Question 1

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 materials were purchased at a lower than expected cost. However, an unfavourable materials quantity variance indicates that more materials were used than planned. This could be due to the lower quality of materials purchased, as they may require more to produce the desired output. Therefore, the purchase of low quality materials would be the most likely cause of this scenario.

Question 2

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

To produce 1 unit, 2 metres are needed, but with 20% waste, 2.5 metres are required (2 / (1 - 0.20)). At $3 per metre, the cost is 2.5 * $3 = $7.50.

Question 3

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 4

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 5

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

When materials are purchased at a price different from their standard cost, the Materials Price Variance account is used to record the difference between the two amounts. 
Since the materials were purchased at $1.60 per kilogram, which is $0.10 more than the standard cost of $1.50 per kilogram, a debit entry must be made to the Materials Price Variance account to record the unfavorable variance.

Question 6

Cox Company's direct material costs for the month of January were as follows;
$\begin{array}{|l|r|}
\hline \text { Actual quantity purchased } & \$ 18,000 \text { kilograms } \
\hline \text { Actual unit purchase price } & \$ 3.60 \text { per kilogram } \
\hline \text { Materials price variance- } & \
\hline \text { Unfavourable (based on purchases) } & \$ 3,600 \
\hline \text { Standard quantity allowed } &  \
\hline \text { For actual production } &16,000 \text { kilograms } \
\hline \text { Actual quantity used } & 15,000 \text { kilograms } \
\hline
\end{array}$
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 7

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 8

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

The materials price variance is calculated as (Actual Price - Standard Price) x Actual Quantity. First, find the standard cost: Standard Quantity = 21,750 kg, Actual Quantity = 22,500 kg, Quantity Variance = (22,500 - 21,750) x Standard Price = $1,875 unfavourable. Solving for Standard Price gives $0.75/kg. Actual Price = $53,000 / 22,500 kg = $2.36/kg. Price Variance = (2.36 - 0.75) x 22,500 = $3,250 favourable.

Question 9

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 be the best basis for establishing the standard hours allowed for the output of one unit of product because it considers both the ideal performance and the current capabilities of the workforce. This would provide a more realistic and achievable standard, which can be used to measure any controllable production inefficiencies. Average historical performance may not accurately reflect current capabilities, while engineering estimates based on ideal performance may not be achievable in reality. The standard hours allowed should also consider expected demand over the long run, but this can be incorporated into the engineering estimates based on attainable performance.

Question 10

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 11

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 sourcing and selecting the materials that are used in production. If poor quality materials are used and result in a labour efficiency variance, it is the purchasing agent's responsibility to ensure that the materials meet the required standards. The variance should be charged to the purchasing agent to incentivize them to make better material selections in the future.

Question 12

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

The direct material price variance should be isolated and recognized at the time of purchase, as this is when the company can determine whether they paid more or less for the materials than the expected price. Isolating the variance at this point allows the company to take action, such as negotiating better prices or choosing different suppliers, to reduce the variance in future periods.

Question 13

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 the actual labour hours worked were greater than the standard hours for the production achieved, meaning that more labour hours were used than necessary to produce the same output. This can be due to a variety of reasons, such as inefficient work methods or lack of training. Options A, B, and D do not necessarily indicate an unfavorable labour efficiency variance, and may indicate other types of variances.

Question 14

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 15

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. Practical standards may need to be adjusted if an old machine is replaced by a newer, faster machine in order to reflect the increased productivity and efficiency of the newer machine. Therefore, practical standards are not entirely static and may need to be adjusted over time.

Question 16

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

C is correct because it accounts for both variances affecting the labour costs. The unfavourable labour efficiency variance increases the cost (debit), while the favourable labour rate variance decreases the cost (credit), with the net effect recorded in Work in Process and the actual wages paid credited to Wages Payable.

Question 17

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 18

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 responsible for the materials price variances, as they are in charge of purchasing raw materials and negotiating prices with suppliers.

Question 19

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

If the actual labour hours worked exceed the standard labour hours allowed, it means that more labour hours were used than expected, resulting in higher labour costs. This will lead to an unfavourable labour efficiency variance.

Question 20

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 a situation where there is no machine breakdown, no work interruptions, and the workers are all working at peak efficiency. This is an unrealistic setting, but it is used as a benchmark for measurement and evaluation purposes. Therefore, the answer to this question is ideal standards.

Quiz 10: Standard Costs and Overhead Analysis

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

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

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?

What does a favourable labour rate variance indicate?

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?

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

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

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 an unfavourable labour efficiency variance indicate?

What does a credit balance in a direct labour efficiency variance account indicate?

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

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?

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

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

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

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?