \text {Direct labor ( 2 hours @ \$ 10  per hour) } &\$ 20.00
\end{array}$
 During the period,the company produced and sold 22,000 units incurring the following costs: $\begin{array}{llcc}
  \text {Direct material } &  \text {68,000 gallons @ \$ 5.90  per gallon}  \
 \text {Direct labor } & \text {45,500  hours @ \$ 9.75 per hour}
\end{array}$
 The direct labor usage variance was:
A) $15,000 unfavorable.
B) $15,000 favorable.
C) $14,625 unfavorable.
D) $14,625 favorable.

Accepted Answer

The answer of The Russell Company provides the following standard...

Question 20

All of the following factors should influence the decision to investigate a variance except:
A) Frequency of occurrence.
B) Materiality of the variance amount.
C) The direction of the variance (favorable or unfavorable).
D) Capacity for management to control.

Accepted Answer

Managers consider the materiality of a variance,the frequency with which it occurs,their capacity to control the variance,and the characteristics of the items behind the variance.

Quiz 8: Performance Evaluation

Which of the following is not an advantage of using a standard cost system?

Which of the following equations can be used to compute the total materials variance? (A = Actual;S = Standard;Q = Quantity;P = Price)

Standard cost systems facilitate the management practice known as:

Which of the following factors should be considered in establishing standards for use with a standard costing system?

The resources used in the manufacturing process are frequently called:

The Boyle Company estimated that April sales would be 150,000 units with an average selling price of $6.00.Actual sales for April were 149,000 units and average selling price was $6.12. The sales revenue flexible budget variance was:

White Company budgeted for $200,000 of fixed overhead cost and volume of 40,000 units.During the year,the company produced and sold 39,000 units and spent $210,000 on fixed overhead. The fixed overhead cost volume variance is:

Select the correct statement from the following,assuming Carmichael Company had a favorable direct materials price variance of $3,000 and an unfavorable direct materials usage variance of $2,000.

Abbot Company spent less than expected for materials and more than expected for labor.Select the incorrect statement from the following.

Which range of difficulty should normally be used to develop standards?

All of the following factors should influence the decision to investigate a variance except: