Ch 11 Standard Costs and Variances
The standard cost for _____ manufacturing overhead is computed the same way as the standard cost for direct labor
variable
_____ are the differences between actual results and what should have
variances
Which of the following are reason that the materials price variance price variance is calculated at the time the materials are purchased?
It allows materials to be carried in the inventory accounts at standard cost; This practice simplifies bookkeeping; management can generate more timely variance reports
Standard costs were first introduced in _______ after World War II
Japan
Which of the following statements are true?
Management by exception works well with practicals standards, but not with ideal standards; most organizations use practical, not ideal, standards
Which of the following statements are true?
Managers should not use standards to assign blame; standard costs offer several advantages and disadvantages
Which of the following statements regarding management by exception are true?
Only significant variances are investigated when using management by exception; performance reports play an important role in management by exception
Which of the following would be used in the calculation of a standard price per unit of direct materials?
Purchase discounts; shipping costs; purchase price of the direct materials
_______ standards specify how much input should be used to produce a product or provide a service.
Quantity
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
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
Direct labor variances:
are computed in the same way as material variances (material and labor variances use the same basic formulas. Material variances use the terms quantity and price and labor variances use the terms hours and rate.
When should variances be isolated and brought to management's attention?
as soon as possible
Management by exception:
attempts to find the causes of problems and correct them. investigates significant discrepancies between standard and actual inputs
Standard costs may:
be used to compute both flexible budget activity and spending variances
Standards are
benchmarks for measuring performance; set for each major production input; compared to the actual quantities and costs of inputs
A(n) ______ materials price variance occurs when the standard price is higher than the actual price
favorable
_______ standards do not allow for any work interruptions or machine breakdowns.
ideal
An unfavorable labor efficiency variance can result from
inaccurate standards; poorly motivated workers; faulty equipment
The purchasing manager is generally responsible for the material _______ variance, and the production manager is generally responsible for the material _______ variance.
price; quantity
The _______ manager is usually responsible for controlling the labor efficiency variance.
production
The _______ manager may be help responsible for materials price variances due to rush orders placed to satisfy customer orders.
production
The materials quantity variance is generally the responsibility of the _______ department manager
production
The materials price variance is computed when materials are _______ and the materials quantity variance is computed when materials are _______
purchased; used
The formula for the materials _______ variance is SP(AQ-SQ).
quanity
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) _______ variance
quantity
Direct material standards:
should be based on input from production and purchasing managers; are based on standard price and quantity
Insignificant variances:
should not be investigated
A benchmark used in measuring performance is called a(n)
standard
The _______ price per unit of an input should reflect the expected cost of the raw materials less any discounts taken.
standard
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 price _______ indicates how much should be paid for an input.
standard
The most difficult standard to determine is probably the:
standard hours per unit
The standard rate per direct labor-hour includes
the employer share of payroll taxes, the base rate per hour, and fringe benefits
When setting direct labor standards:
the production manager should be consulted; time and motion studies may be used; some companies use rates based on an expected mix of workers
Use the following information to calculate the labor efficiency variance for Adkinson Company.
$14.00 x (5,800 - 5,500) = $4,200 Favorable. This is the labor rate variance.
Based on the following information, calculate the variable overhead rate variance.
$250 Favorable Applied overhead of $15,750 (4,200 actual hours x $3.75) - $15,500 of actual overhead = $250 overapplied When the actual cost is less than the applied cost, the variance is favorable.
Given the following standards for the production of widgets, compute the standard cost per widget.
$26.00 Materials (4 lbs x $1.25) + Labor (1.5 hours x $10.00) + Overhead (1.5 hours x $4.00)=$26.00
Given the following information, calculate the variable overhead efficiency variance
$525 when actual hours are greater than standard hours, the variable overhead efficiency variance is unfavorable (1,350-1,500) x $3.50 = $525 Unfavorable
If the actual price for direct materials is $4.00 per pound, the standard price is $4.10 per pound, and the actual quantity purchased is 6,000 pounds, the direct materials price variance is:
$600 Favorable
Which of the following are used to calculating the materials price variance?
Standard price of the input; actual price of the input; actual quantity of the input purchased
Which of the following are advantages to using a standard cost system?
Standards can provide benchmarks that can be used by individuals to judge their own performance; standard costs can simplify bookkeeping
Which of the following statements regarding the labor efficiency variance is true?
The purchasing manager is responsibly when the variance is due to poor-quality materials.
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 is true?
The variable part of manufacturing overhead is analyzed using tte same basic formulas used for materials and labor
Use the following information to calculate the labor rate variance for Adkinson Company.
This is the labor efficiency variance. The labor rate variance is : AH (AR-SR): 5,500 x ($14.74 - 14.00) + $4,125 Unfavorable
When should variances be investigated?
When the size of the variance relative to the amount of spending is large; when variance are unusual relative tot he normal level of random fluctuation
The materials price variance is calculated using the _____ quantity of the input purchased.
actual
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
SR(AH-SH) is the formula for the _______ variance
labor efficiency
The ________ _______ variance attempts to measure the productivity of direct labor.
labor efficiency
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
Setting price and quality standards:
may be based on input from production workers; should be designed to encourage future efficient operations
Standard costs:
may be used in every type of organization
The direct material spending variance:
needs to be decomposed for analysis; explains what was spent on materials and what should have been spent; can be broken down into the quantity variance and the price variance.
Unfavorable labor rate variance may occur as a result of
overtime premium being charged to the direct labor account; skilled workers being assigned to jobs requiring little skill
When setting standard costs to assist in management by exception it is best to use ______ standards.
practical
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
To calculate a price variance, multiply the _____ quantity times the actual price and compare it to the actual quantity times the _____ price.
actual; standard
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
Practical standards:
allow for normal machine downtime; can assist in the identification of abnormal operating conditions
The standard price per unit for direct materials:
can change as a result of a change in the delivery method; is based on the quality of material to be purchased
material requirements plus an allowance for unavoidable waste are added together to determine the _____ quantity of a material input per unit of output.
standard
