Chapter 10

In recording variable overhead application, when there is a higher rate paid and greater driver usage than expected, the entry includes a: A. debit to work in process inventory B. credit to variable overhead spending variance C. debit to manufacturing overhead D. credit to variable overhead efficiency variance E. none of the above

A

The difference between the split cost and the actual cost for direct materials is called the: A. Materials price variance B. Materials efficiency variance C. Materials usage variance D. Materials budget variance E. None of the above

A

The standard direct material cost is equal to: A. Standard quantity x standard price B. Standard quantity x actual price C. Actual quantity x standard price D. Actual quantity x actual price E. None of the above

A

What is the simplified equation for calculating the direct labor rate variance? A. AH x (AR - SR) B. AH x (SR - AR) C. SH x (AR - SR) D. SH x (SR - AR) E. None of the above

A

When are variances normally closed to cost of goods sold? A. during year end closing B at the end of each month C as products are sold D. when the variance occurs E. none of the above

A

How is the split cost for direct labor calculated? A. AH x AR B. AH x SR C. SH x AR D. SH x SR E. None of the above

B

The difference between the split cost and the standard cost for direct materials is called the: A. Materials price variance B. Materials efficiency variance C. Material usage variance D. Materials budget variance E. None of the above

B

The standard direct labor per unit cost is equal to: A. Expected hours x standard wage rate B. Standard hours x standard wage rate C. Actual hours x expected wage rate D. Expected hours x actual wage rate E. None of the above

B

The standard variable overhead per unit cost is equal to: A. Standard total overhead application rate x standard capacity B. Standard variable overhead application rate x standard capacity C. Standard total overhead application rate x actual capacity D. Standard variable overhead application right x actual capacity

B

When materials are purchased, which of the following accounts could be affected? A. direct materials efficiency variance B. direct materials price variance C. work-in-process inventory D. variable overhead efficiency variance E. two of the above

B

Which of the following accurately represents the "split cost" for analyzing the direct materials flexible budget variance? A. Actual quantity times actual price B. Actual quantity times standard price C. Standard quantity times actual price D. Standard quantity times standard price E. None of the above

B

The sum of the direct labor rate and efficiency variances is equal to: A. The split cost B. The standard cost C. The flexible budget variance D. The actual budget variance E. None of the above

C

Under standard costing, and assuming a Perpetual inventory system, when are standard costs of inventory transferred to cost of goods sold? A. during year end closing B. at the end of each month C. as products are sold D. when variances occur E. none of the above

C

Which of the following could cause a negative variable overhead efficiency variance? A. Having a variable overhead cost greater than expected for the given driver usage B. Having variable overhead costs less than expected for the given driver usage C. Having driver usage greater than expected for the given level of production D. Having driver usage less than expected for the given level of production E. All of the above

C

Assuming that variable overhead is applied to each job as it is completed, when is the variable overhead spending variance recorded? A. when each job is completed B. when direct labor is recorded C. when preparing period-end financial statements D. when the variable overhead costs are incurred E. none of the above

C the entire variable overhead spending variance would be recorded at the end of the period as the over or under applied overhead amount written off to cost of goods sold.

In recording the accrual of wages, if less skilled workers are employed than were planned for, the entry would most likely include a: A. debit to direct labor rate variance B. debit to direct labor flexible budget variance C. credit to direct labor efficiency variance D. credit to direct labor rate variance E. none of the above

D

The difference between the actual cost and the standard cost for direct labor is called: A. Direct labor rate variance B. Direct labor efficiency variance C. Direct labor split variance D. Direct labor flexible budget variance E. None of the above

D

The variable overhead rate variance is calculated as: A. The difference between the actual and standard rates, multiplied by the actual driver usage B. The difference between the actual in standard rates, multiplied by the standard driver usage C. The difference between actual costs and standard costs D. The difference between actual costs and split costs E. none of the above

D

Which of the following accounts is always part of the closing entry for variances? A. wages payable B. work in process C. finished goods D. cost of good sold E. three of the above

D

Which of the following factors would most likely not influence the standard level of variable overhead capacity? A. Machine performance levels B. Engineering studies C. Employee performance D. Market demand levels E. All of the above affect the level of variable overhead capacity

D

Reasons for using standard costing include their usefulness in: A. Preparing flexible budgets B. Preparing master budgets C. Establishing selling prices D. Preparing performance reports E. All of the above

E

Reasons for using standard costing include: A. Comparing projected costs against actual costs B. Planning and budgeting purposes C. Setting prices in advance D. Identifying specific areas for process improvement E. All of the above

E

Standard costing can be used to apply costs for which of the following? A. Direct materials B. Direct labor C. Direct materials and indirect labor D. Factory utilities E. All of the above can be applied using standard costing

E

The equation to calculate the direct materials price variance is: A. AQ x( SP - AP) B. SP x( AQ - SQ) C. AP x( AQ - SQ) D. SQ x (AP - SP) E. None of the above

