Standard costing and variance analysis - Theory

10. A company using very tight standards in a standard cost system should expect that A. Most variances will be unfavorable B. No incentive bonus will be paid C. Costs will be controlled better than if lower standards were used D. Employees will be strongly motivated to attain the standard

A

A credit balance in the labor efficiency variance indicates that: A. standard hours exceed actual hours B. actual hours exceed standard hours C. standard rate and standard hours exceed actual rate and actual hours D. actual rate and actual hours exceed standard rate and standard hours

A

A predetermined overhead rate for fixed costs is unlike a standard fixed cost per unit in that a predetermined overhead rate is A. based on an input factor like direct labor hours and a standard cost per unit is based on a unit of output. B. based on practical capacity and a standard fixed cost can be based on any level of activity. C. used with variable costing while a standard fixed cost is used with absorption costing. D. likely to be higher than a standard fixed cost per unit.

A

A spending variance for variable factory O/H based on direct labor hours is the difference between actual variable factory O/H and the variable factory O/H that should have been incurred for the actual hours worked. This variance results from A. Price and quantity differences for overhead costs. B. Price differences for overhead costs C. Quantity differences for overhead costs D. Differences caused by production volume variation

A

A standard cost is an estimate of what a cost should be under normal operation conditions. In establishing standard costs, the following organizational personnel may be involved, except a. Top management b. Budgetary accountants c. quality control personnel d. industrial engineers.

A

Because of the impact of fixed costs in most businesses, standard costing system is usually not effective unless the company also has a flexible budgeting system. In flexible budgeting, a. Standard costs are used to prepare budgets for multiple activity levels. b. Standard costs are never used. c. Variable costs and fixed costs show the same behavior as budgets for different activity levels are prepared. d. A budget for the expected activity level is prepare showing variable and fixed costs separately.

A

If a company uses a predetermined rate for absorption of manufacturing overhead, the volume variance is A. The under- or over-applied fixed cost element of overhead. B. The under- or over-applied variable cost element of overhead. C. The difference between budgeted cost and actual cost of fixed overhead items. D. The difference between budgeted cost and actual cost of variable overhead items.

A

If a company wishes to establish factory overhead budget system in which estimated costs can be derived directly from estimates of activity levels, it should prepare a A. Flexible budget. B. Fixed budget. C. Capital budget. D. Discretionary budget.

A

In a process costing system, equivalent units of production are computed to determine the number of complete units that could have been produced, given no beginning and ending work-in-process inventories. If a company uses standard costing in its process costing system, the equivalent units of production a. Are multiplied by the standard cost per unit to compute the total standard cost of units produced. b. Are never used. c. Are converted to standard equivalent unites and then multiplied by the actual cost per unit. d. Are assumed to be zero.

A

Standard costing will produce the same results as actual or conventional costing when standard cost variances are distributed to A. Cost of goods sold and inventories B. A balance sheet account C. An income or expense account D. Cost of goods sold

A

Standard costs are used for all of the following except: A. income determination B. controlling costs C. measuring efficiencies D. forming a basis for price setting

A

The best characteristics of a standard cost system is A. standard can pinpoint responsibility and help motivation B. all variances from standard should be reviewed C. all significant unfavorable variances should be reviewed D. standard cost involves cost control which is cost reduction

A

The difference between the actual time used and the amount of time that should have been used for actual production, multiplied by the standard labor rate per time is called a. Efficiency variance b. Price variance c. Spending variance d. Rate variance

A

The following describe ideal standards, except a. Currently attainable standards. b. Theoretical or maximum efficiency standards. c. Make no allowances for waste, machine downtime, and spoilage. d. Perfection standards.

A

Under a standard cost system, the materials efficiency variance are the responsibility of A. Production and industrial engineering. B. Purchasing and industrial engineering. C. Purchasing and sales. D. Sales and industrial engineering.

A

Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a favorable efficiency variance? A. The mix of workers assigned to the particular job was heavily weighted toward the use of higher-paid, experienced individuals. B. The mix of workers assigned to the particular job was heavily weighted toward the use of new, relatively low-paid unskilled workers. C. Because of the production schedule, workers from other production areas were assigned to assist in this particular process. D. Defective materials caused more labor to be used to product a standard unit.

A

Which of the following people is most likely responsible for an unfavorable variable overhead efficiency variance? A. production supervisor B. accountant C. supplier D. purchasing agent

A

Which of the following standard costing variances would be least controllable by a production supervisor? A. Overhead volume. B. Materials usage. C. Labor efficiency. D. Overhead efficiency.

A

You used predetermined overhead rates and the resulting variances when compared with the results using the actual rates were substantial. Production data indicated that volumes were lower than the plan by a large difference. This situation can be due to A. Overhead being substantially composed of fixed costs. B. Overhead being substantially composed of variable costs. C. Overhead costs being recorded as planned. D. Products being simultaneously manufactured in single runs.

A

A debit balance in the labor efficiency variance indicates that A. Standard hours exceed actual hours. B. Actual hours exceed standard hours. C. Standard rate exceeds actual rate. D. Actual rate exceeds standard rate.

