Accounting 2301 Unit 8 concepts

Unfavorable (U) variances occur when?

- Actual prices of inputs are greater than standard prices OR - Actual usage of inputs are greater than standard usage allowed

Favorable (F) variances occur when?

- Actual prices of inputs are less than standard prices OR - Actual usage of inputs are less than standard usage allowed

Standards based on the amount of input that should be used per unit of output are called A.Quantity standards B.Price standards C.Ideal standards D.Currently attainable standards

A

The materials usage variance is calculated by the equation a. (Standard Price × Actual Quantity) − (Standard Price × Standard Quantity). b. (Standard Price × Standard Quantity) + (Standard Price × Actual Quantity). c. (Actual Price × Actual Quantity) − (Standard Price × Actual Quantity). d. (Actual Price × Standard Quantity) + (Actual Quantity × Standard Price). e. None of these.

A. (Standard Price X Actual Quantity) - (Standard Price X Standard quantity)

The materials usage variance is calculated by the equation: A. (Standard Price x Actual Quantity) - (Standard Price x Standard Quantity) B. (Standard Price x Standard Quantity) + (Standard Price x Actual Quantity) C. (Actual Price x Actual Quantity) - (Standard Price x Actual Quantity) D. (Actual Price x Standard Quantity) + (Actual Quantity x Standard Price) E. None of these

A. (Standard price X actual quantity) - (standard price X standard quality)

The production data needed to calculate the standard unit cost as well as the underlying details for the standard cost per unit are provided in a. the standard cost sheet. b. the standard production budget. c. the balance sheet. d. the standard work-in-process account. e. None of these.

A. The standard cost sheet

Which of the following is true regarding variances? A.Unfavorable variances occur whenever actual prices or actual usage of inputs are greater than standard prices or standard usage. B. Favorable variances occur whenever actual prices or actual usage of inputs are greater than standard prices or standard usage. C. Unfavorable variances are always credits. D. Favorable variances are always debits. E. None of these.

A. Unfavorable variances occur whenever actual prices or actual usage of inputs are greater than standard prices or standard usage

Standard cost systems can enhance operational control through the use of a. efficiency variances which indicate the need for corrective action. b. price variances which indicate the need for better spending control. c. standard costs which indicate the desired cost of a unit of input. d. actual costs which indicate the price received for units sold. e. All of these.

A. efficiency variances which indicate the need for corrective action

Formula for Favorable variances

Actual - Standard = -

Which of the following is NOT an advantage of standard costing over normal costing and actual costing? A. A greater capacity for control B. Ability to easily distinguish the FIFO and weighted average methods of accounting for beginning inventory costs C. Computing a unit cost for each equivalent unit cost category is not necessary. D. Providing for readily available unit cost information. E. All of these are advantages of standard costing

B

All of the following are true EXCEPT: A. A favorable labor efficiency variance could result from higher quality materials that result in fewer inspections. B. A favorable labor rate variance could result from lower wage workers quitting C. A favorable materials price variance could result from purchasing identical materials from another supplier at a lower price. D. An unfavorable materials usage variance could result from not efficiently utilizing raw materials, thus causing waste. E. An unfavorable labor efficiency variance can be caused by machine downtime, and poor quality materials.

B. A favorable labor rate variance could result from lower wage workers quitting

Which of the following is not an advantage of standard costing over normal costing and actual costing? a. A greater capacity for control. b. Ability to easily distinguish the FIFO and weighted average methods of accounting for beginning inventory costs. c. Computing a unit cost for each equivalent unit cost category is not necessary. d. Providing for readily available unit cost information. e. All of these are advantages of standard costing.

B. Ability to easily distinguish the FIFO and weighted average methods of accounting for beginning inventory costs

Which of the following is not true concerning control limits? a. The lower control limit is the standard minus the allowable deviation. b. In current practice, control limits are set objectively using standard formulas. c. The upper control limit is the standard plus the allowable deviation. d. Control limits are the top and bottom measures of the allowable range. e. Variances that fall outside the control limits are investigated.

B. In current practice, control limits are set objectively using standard formulas

Which of the following is NOT true concerning direct materials variances? A. The sum of the price and usage variances will add up to the total materials variances only if the materials purchased is equal to the materials used. B. The materials price variance uses the actual quantity of materials purchased rather than the actual quantity of materials used. C. The materials price variance always uses the actual quantity of materials used rather than the actual quantity of materials purchased. D. The materials usage variance uses the actual quantity of materials used. E. Separate materials variances can be computed for each type of material used.