E

The standard cost driver usage for variable overhead can be calculated as: A. split cost divided by actual application rate B. Split cost divided by standard application rate C. Actual cost divided by standard application rate D. Standard cost divided by actual application rate E. None of the above

E

The standard direct material cost is equal to:

E

Which of the following accounts could be affected by the closing entry for a significant variance? A. wages payable B. work in process C. finished goods D. cost of goods sold E. three of the above

E

Which of the following could be a variance that would be highlighted through standard costing? A. Wage increases B. Materials price increases C. Excess overtime hours D. Fixed cost reductions E. All of the above

E

Which of the following could cause a variable overhead flexible budget variance? A. variable overhead costs being greater than expected for the given driver usage B. Variable overhead costs being less than expected for the given driver usage C. Driver usage being greater than expected for the given level of production D. Driver usage being less than expected for the given level of production E. All of the above

E

A net unfavorable variance decreases cost of goods sold. True or false

False Reason: A net unfavorable variance means that inventory cost the company more than the standard cost. Cost of goods sold is initially recorded at standard cost, so the unfavorable variance will increase cost of goods sold to reflect the higher cost of inventory.

Standard costing assumes that a company is producing 100% efficiently, and allocates estimated costs appropriately. True or false

False Reason: Standard costing should be based on normal levels of production. Standards should be attainable through efficient efforts by the typical worker at a task

The direct materials price variance is found by the following equation: actual quantity used in production x (actual price - standard price.) True or false

False Reason: The equation is as follows: Actual quantity purchased x (actual price - standard price)....... because the price variance is based on the quantity purchased

The flexible budget variance is equal to the difference between actual costs incurred and budgeted costs. True or false

False Reason: The flexible budget variance is the difference between actual costs incurred and costs that would have been expected to be incurred at standard rates given the actual level of production.

For direct labor, if the efficiency and rate variances are both negative, then the flexible budget variance will be unfavorable. True or false

False Reason: The flexible budget variance is the son of the price and efficiency parents is, and negative cost variances are considered favorable

When direct materials are requisitioned into production, a price variance may need to be recorded. True or false

False Reason: The price variance is recorded at purchase, and raw materials inventory is carried at the standard price. No price variance entry is needed at the point of requisition.

The amount of direct materials purchased is usually equal to the amount of direct materials used in production that period. True or false

False Reason: it is common in practice that companies purchase more or less than they actually used in production

Due to the nature of the procedures involved, service companies do not use standard costing. True or false

False Reason: it is important to note that standard costing concepts also apply and service companies

The actual cost of variable overhead is determined by multiplying the actual driver usage by the actual variable cost rate. True or false

False Reason: there is no rate applied to these actual amounts. The actual amount spent is simply the sum of all indirect variable items

Variable overhead is generally combined with fixed overhead in standard costing. True or false

False Reason: traditionally we separate overhead costs into fixed and variable components.

The calculations for variable overhead variances are significantly different from those for direct labor variance is. True or false

False Reason: variable overhead variances are virtually identical to labor variances

When an unfavorable variance occurs, getting only debited to the work in process inventory account. True or false

False Reason: variances are tracked throughout the period, and typically closed to cost of goods sold

Recording variances for direct labor requires two separate journal entries; one for the rate variance, and one for the efficiency variance. True or false

False Reason: we only record one entry in the accounting records relative to direct labor

The total number of hours worked by employees is always directly tied to the total level of production. True or false

False Reason: employees may spend more or less time on a product or job than is allowed by the standard: fluctuations in total direct labor hours are not necessarily tied to changes in production levels.

A negative direct labor efficiency variance is considered favorable. True or false

True

An unfavorable direct labor rate variance is recorded as a debit. True or false

True

Even when a variance occurs, inventory is carried on the books (in both work in process inventory and finished goods inventory) at standard cost. True or false

True

Health insurance and other benefits are part of the calculation of the standard price for direct labor. True or false

True

I direct materials price variance is unfavorable if the price paid per unit is greater than the standard price per unit. True or false

True

Planning to purchase materials in bulk amounts will affect the standard price for direct materials. True or false

True

Sometimes a firm may allocate a portion of period-end variances to the work in process inventory account. True or false

True

Standard costing can be used for both job order and process costing systems. True or false

True

The actual cost of variable overhead is equal to the standard cost of variable overhead plus any unfavorable variances and minus any favorable variances. True or false

True

The amount credited to wages payable for direct labor is the actual cost, rather than the standard cost. True or false

True

The standard cost of variable overhead is equal to the standard variable overhead application rate multiplied by the standard driver usage at the given level of production. True or false

True

Under standard costing, the inventory account balance may not actually reflect the true costs incurred to acquire the inventory. True or false

True

Unlike direct materials, the sum of all of the direct labor variances is always equal to that flexible budget variance. True or false

True

Using higher quality materials and production can help to reduce an unfavorable direct materials efficiency variance. true or false

True Reason: higher quality materials are less likely to break or need to be scrapped, so best materials will be used overall for the same amount of production