ACCT-208 Chapter 10
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.
The variable overhead ___ variance measures activity differences and the variable overhead ____ variance measures cost differences.
efficiency, rate
The denominator activity is the
estimated total of the allocation base
AH(AR - SR) is the formula for the variable overhead
rate
Most companies compute the materials price variance when raw materials are _________
received from suppliers and transported to raw materials inventory.
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
Advantages to using a standard cost system include
standards provide benchmarks to evaluate and improve performance standard costs can simplify bookkeeping
When the actual amount spent exceeds the standard amount that should have been spent, the material spending variance is
unfavorable
When budgeted fixed overhead cost exceeds fixed overhead applied to work in process, the volume variance is labeled
unfavourable
When computing variable manufacturing overhead variances, the standard rate represents the _________
variable portion of the predetermined overhead rate.
Budgeted fixed overhead - Fixed overhead applied to work in process is the calculation of the ______ variance.
volume
The fixed component of the predetermined overhead rate x (Denominator hours - the standard hours allowed for the actual output) equals the
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
When using a standard cost system,
an undue emphasis on labor efficiency can create pressure to build excess inventory employees may take unfavorable actions to ensure favorable variances
Most companies compute the material price variance when materials are ______ and the material quantity variance when materials are
purchased, used
The labor efficiency variance is the difference between actual hours used and standard hours allowed multiplied by the ______ hourly rate.
standard
When the actual hourly rate is lower than the standard hourly rate, the labor rate variance is
F
Dividing the estimated total manufacturing overhead cost by the estimated total amount of the allocation base is the calculation of the
predetermined overhead rate
The materials quantity variance is calculated using the ______ price per unit of materials.
standard
In a standard costing system, variable and fixed overhead are applied to production using the______ hours allowed for the ___ production
standard, actual
The labor efficiency variance is generally the responsibility of the
production
If poor-quality materials results in excessive labor processing time, the ______ manager will probably be held responsible for the labor efficiency variance.
purchasing
Once the predetermined overhead rate has been established, it
remains unchanged throughout the period
When the standard hourly rate is lower than the actual rate, the labor rate variance is
Unfavorable
How much input should be used to produce a product or provide a service is a(n)___ standard
quantity
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 materials price variance is
600 f Reason: 6,000 × ($4.00 - $4.10) = $600 F
What is the labor rate variance? AH x AR = (2,200 hours × $ 1.90) AH x SR = (2,200 hours × $ 2.00)
220 f take the difference
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
efficiency
An unfavorable budget variance is always an indication of ineffective managerial performance.
false
The standard hours per unit of an output includes
-the estimated time to complete the unit -an allowance for cleanup and downtime.
Zeta Corporation is a manufacturer of sports caps, which require soft fabric. The standards for each cap allow 2.00 yards of soft fabric, at a cost of $2.00 per yard. During the month of January, the company purchased and used 25,000 yards of soft fabric at $2.10 per yard, to produce 12,000 caps. What is Zeta Corporation's materials price variance for the month of January?
$2,500 U This is because (25k x 2.10(price paid)= 52500 (25k x 2 (standard price that should have been paid)=50k 52.5k-50k=2.5k 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 quantity variance is $
1050 f
Which of the following statements is true?
A labor efficiency variance is a quantity variance. X The variance that computes the price difference for materials is called a material rate variance.(Reason: This is called a material price variance.) X Price variances can only be computed for direct materials and direct labor.(Reason: A price variance can also be computed for variable overhead.) X Quantity variances are computed for direct materials, direct labor and fixed overhead. (Reason: Quantity variances are computed for variable, not fixed overhead.)
How much should be paid for each unit of an input is specified by a(n)___ standard
Price
Which of the following are used to calculate the standard quantity per unit of direct materials?
Direct materials requirements per unit of finished product. Allowance for normal scrap and spoilage.
Which of the following statements are correct?
Excessive inventories contribute to inefficient operations. When the workforce is fixed, managers must be cautious about how labor efficiency variances are used.
The volume variance measures overspending on underspending on fixed over head.
False Reason: The volume variance does not measure overspending or underspending. A company should incur the same dollar amount of fixed overhead cost regardless of whether the period's activity was above or below the planned (denominator) level.
When the standard amount that should have been spent for materials is higher than the actual amount spent, the materials spending variance is
Favorable
When actual fixed overhead cost is less than budgeted fixed overhead cost, the budget variance is labeled
Favorablebudget
The labor efficiency variance is generally the responsibility of the _ manager
Production
Which statement regarding variable overhead variance analysis is true?
The variable overhead efficiency variance depends on the efficiency of direct labor.
In an standard cost system overhead is applied using the standard hours allowed for the actual production.
True
The materials price variance is calculated using the ______ quantity of the input purchased.
actual
The calculation of the budget variance uses __ overhead
actual fixed and budgeted fixed
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
A flexible budget performance report for variable manufacturing costs shows _________
both the activity variances and the spending variances.
