STANDARD COSTING AND VARIANCE ANALYSIS
When the standard purchase price is less than the actual price paid for materials, the material price variance is
Unfavorable
An unfavorable budget variance ______.
may indicate a positive investment in fixed overhead resources
Dividing the estimated total manufacturing overhead cost by the estimated total amount of the allocation base is the calculation of the _________ __________ rate
predetermined overhead
How much should be paid for each unit of an input is specified by a(n) ______ standard
price
The labor efficiency variance is the difference between actual hours used and standard hours allowed multiplied by the ______ hourly rate.
standard
The materials price variance is calculated using the ______.
standard price of the input actual price of the input actual quantity of the input purchased
Material requirements plus an allowance for normal inefficiencies are added together to determine the ________ of a direct material per unit of output.
standard quantity
SR(AH - SH) is the formula for the ______ variance.
labor efficiency
How much should be paid for an input is indicated by a price ______
standard
When using a standard cost system, the over or under applied overhead equals the sum of the overhead ______ for the period.
variances
Quantity standards refer to the price to be paid for each unit of the input.
False
The difference between the actual price paid for the material and what should have been paid according to the standard is reflected in the direct materials ______ variance
Price
The labor efficiency variance is generally the responsibility of the ______ manager.
Production
How much input should be used to produce a product or provide a service is a(n) __________ standard
Quantity
AH(AR - SR) is the formula for the variable overhead _______ variance
Rate
Net operating income from the income statement is reported in _____________ on the balance sheet.
Retained Earnings
Which of the following statements are true?
Standard cost reports may be too outdated to be useful. Managers should not use standards to assign blame.
In a standard costing system, variable and fixed overhead are applied to production using the ______ hours allowed for the ______ production.
Standard; Actual
When demand for a product is insufficient to keep all of the production workers busy and no layoffs occur, an unfavorable ________ ________ variance may occur.
Labor Efficiency
The difference between the standard and the actual direct labor hourly rates is reflected in the _______________ variance
Labor rate
Standard costs are a key element in the _____ by ______ approach utilized by some companies.
Management; Exception
When the standard price is higher than the actual price, the materials price variance is ______.
favorable
If poor-quality materials results in excessive labor processing time, the ______ manager will probably be held responsible for the labor efficiency variance.
purchasing
The standard labor rate per hour ______.
reflects the expected mix of workers
Once the predetermined overhead rate has been established, it ______.
remains unchanged throughout the period
The volume variance ______.
has no relationship to actual spending
The spending variance is ______.
(AQ × AP) - (SQ × SP)
The accounting equation is: Assets =
A=L+E
The material quantity variance reflects the difference between the ________ quantity of materials used in production and the __________ quantity allowed for the actual output.
Actual; Standard
The budget variance is the difference between the ______ fixed overhead and the ______ fixed overhead.
Actual;Budgeted
When calculating the labor rate variance, multiply the actual hours worked times the _____ labor rate and compare it to the actual hours worked times the _____ labor rate.
actual ; standard
The materials price variance is the difference between the actual price of materials ______.
and the standard price for materials with the difference multiplied by the actual quantity of materials
Most companies compute the material price variance when materials are ______ and the material quantity variance when materials are ______.
purchased, used
The estimated amount of the allocation base used in the formula for the predetermined overhead rate is called the _______ activity
denominator
An unfavorable materials quantity variance occurs when ______.
the actual amount of material used is greater than the standard amount of material allowed for the actual output
If managers consider it unwise to adjust the workforce in response to changes in workload ______.
the direct labor workforce is really fixed in the short run
Standard costs fit naturally into an integrated system of _______ accounting
responsibility
The difference between actual results and the flexible budget amount is a(n) __________ variance.
spending
The amount of direct-labor hours that should be used to produce one unit of finished goods is the _____ hours per unit
standard
The amount of direct-labor hours that should be used to produce one unit of finished goods is the ________ hours per unit
standard
Material requirements plus an allowance for normal inefficiencies are added together to determine the __________________ of a direct material per unit of output
standard quantity
Advantages to using a standard cost system include ______.
standards can provide benchmarks for individuals to judge their own performance standard costs can simplify bookkeeping
The standard hours or quantity allowed for an input is the amount of the input that should have been used to produce the standard output for the period.
False
The standard hours per unit includes both direct and indirect labor hours.
False
The material variance terms price and quantity are replaced with the terms _______ and ______ when computing direct labor variances.
Rate ; Hours
A materials price variance is equivalent to a labor __________ variance and a materials quantity variance is equivalent to a labor _______ variance.
