SB10

Favorable variance should be considered as significant as unfavorable variances as they can ______.

-be indicators of process improvements that could be implemented more broadly -indicate a problem, particularly when investigated in conjunction with other related variances

The total standard cost for direct-material and direct-labor inputs is based on a company's ______ output.

actual

A favorable variance indicates ______.

actual materials used are less than expected

A manufacturing system that does not make a perishable product, but utilizes a system similar to what is used for perishable goods is a(n) ______ system.

JIT production

A control system has all of the following except ______.

comparison between company and industry performance

A system that sets predetermined performance levels, measures actual performance and compares actual to predetermined levels is a ______ system.

control

Generally, standard cost variances are closed to ______.

cost of goods sold

Efforts expended by a worker to become more skilled in his or her job would likely affect the ______ variance.

direct labor efficiency

A disadvantage of an ideal standard is ______.

employees may sacrifice quality to achieve the lowest possible product cost

Historical data is best used to set standards for a(n) ______.

existing product with no anticipated changes

When companies manufacture perishable goods or goods that are produced and sold in the same day, standard costs are ______.

expensed directly to cost of goods sold as they are incurred.

Standards that assume no disruptions in production are called ______ standards.

ideal

A variance below the set guidelines should be investigated ______.

if it recurs frequently

Closing unfavorable variances _______ cost of goods sold.

increases

The type of organization most likely to benefit from standard costing is ______.

manufacturing firms with a stable production process

The choice to purchase a lower quality material for use in production would have a favorable effect on the ______ variance.

materials price

An allowance for waste/inefficiences is part of the direct ______ standard.

materials quantity

An example of a standard set by a service organization is the ______.

number of customers served per hour

The standard direct labor quantity is the ______.

number of direct labor hours normally required to produce one unit of finished product

When using materials below quality standards results in an overall unfavorable quantity variance, the ______.

overall effect can still be favorable if the variances net to favorable and the overall quality of the final product is not affected.

Unfavorable materials price variances occur when a company ______.

pays more per unit of materials than expected

Direct materials quantity variances are most influenced by ______ managers.

production

The managerial accountant alone ______ determine standards.

should never

In order to control costs, the benchmark against which actual costs are compared is ______ output.

standard cost for actual

The use of time and motion studies to determine how long each step in the production process should take is an example of ______ analysis.

task

An example of a positive effect of standard costing on employee behavior would be ______.

the additional efforts expended to become more effective and efficient in the time spent to produce the product

When final product quality is not affected ______.

trade-offs among variances can be beneficial to the company

A favorable labor rate variance would most likely occur from hiring ______.

unskilled workers at a rate lower than the standard rate per hour

The event most likely to affect the materials quantity variance is the ______.

use of a lower quality material than designated by the product design team

Under standard costing, the entry to record direct labor includes a credit to ______.

wages and benefits payable at actual cost

An alternative to closing variances to cost of goods sold is to apportion the variances among ______.

work-in process and finished goods inventories and cost of goods sold

The formula to calculate the direct-labor rate variance is ______.

(AH x AR) - (AH x SR)

The production manager of John-John, Inc. was able to purchase a high-quality material at a significantly discounted price. The workers completed the product assembly more quickly than in the past. Given this scenario, the ______ variances are likely to be affected.

-materials price -labor efficiency

Participation in setting of cost standards ______.

-result in a higher commitment to meeting standards -should result in better cost standards

Standard costing ______.

-serves as a sensible benchmark against which to measure actual costs -facilitates management by exception

The direct labor standard includes ______.

-the hourly cost of direct labor, including fringe benefits -the amount of time it normally takes to make one unit of product

The use of historical data in standard cost setting should be adjusted for changes in ______.

-the production process -price levels -product requirements

When multiple materials are used in a product ______.

-the sum of all the material price and quantity variances is the material variance -quantity and price variances are computed for each type of material

Task analysis includes ______.

-the use of time and motion studies -working with personnel who are intimately familiar with the production process -studies to determine what should be used in the production of the product

The following variances show up on the current months' variance report. Which of these variances is a manager most likely to investigate first?

A $20,000 unfavorable material price variance when the standard material price is $200,000.

When materials are purchased for less than standard cost the journal entry includes a (debit/credit) to the direct materials purchase price variance. (Enter only one word per blank.)

Blank 1: credit

When materials are purchased for more than standard cost the journal entry includes a (debit/credit) to the direct materials purchase price variance. (Enter only one word per blank.)

Blank 1: debit

The two direct labor variances are called direct labor rate and direct labor . (Enter only one word per blank.)

Blank 1: efficiency

When a company expects to spend more than it actually spends there will be a(n) variance. (Enter only one word per blank.)

Blank 1: favorable or favourable

When the union negotiates an unexpected wage increase midway through the current year, the company will likely experience a(n) direct labor rate variance. (Enter only one word per blank.)

Blank 1: unfavorable or unfavourable

An alternative method of variance disposition is to apportion the variances among WIP Inventory, Finished Goods Inventory and Cost of Goods Sold. This method is called . (Enter only one word per blank.)

Blank 1: variance Blank 2: proration

True or false: Only manufacturing firms use standard costing.

False

True or false: The total cost a company should incur for direct material and direct labor is based upon the budgeted output.

False

True or false: Trends that result from very small variances should never be investigated.

False

True or false: When a production process involves several types of labor, weighted rate and efficiency variances are calculated.

False

If the mix of workers changed to use more highly skilled, highly paid workers, what would be the likely effect on the direct labor efficiency variance?

Favorable, as increased efficiency would result in less time spent.

