Ch 11 T/F

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All variances discovered by management must be investigated.

False

Because the number of units produced was greater than anticipated, production capacity was used less efficiently than anticipated, resulting in an unfavorable volume variance.

False

If the Standard Quantity Allowed (SQA) for direct materials is greater than the Actual Quantity (AQ) used, the quantity variance is unfavorable.

False

Just as in job costing, the manufacturing costs flow through the inventory accounts in the following order: raw materials → work in process → cost of goods sold → finished goods.

False

The cause of a fixed overhead variance, such as an unanticipated increase or decrease in property taxes at the factory, is always under the control of management.

False

The direct labor rate variance is calculated by multiplying the standard hours that should have been worked for the actual output by the difference between the standard labor rate and the actual labor rate.

False

The variable overhead efficiency variance is also called the variable overhead spending variance.

False

The variable overhead efficiency variance tells management how efficiently manufacturing overhead was used during the period.

False

A direct materials flexible budget variance can be broken down into a price variance and a quantity variance.

True

A price variance for direct materials measures how well a company keeps unit prices of material within standards.

True

A price variance for production inputs is the difference between the actual unit price of an input and the standard unit price of the input, multiplied by the actual input quantity.

True

A quantity (efficiency) variance for production inputs (materials and labor) is the difference between the Actual Quantity (AQ) of input used and the standard quantity of input, multiplied by the standard price per unit of input.

True

A rate variance for direct labor measures how well a company keeps unit prices of labor inputs within standards.

True

A sales volume variance will occur when the number of units actually sold differs from the volume originally planned for in the master budget.

True

A standard cost for production inputs is a carefully predetermined cost that usually is expressed on a per-unit basis.

True

A standard cost income statement shows cost of goods sold at standard and then actual cost.

True

Circumstances can occur that result in favorable direct materials price variances and unfavorable direct materials quantity variances.

True

Direct labor standards are becoming less relevant to many companies due to the shift towards automated production processes.

True

If a company produces many different products, it will develop a standard cost for each type of product.

True

If production remains within the relevant range for the period, fixed costs are expected to remain fixed.

True

If the actual number of units produced is less than the number of units budgeted to produced, then the fixed overhead volume variance will always be unfavorable.

True

It is possible to encounter a situation where the direct labor rate variance is favorable and the direct labor efficiency variance is unfavorable.

True

Managers will want to use management by exception to determine which variances are significant enough to warrant investigation.

True

Perfection standards do not allow for poor-quality raw materials, waste in the production process, machine-breakdown, or other inefficiencies.

True

Price and quantity variances are a way to motivate employees.

True

Raw material, ruined through mistakes during production, results in a materials quantity variance.

True

Standard costs for production inputs are used to develop flexible budgets.

True

The direct labor efficiency variance tells managers how much of the total labor variance is due to using a greater or lesser amount of time than anticipated.

True

The direct labor rate variance describes differences in the anticipated (standard) labor rate and the actual labor rate paid.

True

The direct materials price variance is the difference between the Actual Price (AP) and the Standard Price (SP), multiplied by the Actual Quantity Purchased (AQP).

True

The direct materials price variance tells managers how much of the total variance is due to paying higher or lower prices than expected for the direct materials purchased.

True

The standard for the direct labor rate per hour does not include fringe benefits such as health care insurance and vacations.

True

The total direct labor variance is the sum of the direct labor rate variance and the direct labor efficiency variance.

True

The total variable manufacturing overhead variance is composed of the rate variance and the efficiency variance.

True

The variable overhead rate variance may be affected by both indirect labor and indirect materials.

True

The variable manufacturing overhead (MOH) rate variance is calculated as Actual Hours × (Actual Rate - Standard Rate).

False

The fixed overhead budget variance measures the difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs.

True

The variable overhead rate variance tells managers whether more or less was spent on variable overhead than they expected for the hours worked.

True

Up-to-date standard costs provide a benchmark by which to evaluate actual costs and operations.

True

When a company uses direct materials, the amount of the debit to Work in Process Inventory is based on the standard quantity of the materials that should have been used times the Standard price (SP) per unit of the materials.

True

Ideal standards allow for a normal amount of waste and inefficiency.

False

If a company recognizes variances at the earliest point possible, raw materials inventory will be debited for the Actual Quantity (AQ) of raw materials purchased and costed at the Actual Price (AP) paid per unit.

False

If the Standard Quantity Allowed (SQA) for direct labor is less than the Actual Quantity (AQ) used, the efficiency variance is favorable.

False

A credit balance means that a variance is unfavorable since it decreases income (just like a revenue).

False

A debit balance in the direct materials price variance indicates the standard cost of materials was less than the actual cost of materials.

True


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