MGMT 201 Chapter 10
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 estimated amount of the allocation base used in the formula for the predetermined overhead rate is called the ___________ activity
Denominator
The variable overhead ______________ variance measures activity differences and the variable overhead ____________ variance measures cost differences
Efficiency, rate
The standard hours per unit of an output includes ______.
Estimated time to complete the unit an allowance for cleanup and downtime
Advantages to using a standard cost system include ______.
Standard costs can simplify bookkeeping Standards can provide benchmarks for individuals to judge their own performance
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 quantity variance is generally the responsibility of the _____________ department manager
production
A materials price variance is equivalent to a labor ______________ variance and a materials quantity variance is equivalent to a labor ____________ variance
rate, efficiency
Do standard hours per unit include direct or indirect labor hours?
Direct
True or false: A favorable labor rate variance is always favorable for a company.
False
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
If poor-quality materials results in excessive labor processing time, the __________ manager will probably be held responsible for the labor efficiency
purchasing
The standard labor rate per hour ______.
reflects the expected mix of workers
Find standard cost of item (2 pounds) Direct material cost: $2.5 per pound Direct labor per unit: .75 hours Direct labor rate: $16.00 per hour Variable overhead rate: $8.00 per hour
(2.5 x 2) + (16 x .75) + (8 x 0.75) = 23
The spending variance equation is ______.
(AQ × AP) - (SQ × SP)
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; and Standard labor rate $14.00 per hour.
AH(AR-SR): 5,500 × ($14.75 - $14.00) = $4,125 Unfavorable
A price variance is the difference between the ______.
actual price and the standard price multiplied by the actual amount of the input
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
Treating fixed costs as if they are variable can lead to
bad decisions
Most companies compute the material price variance when materials are ______ and the material quantity variance when materials are ______.
purchased, used
Standard price per unit
defines the price that should be paid for each unit of direct materials and it should reflect the final, delivered cost of those materials
The purchasing manager is generally responsible for the material _______________ variance, and production manager is generally responsible for the material _______________ variance
price, quantity
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 calculation of a standard price per unit of direct materials includes ______.
shipping costs purchase price of the materials purchase discounts
Unfavorable labor rate variances may occur as a result of ______.
skilled workers being assigned to jobs requiring little skill overtime premiums being charged to the direct labor account
The difference between actual results and the flexible budget amount is a(n) ______________ variance
spending
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 amount of direct-labor hours that should be used to produce one unit of finished goods is the _______________ hours per unit
standard
Graphic analysis of fixed overhead ______.
offers insight into overhead variances
The variable overhead efficiency variance may depend on
the efficiency of direct labor
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 quantity variance is
$1,050 F
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
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 $ ______.
$4.50 * (40,000 - 43,000) = $13,500 F. The variance is favorable because standard hours exceed denominator hours
Using the information provided, calculate the materials quantity variance. Standard price: $3 Actual price: $3.2 Actual quantity: 5,200 Standard quantity allowed: 5,000
$600 U
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 ______.
6,000 × ($4.00 - $4.10) = $600 F; Reason: The variance is favorable because the actual price is less than the standard price.
The volume variance is the difference between ______ fixed overhead.
Budgeted and applied
The calculation of the budget variance uses ______.
Budgeted fixed overhead Actual fixed overhead
The standard rate per hour includes ______.
Employment taxes fringe benefits the direct labor rate per hour
In a standard cost system, ______.
Every unit of output is charged with the same amount of overhead cost
True or false: An unfavorable budget variance is always an indication of ineffective managerial performance.
FALSE
When actual fixed overhead cost is less than budgeted fixed overhead cost, the budget variance is labeled ___________
Favorable
When budgeted fixed overhead cost is less than fixed overhead applied to work in process, the volume variance is labeled
Favorable
A _________ overhead volume variance results from treating _________ manufacturing costs as if they are ___________-
Fixed, fixed, variable
The volume variance = the ___________ component of the predetermined overhead rate x (denominator hours - the __________ hours allowed for the actual output)
Fixed, standard
SR(AH - SH) is the formula for the ______ variance.
Labor efficiency
should managers use standards to assign blame?
NO
Excessive inventory on hand, especially in the work in process inventory account, may lead to ______.
Obsolete goods High defect rates Inefficient operations
The labor efficiency variance is generally the responsibility of the ______ manager.
Production
The material variance terms price and quantity are replaced with the terms _________ and _____________ when computing direct labor
Rate, hours
Once the predetermined overhead rate has been established, it ______.
Remains unchanged throughout the period
The over or under applied overhead equals the sum of the overhead variances when using a(n) ____________ cost system
Standard
T/F: Changes in activity have no impact on actual fixed costs within the relevant range.
True
True or false: In an standard cost system overhead is applied using the standard hours allowed for the actual production.
True
The same basic formulas used for materials and labor are used to analyze the _____________ portion of manufacturing overhead
Variable
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
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: $50,000 Estimated total machine-hours: 20,000 Standard machine-hours for actual production: 18,000 Actual machine-hour used: 17,500
[(100,000+50,000)/20,000] * 18,000 = 135,000
An unfavorable budget variance may indicate...
a positive investment in fixed overhead resources
The materials price variance is calculated using the ______.
actual price of the input actual quantity of the input purchased standard price of the input
The budget variance is the difference between the ___________ fixed overhead and the ______________ fixed overhead
actual, budgeted
Graphic analysis of fixed overhead offers insight into the fixed overhead ______.
budget and volume variances
Volume variance = ______.
budgeted fixed overhead - fixed overhead applied to work in process
A quantity variance is ______.
calculated using the standard price of the input
An undue emphasis on labor efficiency...
can create pressure to build excess inventory
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 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
The volume variance is the...
error that occurs when the level of activity is estimated incorrectly
When setting direct labor standards ______.
it is best to use "tight but attainable" standards the production manager should be consulted time and motion studies may be used
The amount of direct-labor hours that should be used to produce one unit of finished goods is the _________ hours per unit
labor
Poor supervision is one possible cause of an unfavorable ______ variance.
labor efficiency
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 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) _________________ variance
quantity
Fixed costs are applied....
to work in process like they are variable costs
Standard cost reports may be
too outdated to be useful
true or false: the information in the variance reports may be too old to be useful
true
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.