Rate; Efficiency
Which of the following statements is true?
A labor efficiency variance is a quantity variance.
The final, delivered price that should be paid for each unit of direct materials is the _______ price per unit of materials
Standard/Budgeted
A company's fixed component of the predetermined overhead rate was $4.50 per machine hour based 40,000 denominator hours. A total of 38,000 actual hours used and 43,000 standard hours were allowed for the actual output. The volume variance is $ ______.
$13,500 F $4.50 × (40,000 - 43,000) = $13,500 F.
Based on the following information, the amount of overhead applied when using a standard cost system equals $ Budgeted Variable Overhead: $100,000 Budgeted Fixed Overhead: $150,000 Est. Total Machine Hours: 20,000 Standard Machine-hours for actual production: 18,000 Actual Machine Hours Used: 17,500
$135,000
Given the following, the standard cost of this item is ______ per unit. Direct Materials per Unit: 2 Pounds Direct Materials Cost: $2.50 per pound Direct Labor per Unit:0.75 hours Direct Labor Rate: $16 per hour Variable OHR: $8
$23 (16*0.75) + 2.5 + 8
Based on the following information, calculate the variable overhead rate variance. Actual variable overhead cost $15,500 Actual hours used 4,200 Standard hours allowed 4,000 Standard variable overhead rate $3.75 per hour
$250 F $15,750 (4,200 actual hours × $3.75) - $15,500 of actual overhead = $250 favorable.
Given the following, compute the standard cost per widget Direct Materials per Unit: 4 Pounds Direct Materials Cost: $1.25 per pound Direct Labor per Unit: 1.5 hours Direct Labor Rate: $10 per hour Variable OHR: $4
$26 Materials (4 pounds × $1.25) + Labor (1.5 hours × $10.00) + Overhead (1.5 hours × $4.00) = $26.00
Based on the following information, calculate the amount of overhead applied when using a standard costing system. Budgeted Variable Overhead: $200,000 Budgeted Fixed Overhead: $150,000 Est. Total Machine Hours: 25,000 Standard Machine-hours for actual production: 20,000 Actual Machine Hours Used: 20,500
$280,000 ($200,000 + $150,000) ÷ 25,000 × 20,000 standard hours allowed = $280,000 applied
A planning budget called for 500 units to be produced and total direct labor cost of $7,500. Actual production was 600 units and actual direct labor cost was $9,300. The spending variance is:
$300 U $7,500 ÷ 500 = $15 standard rate per unit × 600 = $9,000 flexible budget - $9,300 actual = $300 U
Standard cost variance accounts begin and end each accounting period with a balance of _________
Zero
The payment of a dividend ______ retained earnings.
decreases
Use the following information to 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 $14.00 per hour
$4,125 Unfavorable The labor rate variance is: AH(AR-SR): 5,500 × ($14.75 - $14.00) = $4,125 Unfavorable
Use the following information to calculate the labor efficiency variance for Adkinson Company. Actual hours used 5,500 Standard hours allowed 5,800 Actual labor rate $14.75 per hour Standard rate $14.00 per hour
$4,200 Favorable $14.00 × (5,800 - 5,500) = $4,200 Favorable. The labor efficiency variance is calculated using the standard, not the actual, labor rate.
Calculate the predetermined overhead rate using machine-hours as the allocation base. Budgeted Overhead: $350,000 Budgeted Production: 28,000 Units Total Budgeted Machine-Hours: 70,000 Hours Actual Production: 20,000 Units Standard Machine Hours Allowed for Actual Production: 50,000 Hours Actual Machine Hours used for Production: 52,000 Hours
$5/machine hour $350,000/70,000 Hours
Given the following information, calculate the variable overhead efficiency variance. Actual Hours: 1,500 Standard Hours Allowed: 1350 Actual Variable Overhead Rate: $3/hour Standard Variable Overhead Rate: $3.5/Hour
$525 U (1,350 - 1,500) × $3.50 = $525 Unfavorable.
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, the direct materials price variance is ______.
$600 F 6,000 × ($4.00 - $4.10) = $600 F
The standard hours per unit of an output includes ______ A. An allowance for cleanup and downtime B. An Estimated time to complete the unit C. An allowance for vacation time D.An Allowance for spoilage and waste
A & B
Which of the following are used to calculate the standard quantity per unit of direct materials? A. Direct materials requirements per unit of finished product B. Allowance for waste and spoilage C. Freight and transportation costs
A & B
Which of the following statements are true? A. The production manager is usually responsible for the materials quantity variance. B. Material quantity variances are always unfavorable and can never be favorable. C. Material quantity variances due to inferior materials are the responsibility of the purchasing department.