A manager is more likely to investigate a variance that ______ controllable by someone in the organization.

is

The decision whether to investigate a cost variance ______.

is a cost-benefit decision

An advantage of a practical standard is it ______.

keeps employees motivated by providing tight, but attainable goals

Investigation of variances below thresholds but showing unfavorable trends ______.

may detect problems before costs become a concern

An unfavorable variance occurs if ______.

more labor hours are used than allowed by the standard

The event most likely to affect the labor rate variance is the ______.

negotiation of additional employee benefits

A normal adjustment to production cost standards is required for ______.

normal spoilage

The purpose of management by exception includes all of the following except ______.

providing a basis for incentive compensation

The variance that provides a more immediate evaluation of the purchasing manager's success or failure is the direct materials ______ variance.

purchase price

The deviation between the actual and standard price of direct materials originate in the ______ department.

purchasing

A company's best estimate of the cost to produce a single unit is called a(n) __ cost.

standard

Actual output is used for variance calculations because ______.

-budgeted output although useful for planning is outdated for analyzing performance -it focuses on the direct materials cost and direct labor cost that should have been incurred for the level of output produced -performance should be evaluated based upon what costs should be given the output produced

When standard costing is used, costs recorded at standard include ______.

-direct materials -direct labor

Investigation of significant variances ______.

-focuses efforts on investigations that should provide the most benefit to the company -is an example of management by exception

Determining variance significance involves ______.

-management experience -management judgment -using agreed upon guidelines

When a company has higher wage rates than anticipated, but uses less materials in the manufacture of a product than allowed by the standard, the company will have a(n) materials quantify variance. (Enter only one word per blank.)

Blank 1: favorable or favourable

A favorable variance is the result of a company spending (more/less) than planned. (Enter only one word per blank.)

Blank 1: less

The process of following up on only significant cost variances is called . (Enter only one word per blank.)

Blank 1: management Blank 2: by Blank 3: exception

A standard that can only be attained under the best of circumstances is called a(n) standard. (Enter only one word per blank.)

Blank 1: perfection or ideal

A standard that assumes a production process under normal operating conditions is referred to as a(n) standard. (Enter only one word per blank.)

Blank 1: practical or attainable

PQ(AP - SP) is the formula for the direct-material variance. (Enter only one word per blank.)

Blank 1: purchase Blank 2: price

When materials are added into work-in process, the direct materials variance is recorded. (Enter only one word per blank.)

Blank 1: quantity

The deviation between the actual and projected direct-labor cost gives rise to a direct-labor variance. (Enter only one word per blank.)

Blank 1: rate

When the standard cost is less than the actual cost, there will be a(n) variance. (Enter only one word per blank.)

Blank 1: unfavorable or unfavourable

In which situation would a favorable variance be an indication of a problem?

Due to the price of sugar, the bakers are using less sugar than the recipe requires.

Which of the following statements about management by exception is false?

Managers look into the causes of all variances.

True or false: The combined approach to setting cost standards involves using both task and historical cost analysis to set cost standards.

True

True or false: The decision to use inferior quality materials can have an effect on both labor and material variances.

True

True or false: Variance analysis is not timely or useful as it focuses on what has happened in the past.

True

If the mix of workers changed to use more highly skilled, highly paid workers, what would be the likely effect on the direct-labor rate variance?

Unfavorable, as their rate of compensation is higher.

A favorable material quantity variance could be the result of ______.

high quality materials

The standard direct labor rate is the ______.

hourly cost of compensation, including fringe benefits

The direct-labor rate variance is the ______.

difference between the actual and standard labor rates per hour times the actual hours worked

When using a standard-costing system ______.

direct materials and direct labor are added to work-in process at standard cost

Entering into a long-term contract for the acquisition of materials is likely to be done to control the ______ variance.

direct materials price

The variance that measures the number of hours worked compared to the number of hours allowed for the actual output is called the direct-labor ______ variance.

efficiency

Which of the following statements regarding critical value is false?

Variances less than critical value are investigated.

When determining the significance of a variance, most companies consider ______.

a combination of relative and absolute size

A standard cost is __.

a company's best estimate of the cost to produce a single unit

Controllability should enter into the consideration of variance significance when ______.

a responsible party can make decisions that will affect the variance

For the determination of cost standards, using both task analysis and historical cost analysis ______.

allows the focus to be on what has changed and use prior data for items that have not changed

The standard direct material quantity is the total ______.

amount of direct materials normally required to produce one unit of finished product, including an allowance for normal waste/inefficiency

Practical standards ______.

assume a production process that is efficient under normal operating conditions

A variance that is below variance absolute and magnitude thresholds, but happens multiple times at a reasonably high level would ______.

be investigated as a recurring variance

If the raw materials used in production are less than the standard allowed, there will be a ______ made to the direct materials quantity variance.

credit

Given the following information, the entry to close the variances to cost of goods sold would ______.

credit cost of goods sold for $700

Under standard costing, the entry to record the cost of goods sold includes a

credit to finished goods inventory at standard cost

In a standard cost system when less is paid for raw materials than allowed by the standard, the direct materials purchase price variance is ______.

credited upon acquisition

If the standard hours allowed are less than actual hours, there will be a ______ to direct labor efficiency variance.

debit

If the standard wage rate is less than actual wage rate, there will be a ______ to the direct labor rate variance.

debit

Under standard costing, the entry to record the completion of goods includes a

debit to finished goods inventory at standard cost

Under standard costing, the entry to record direct labor includes a ______ to Work in Process, for ______.

debit; standard hours allowed x standard rate per hour

Closing favorable variances ______ cost of goods sold.

decreases

The materials purchase price variance is ______.

determined at the time the materials are acquired

The purpose of a statistical control chart is to help ______.

eliminate from investigation those variances that are randomly caused

Using standard costs ______.

facilitates management by exception

When a company is able to negotiate a long term contract for materials at a price less than projected, there will likely be a(n) ______ variance.

favorable materials price