C

Which of the following is true concerning the materials price variance? a. It is the difference between the actual and standard unit price of an input multiplied by the number of inputs used. b. It is the difference between the actual and standard unit price of an output multiplied by the number of inputs used. c. It is the difference between the actual and standard unit price of an input multiplied by the number of inputs purchased. d. It is the difference between the actual and standard unit price of an output multiplied by the number of inputs purchased. e. None of these.

C. It is the difference between the actual and standard unit price of an input multiplied by the number of inputs purchased

The labor rate variance is computed by a. (Actual Rate × Actual Hours) − (Standard Rate × Standard Hours). b. (Standard Rate × Actual Rate) − (Actual Rate × Actual Hours). c. (Actual Rate × Standard Hours) − (Standard Rate × Actual Hours). d. (Actual Rate × Actual Hours) − (Standard Rate × Actual Hours). e. None of these.

D. (Actual Rate X Actual Hours) - (Standard rate X Actual hours)

The labor rate variance is computed by: A. (Actual Rate x Actual Hours) - (Standard Rate x Standard Hours) B. (Standard Rate x Actual Rate) - (Actual Rate x Actual Hours) C. (Actual Rate x Standard Hours) - (Standard Rate x Actual Hours) D. (Actual Rate x Actual Hours) - (Standard Rate x Actual Hours) E. None of these

D. (Actual Rate X Actual hours) - (Standard Rate X actual hours)

The standard cost system differs from the actual cost system in the assignment of a. direct materials. b. direct labor. c. overhead. d. all of the manufacturing inputs. e. none of the manufacturing inputs.

D. All of the manufacturing inputs

Ideal standards a. do not allow for machine breakdowns, slack, or lack of skill (even momentarily). b. demand maximum efficiency. c. can be achieved only if everything operates perfectly. d. All of these. e. None of these.

D. All of these

The standard quantity of materials allowed is computed by the equation a. unit quantity standard × standard output. b. unit quantity standard × actual input. c. unit quantity standard × standard input. d. unit quantity standard × actual output. e. not shown here.

D. Unit quantity standard X Actual output

All of the following are true regarding variance investigation except: A. The investigation should be undertaken only if the anticipated benefits are greater than the expected costs. B. Managers must consider whether a variance will recur. C. It is difficult to assess the costs and benefits of variance analysis on a case-by-case basis. D. Variances are not investigated unless they are large enough to be of a concern. E. Every variance is investigated.

E every variance is investigated (only material variances are investigated)

Ideal standards can be achieved under efficient operating conditions (T/F)

False

Ideal standards can be achieved under efficient operating conditions.

False

One reason for adopting a standard cost system is to make product costing easier (T/F)

False

The benefits of operational control under a standard cost system can extend to all manufacturing environments (T/F)

False

The materials price variance is computed using the actual quantity of materials used, and the materials usage variance is computed using the actual quantity of materials purchased (T/F)

False

The materials price variance is computed using the actual quantity of materials used, and the materials usage variance is computed using the actual quantity of materials purchased.

False

Standard cost sheet

Provides the production data needed to calculate the standard unit cost

Currently attainable standards offer the most behavioral benefits because higher performance levels are attained through challenging, yet achievable, standards

True

Engineering studies are often too rigorous and may not be achievable by operating personnel.

True

For better control, the materials price variance is computed using actual quantity of materials purchased

True

In setting standards, historical experience should be used with caution because it can perpetuate operating inefficiencies (T/F)

True

Managers develop quantity standards when they decide what amount of input should be used per unit of output.

True

The actual quantity of input at the actual price less the actual quantity of input at the standard price is the price variance (T/F)

True

The actual quantity of input at the actual price less the actual quantity of input at the standard price is the price variance.

True

The standard cost sheet provides the input standards needed to compute the total amount of inputs allowed for the actual output, an essential component in computing efficiency variances.

True

The sum of the labor rate and labor efficiency variances will always add up to the total labor variance.

True

The sum of the labor rate and labor efficiency variances will always add up to the total labor variances (T/F)

True

The total budget variance is the difference between the actual cost of the input and its planned cost

True

Formula for Unfavorable variances

actual - Standard = +

Standard cost per unit=

quantity standard X Price standard