A & C
Which of the following statements are true? A. When actual results depart significantly from the standard, the reasons why should be investigated. B. The purpose of using standards is to assess blame and responsibility. C. Standards provide information for measuring performance D. Standards are only used in managerial accounting.
A & C
The standard rate per hour includes A. The direct labor rate per hour B. Fringe benefits C. Employment taxes D. Employee-paid union dues
A, B, C
Graphic analysis of fixed overhead offers insight into the fixed overhead ______.
Budget & volume variances
Which of the following statements are correct?
Building inventories can reduce unfavorable labor efficiency variances. Excessive inventories contribute to inefficient operations.
Which of the following statements is true? A. Price variances can only be computed for direct materials and direct labor. B. Quantity variances are computed for direct materials, direct labor and fixed overhead. C. A labor efficiency variance is a quantity variance. D. The variance that computes the price difference for materials is called a material rate variance.
C
Which of the following statements are true?
Changes in activity have no impact on actual fixed costs within the relevant range. A fixed overhead volume variance results from treating fixed manufacturing costs as if they are variable. Treating fixed costs as if they are variable can lead to bad decisions.
The standard quantity or hours and the standard price or rate required to produce a unit of a specific product is shown on a standard ______________
Cost Card
The ending balance in retained earnings = beginning balance in retained earnings + net operating income - _______
Dividends
The difference between the actual level of activity and the standard activity allowed for the actual output x the variable part of the predetermined overhead rate is the variable overhead _____ variance
Efficiency
If overhead is overapplied, the total of the standard cost overhead variances is _________
Favorable
When denominator hours are less than the standard hours allowed for actual output, the budget variance is labeled
Favorable
When the actual hourly rate is lower than the standard hourly rate, the labor rate variance is
Favorable
When the actual quantity of materials used is less than the standard quantity allowed, the material quantity variance is labeled as
Favorable
When using Excel to record transactions, all _______ variances are recorded without parentheses and all ______ variances are recorded with parentheses.
Favorable; Unfavorable
The volume variance = the ________ component of the predetermined overhead rate x (Denominator hours - the _______ hours allowed for the actual output).
Fixed ; Standard
Which of the following statements are true?
How production supervisors use direct labor workers can lead to labor rate variances. Overtime premiums can cause an unfavorable labor rate variance.
Favorable variances ______ retained earnings and unfavorable variances ______ retained earnings.
Increase, Decrease
The terms price and quantity are used when computing direct ____ variance, while the terms rate and hours are used when computing direct _____ variances
Material ; Labor
The purchasing manager is generally responsible for the material ________ variance, and the production manager is generally responsible for the material ________ variance.
Price ; Quantity
The materials price variance is generally the responsibility of the________ department manager.
Purchasing
SP(AQ-SQ) is the formula for the materials ________ variance.
Quantity
The difference between the actual materials used in production and the standard amount allowed for the actual output is reflected in the materials _________ variance
Quantity
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 a(n
Quantity Variance
Any transaction that impacts recording sales or the recognition of expense are recorded in the _________ ________ account.
Retained Earnings
The calculation of a standard price per unit of direct materials includes
Shipping Costs Purchase Discounts Purchase Price of the Materials
The amount of an input that should have been used to produce the actual output is known as the ___________ quantity or hours allowed
Standard
The over or under applied overhead equals the sum of the overhead variances when using a(n) ______ cost system.
Standard
Standard quantities and the cost of the inputs to make a single product are accumulated on a(n) _____________ card
Standard Cost Card
Which statement regarding variable overhead variance analysis is true?
The variable overhead efficiency variance may depend on the efficiency of direct labor.
Which of the following statements are true?
Treating fixed costs as variable is necessary for product costing. Fixed costs are applied to work in process like they are variable costs.
In an standard cost system overhead is applied using the standard hours allowed for the actual production.
True
Managers reluctance to constantly adjust the workforce in response to decreases in the amount of work that needs to be done often leads to an unfavorable labor efficiency variance
True
The same basic formulas used for materials and labor are used to analyze the _______ portion of manufacturing overhead.
Variable
Budgeted fixed overhead - Fixed overhead applied to work in process is the calculation of the _______ Variance
Volume
The key to interpreting the _______ variance is to understand it depends on the difference between the denominator hours used to compute the predetermined overhead rate and the standard hours allowed for actual output.
