Chapter 10: Standard Costs and Variances

If poor-quality materials results in excessive labor processing time, the ________ manager will probably be held responsible for the labor efficiency variance.

purchasing

The difference between actual results and the flexible budget amount is an _______ variance.

spending

The final, delivered price that should be paid for each unit of direct materials is the _____ price per unit of materials.

standard

An unfavorable materials quantity variance occurs when:

the actual amount of materials used is greater than the standard amount of materials allowed for the actual output

The difference between the amount of an input used and the amount that should have been used, all evaluated at the standard price for the input, is called an __________ variance.

quantity

Advantages to using a standard cost system include:

- standards can provide benchmarks for individuals to judge their own performance - standards costs can simplify bookkeeping

Calculate the labor rate variance for Adkinson Company: Actual hours used: 5,500 Standard hours allowed: 5,800 Actual labor rate: $14.75 per hour Standard labor rate: $14 per hour

$4,125 Unfavorable (AH(AR-SR)) = 5,500 x ($14.75 - $14)

The standard price of materials is $4.10 per pound and the standard quantity allowed for actual output is 5,800 pounds. If the actual quantity purchased and used was 6,000 pounds, and the actual price per pound was $4.00, direct materials price variance is:

$600 F (6,000 x ($4 - $4.10))

Using the information provided, calculate the materials quantity variance: Standard price: $3 per pound Actual price: $3.20 per pound Actual quantity used: 5,200 pounds Standard quantity allowed: 5,000 pounds

$600 Unfavorable (SP(AQ-SQ)) = $3(5,200-5,000)

The spending variance is:

(AQ x AP) - (SQ x SP)

What is used to calculate the standard quantity per unit of direct materials?

- Allowance for waste and spoilage - Direct materials requirements per unit of finished product

Standards are:

- Benchmarks for measuring performance - Compared to the actual quantities and costs of inputs - Set for each major production input or task

What is true?

- How production supervisors use direct labor workers can lead to labor rate variances. - Overtime premiums can cause an unfavorable labor rate variance.

Which is true?

- Managers should not use standards to assign blame - Standard cost reports might be too outdated to be useful

The standard hours per unit of an output includes:

- The estimated time to complete the unit - An allowance for cleanup and downtime

What is true?

- When actual results depart significantly from the standard, the reasons why should be investigated - Standards provide information for measuring performance

An unfavorable labor efficiency variance can result from:

- poorly motivated workers - faulty equipment - insufficient product demand

A price variance is the difference between the:

actual price and the standard price multiplied by the actual amount of the input

To calculate a quantity variance, multiply the _________ quantity times the standards price and compare it to the standard quantity allowed times the ____ price.

actual, standard

The variable overhead efficiency variance compares the _______ hours times the standard rate with the standard hours allowed for the actual output times the ______ rate.

actual; standard

A quantity variance is

calculated using the standard price of the input

SR(AH - SH) is the formula for the ______ variance.

labor efficiency

When the standard price paid is less than the actual price paid for materials, the material price variance is _______.

unfavorable

The standard price of materials is $3.50 per pound and the standard quantity allowed for the actual output is 7,000 pounds. If the actual quantity purchased and used was 6,700 pounds, and the actual price per pound was $3.40, the direct materials variance is $_______.

$1,050 Favorable ($3.50(6,700-7,000))

A planning budget called for 500 units to be produced and total direct labor costs of $7,500. Actual production was 600 units and actual direct labor cost was $9,300. The activity variance is:

$1,500 Unfavorable ($7,500/500 = $15 standard rate per hour x 600 = $9,000 flexible budget - $7,500 planning budget)

Material requirements plus an allowance for normal inefficiencies are added together to determine the ________ _________ of a direct material per unit of output.

quantity standard

The amount of direct-labor hours that should be used to produce one unit of finished goods is the _______ hours per unit.

standard