The difference between the actual fixed overhead and the planned fixed overhead is called the variance
budget
The volume variance is the difference between _____ fixed overhead.
budgeted and applied
A quantity variance is
calculated using the standard price of the input
The estimated amount of the allocation base used in the formula for the predetermined overhead rate is called the _ activity
denominator
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
In a standard cost system,
every unit of output is charged with the same amount of overhead cost
When less hours are worked than the standard hours allows, the labor efficiency variance is
favorable
The materials price variance is generally calculated at the time materials are purchased because
management can generate more timely variance reports it simplifies bookkeeping it allows materials to be carried in the inventory accounts at standard cost
Standard costs are a key element in the ___ by ___ approach utilized by some companies.
management, exception
An unfavorable budget variance
may indicate a positive investment in fixed overhead resources
When the workforce is fixed in the short term, labor efficiency variances
may need to be eliminated Reason: In these situations, managers need to be cautious about how they are used and may need to be eliminated, at least for purposes of motivation and control.
Graphic analysis of fixed overhead ______.
offers insight into overhead variances
The difference between the actual amount of materials used in production and the standard amount of materials allowed for the actual output, multiplied by the standard price per unit of materials is the materials
quantity
The difference between the standard and the actual direct labor wages per hour is reflected in the labor _ variance
rate
The standard quantity allowed is _________
the amount of an input that should have been used to complete the actual output for the period.
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
The standard hours allowed is _________
the direct labor-hours that should have been used to complete the actual output for the period.
When setting direct labor standards ____
the production manager should be consulted it is best to use "tight but attainable" standards time and motion studies may be used
The difference between the actual amount of an input used and the amount that should have been used, stated in dollar terms using the standard price of the input, is called a(n) ___ variance
quantity
A materials price variance is equivalent to a labor ___ variance and a materials quantity variance is equivalent to a labor ___ variance
rate, efficiency
The standard hours per unit includes both direct and indirect labor hours.
False
The labor rate variance measures the productivity of direct labor.
False Reason: The labor rate variance reflects the difference between the actual and standard direct labor rates.
Which of the following statements are true?
Managers should not use standards to assign blame. Standard cost reports may be too outdated to be useful
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
When the standard hours allowed are lower than the actual hours used, the labor efficiency variance is
U
(AH X SR) - (SH X SR)
VOH efficiency variance
To calculate a price variance, multiply the ____ quantity times the actual price and compare it to the actual quantity times the _____ price
actual, standard
To calculate a quantity variance, multiply the ___ quantity times the standard price and compare it to the standard quantity allowed times the ___ price
actual, standard
The standard quantity per unit defines the _________
amount of direct materials that should be used for each unit of finished product including an allowance for normal inefficiencies, such as scrap and spoilage. Correct
SR(AH - SH) is the formula for the
labor efficiency
Unfavorable labor rate variances may occur as a result of
overtime premiums being charged to the direct labor account skilled workers being assigned to jobs requiring little skill
When actual fixed overhead cost exceeds budgeted fixed overhead cost, the budget variance is labeled
unfavorable
When denominator hours exceed the standard hours allowed for actual output, the volume variance is labeled
unfavorable
An unfavorable labor efficiency variance can result from
unmotivated workers faulty equipment poor quality materials
The standard cost for ______ manufacturing overhead is computed the same way as the standard cost for direct labor.
variable
Assume that direct labor-hours are used as the overhead allocation base. If the direct labor efficiency variance is unfavorable, the variable overhead efficiency variance _________
will be unfavorable.
What is the spending variance? AH x AR (2,200 hours × $ 1.90) SH x SR (2000 hours x 2.00)
180 U Take the difference between the two
Given 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.
250 f Reason: Applied variable overhead cost is based on the actual hours so, applied overhead of $15,750 (4,200 actual hours × $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, compute the standard cost per widget.
26 Reason: Materials (4 pounds × $1.25) + Labor (1.5 hours × $10.00) + Overhead (1.5 hours × $4.00) = $26.00
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 Reason: $7,500 ÷ 500 = $15 standard rate per unit × 600 = $9,000 flexible budget - $9,300 actual = $300 U
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. The labor rate variance is
4125, U Reason: This is the labor efficiency variance. The labor rate variance is: AH(AR-SR): 5,500 × ($14.75 - $14.00) = $4,125 U
Calculate the predetermined overhead rate using machine-hours as the allocation base.
5 Reason: The predetermined overhead rate is total estimated overhead cost ($350,000) divided by the estimated total of the allocation base (70,000 hours). Budget means estimated
Spending variances are computed by taking actual results minus the ___ budget
flexible
Based on the following information, calculate the amount of overhead applied when using a standard costing system.
280k Reason: ($200,000 + $150,000) ÷ 25,000 × 20,000 standard hours allowed = $280,000 applied
Material requirements plus an allowance for normal inefficiencies are added together to determine the ___ ___. per unit of output for direct materials.
standard quantity
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
Poor supervision is one possible cause of an unfavorable _ variance
labor efficiency
When direct labor is used as the overhead allocation base, the variable overhead efficiency variance
is favorable when the direct labor efficiency variance is favorable
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
(Actual cost per unit - standard cost per unit) × actual quantity = the materials
price
The amount of direct-labor hours that should be used to produce one unit of finished goods is the __ hours per unit.
standard
The standard rate per unit that a company expects to pay for variable overhead equals the
variable portion of the predetermined overhead rate
If the actual level of activity differs from what was estimated, the predetermined overhead
It remains unchanged, throughout the period, even if the actual level of activity differs from what was estimated