Volume
When the costing system assumes fixed costs behave as if they are variable, a(n) ______ variance occurs
Volume
A normal cost system applies overhead to production on the basis of the ______ level of activity, while a standard costing system applies overhead on the basis of ______ hours allowed for the actual output.
actual; standard
The calculation of the budget variance uses ______.
budgeted fixed overhead actual fixed overhead
Volume variance = ______.
budgeted fixed overhead - fixed overhead applied to work in process
A quantity variance is ______.
calculated using the standard price of the input
The accounts impacted by closing standard cost variance clearing accounts are ______.
cost of goods sold retained earnings
The difference between the actual hours used and the standard hours allowed for the actual output is used in the calculation of the labor ______ variance
efficiency
The volume variance is the ______.
error that occurs when the level of activity is estimated incorrectly
The denominator activity is the ______.
estimated total of the allocation base
Excessive inventory on hand, especially in the work in process inventory account, may lead to ______.
inefficient operations obsolete goods high defect rates
The materials price variance is generally calculated at the time materials are purchased because ______.
it allows materials to be carried in the inventory accounts at standard cost it simplifies bookkeeping management can generate more timely variance reports
Poor supervision is one possible cause of an unfavorable ______ variance.
labor efficiency
The same basic formulas used for materials and labor are used to analyze ______ portion of manufacturing overhead.
the variable
When setting direct labor standards ______.
time and motion studies may be used the production manager should be consulted it is best to use "tight but attainable" standards
STP Inc. has a variable overhead rate variance of $4,000 U, a variable overhead efficiency variance of $1,500 F, a fixed overhead budget variance of $2,000 F and a fixed overhead volume variance of $10,000 U. From the information, it can be determined that overhead was ______.
underapplied
The standard price of the material is used in the calculation of the material quantity variance because ______.
using actual prices would hold the production manager responsible for the inefficiencies of the purchasing manager
The standard cost for ______ manufacturing overhead is computed the same way as the standard cost for direct labor.
variable
The standard rate per unit that a company expects to pay for variable overhead equals the ______.
variable portion of the predetermined overhead rate
When direct labor is used as the overhead allocation base, the variable overhead efficiency variance ______.
will be favorable when the direct labor efficiency variance is favorable
Using the information provided, calculate the materials quantity variance Standard Price: 3 per pound Actual Price: $3.20 per pound Actual Quantity Used: 5200 pounds Standard Quantity Allowed: 5000 used
$600 U SP(AQ-SQ) = $3.00(5,200 - 5,000) = $600 U
The standard price of materials is $3.50 per pound and the standard quantity allowed for 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 price variance is $__________ ,________
$670 F 6,700*(3.5 - 3.4)
The materials price variance is ______.
A. Charged to the production manager when production problems occur B. Generally the responsibility of the purchasing manager C. impacted by the delivery method chosen
The materials price variance is calculated using the ______ quantity of the input purchased.
Actual
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 price variance is the difference between the ______.
Actual price and the standard price multiplied by the actual amount of the input
When using a standard cost system, ______.
An undue emphasis on labor efficiency variances can create pressure to build excess inventory. The information in the variance reports may be too old to be useful.
Unfavorable labor rate variances may occur as a result of ______. A. work interruptions caused by faulty equipment B. unskilled workers being assigned to a task that requires a set of skills C. skilled workers being assigned to jobs requiring little skill D. overtime premiums being charged to the direct labor account
C & D
The variable overhead _____ variance measures activity differences and the variable overhead _____ variance measures cost differences
Efficiency; Rate
All materials variances are generally the responsibility of the production manager.
False
An unfavorable budget variance is always an indication of ineffective managerial performance.
False
The labor rate variance measures the productivity of direct labor.
False
If the actual level of activity is greater than the planned level of activity, the activity variances will be ______.
Unfavorable
When actual fixed overhead cost exceeds budgeted fixed overhead cost, the budget variance is labeled ______.
Unfavorable
When budgeted fixed overhead cost exceeds fixed overhead applied to work in process, the volume variance is labeled _______.
Unfavorable
When the actual cost incurred exceeds the standard cost allowed for the actual level of output, the spending variance is ______
Unfavorable
When the standard hourly rate is lower than the actual rate, the labor rate variance is ______.
Unfavorable
To calculate a price variance, multiply the __________ quantity times the actual price and compare it to the actual quantity times the ________ price.
actual ; standard
If the actual level of activity differs from what was estimated, the predetermined overhead ______.
remains unchanged