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
The standard cost for ______ manufacturing overhead is computed the same way as the standard cost for direct labor.
variable
Treating fixed costs as _________ is necessary for product costing
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 using a standard cost system, the over or under applied overhead equals the sum of the overhead ______________ for the period
variances
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
When the costing system assumes fixed costs behave as if they are variable, a(n) _________________ variance occurs
volume
Quantity standards are
The amount of each input needed to produce a product
Predetermined Overhead Rate formula
estimated total manufacturing overhead cost/estimated total amount of the allocation base
True or false: All materials variances are generally the responsibility of the production manager.
false
True or false: The labor rate variance measures the productivity of direct labor.
false
An unfavorable labor efficiency variance can result from ______.
faulty equipment poorly motivated workers insufficient product demand
The materials price variance is calculated using the ______ quantity of the input purchased.
Actual
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 Estimated total machine-hours: 25,000 Standard machine hours for actual production: 20,000 Actual machine-hours used: 20,500
($200,000 + $150,000) ÷ 25,000 × 20,000 standard hours allowed = $280,000 applied
Given the following information, calculate the variable overhead efficiency variance. Actual hours: 1,500 Standard hours allowed: 1,350 Actual variable overhead rate: $3.00 per hour Standard variable overhead rate: $3.50 per hour
(1,350 - 1,500) × $3.50 = $525 Unfavorable
Given the following, compute the standard cost per widget (4 pounds) direct material cost: 1.25 per pound direct labor per unit: 1.5 hours Direct labor rate: 10 per hour variable overhead rate: 4 per hour
(4 pounds × $1.25) + Labor (1.5 hours × $10.00) + Overhead (1.5 hours × $4.00) = $26.00
The materials price variance is generally calculated at the time materials are purchased because ______.
-It simplifies bookkeeping -management can generate more timely variance reports -it allows materials to be carried in the inventory accounts at standard cost
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
The predetermined overhead rate is total estimated overhead cost ($350,000) divided by the estimated total of the allocation base (70,000 hours)
True or false: 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
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; and Standard labor rate $14.00 per hour.
$14.00 × (5,800 - 5,500) = $4,200 Favorable. The labor efficiency variance is calculated using the standard, not the actual, labor rate.
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; and Standard variable overhead rate $3.75 per hour.
$15,750 (4,200 actual hours × $3.75) - $15,500 of actual overhead = $250 favorable.
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
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 activity variance is ______.
$7,500 ÷ 500 = $15 standard rate per hour × 600 = $9,000 flexible budget - $7,500 planning budget = $1,500 U
The labor efficiency variance is the difference between actual hours used and standard hours allowed multiplied by the ______ hourly rate.
Standard
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 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
Which of the following statements are true? A. Assigning highly skilled, highly paid workers to low skill, low pay level jobs will cause a favorable labor rate variance. B. How production supervisors use direct labor workers can lead to labor rate variances. C. Wage rates paid to workers are unpredictable in most companies. D. Overtime premiums can cause an unfavorable labor rate variance.
B, D
Which of the following statements are correct? When the workforce is fixed, managers should focus on managing the labor efficiency variance. Building inventories can reduce unfavorable labor efficiency variances. Excessive inventories contribute to inefficient operations.
Building inventories can reduce unfavorable labor efficiency variances. Excessive inventories contribute to inefficient operations.
The standard price per unit for direct materials ______. A. is adjusted for an allowance for waste and spoilage B. does not consider purchase discounts C. can change based on a change in the delivery method
C
True or false: Meeting standards is sufficient to remain competitive.
FALSE
How much should be paid for each unit of an input is specified by a(n) __________ standard
Price
A benchmark used in measuring performance is called a(n)
Standard
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
What is used to calculate the standard quantity per unit of direct materials?
allowance for waste and spoilage direct materials requirements per unit of finished product
The materials price variance is ______.
charged to the production manager when production problems occur generally the responsibility of the purchasing manager impacted by the delivery method chosen
When the standard cost allowed for the actual output is less than the standard cost allowed for the planned output the activity variance is labeled as ______.
favorable
The difference between the standard and the actual direct labor hourly rates is reflected in the __________ _________ variance
labor rates
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:
$7,500 ÷ 500 = $15 standard rate per unit × 600 = $9,000 flexible budget - $9,300 actual = $300 U
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
AH(AR - SR) is the formula for the variable overhead ____________ variance
rate
True or False: Favorable variances are always better than unfavorable variances.
FALSE
In a standard costing system, variable and fixed overhead are applied to production using the ______ hours allowed for the ______ production.
Standard, actual
True or false: 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 or quantity allowed is the amount of the input that should have been used to produce the actual, not standard, output.
When the actual cost incurred exceeds the standard cost allowed for the actual level of output, the spending variance is ______.
Unfavorable
What is true about standards?
- benchmark for measuring performance -found everywhere -when actual results depart significantly from standard, the reasons why should be investigated -improve operations and take corrective action -set for each major production input or task
Material requirements plus an allowance for normal inefficiencies are added together to determine the __________ ____________ of a direct material per unit of output
standard quantity
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
To calculate a quantity variance, multiply the _________ quantity times the standard price and compare it to the standard quality allowed 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