B

A difference between standard costs used for cost control and budgeted costs A. Can exist because standard costs must be determined after the budget is completed. B. Can exist because standard costs represent what costs should be while budgeted costs represent expected actual costs. C. Can exist because budgeted costs are historical costs while standard costs are based on engineering studies. D. Can exist because establishing budgeted costs involves employee participation and standard costs do not.

B

A variance shows a deviation of actual results from standard or budgeted results. In deciding whether to investigate a variance or not, management may consider the following factors, except a. The amount of the variance and the cost of investigation. b. Whether the variance is favorable or unfavorable. c. The possibility that investigation will eliminate future occurrences of the variance. d. The trend of the variances over time.

B

An unfavorable materials spending variance coupled with a favorable materials efficiency variance would most likely result from a. The purchase and use of lower than standard quality materials b. The purchase and use of higher than standard quality materials c. Problems involving machine efficiency d. Changes in product mix

B

Bulsky Corporation will have an overhead volume variance during a period if a. its production exceeds sales b. its actual production is not equal to the predetermined activity level c. actual fixed overhead cost is not equal to its budgeted fixed overhead cost d. its actual hours work is not equal to the standard hours allowed for good output

B

For the doughnuts of McDonut Co. the Purchasing Manager decided to buy 65,000 bags of flour with a quality rating two grades below that which the company normally purchased. This purchase covered about 90% of the flour requirement for the period. As to the material variances, what will be the likely effect? A. B. C. D. Price variance Unfavorable Favorable No effect Favorable Usage variance Favorable Unfavorable Unfavorable Favorable

B

Fredenita Company uses two variance method for analyzing its factory overhead costs. It allocates factory overhead based on 100% of practical capacity. Almost always, unfavorable variances are reported. For the coming period, Fredenita Company's management is planning to change the denominator level for allocating factory overhead- from 100% to 80%. If this change were effected, which of the following variances would be affected? Controllable Volume a. NO NO b. YES YES c. NO YES d. YES NO

B

In the analysis of standard cost variances, the item which receives the most diverse treatment in accounting is A. Direct labor cost B. Factory overhead cost C. Direct material cost D. Variable cost.

B

Lanta Restaurant compares monthly operating results with a static budget. When actual sales are less than budget, would Lanta usually report favorable variances on variable food costs and fixed supervisory salaries. A. B. C. D. Variable food costs Yes Yes No No Fixed supervisory salaries Yes No Yes No

B

The journal entry to record the direct materials quantity variance may be recorded A. Only when direct materials are purchased B. Only when direct materials are issued to production C. Either (a) or (b) D. When inventory is taken at the end of the year.

B

The primary difference between a fixed (static) budget and a variable (flexible) budget is that a fixed budget: A. cannot be changed after the period begins; while a variable budget can be changed after the period begins B. is a plan for a single level of sales (or other measure of activity); while a variable budget consists of several plans, one for each of several levels of sales (or other measure of activity) C. includes only fixed costs; while variable budget includes only variable costs D. is concerned only with future acquisitions of fixed assets; while a variable budget is concerned with expenses that vary with sales

B

The production volume variance occurs when using the A. Absorption costing approach because of production exceeding the sales. B. Absorption costing approach because production differs from that used in setting the fixed overhead rate used in applying fixed overhead to production. C. Variable costing approach because of sales exceeding the production for the period. D. Variable costing approach because of production exceeding the sales for the period.

B

To which of the following is a standard cost nearly like? A. Estimated cost. B. Budgeted cost. C. Product cost. D. Period cost.

B

Under the two variance method for analyzing factory overhead, controllable or budget variance is computed by subtracting from actual factory overhead costs incurred the a. budget allowance based on actual hours b. budget allowance based on standard hours c. budget allowance based on normal hours d. budget allowance based on budgeted hours

B

When expenses estimated for the capacity attained differ from the actual expenses incurred, the resulting balance is termed the A. Activity variance. B. Budget variance. C. Unfavorable variance. D. Volume variance.

B

Which of the following statements concerning standard costs is false? a. If properly used, standards can help motivate employees. b. All variances, whether favorable or unfavorable, should be investigated. c. Standard costs should be attainable under conditions of efficient operation. d. A standard cost system may be used with a process costing system or a job order costing system.

B

Which of the following term is best identified with a system of standard cost? A. Contribution approach. B. Management by exception. C. Marginal costing. D. Standard accounting system.

B

Which one of the following would not explain an adverse direct labor efficiency variance? A. Poor scheduling of direct labor hours B. Setting standard efficiency at a level that is too low C. Unusually lengthy machine breakdowns D. A reduction in direct labor training

B

. During 1990, a department's three-variance factory O/H standard costing system reported unfavorable spending and volume variances. The activity level selected for allocating factory O/H to the product was based on 80% of practical capacity. If 100% of practical capacity had been selected instead, how would the reported unfavorable spending and volume variances have been affected? A. B. C. D. Spending Variance Increased Increased Unchanged Unchanged Volume Variance Unchanged Increased Increased Unchanged

C

.In two-way variance analysis, materials, labor, and variable overhead variances may be broken down into a. Price variance and spending variance b. Quantity or time variance and efficiency variance c. Spending variance and efficiency variance d. Spending variance and volume or capacity variance

C

Both standard costs and budgeted costs are used for controlling costs. However, the two terms are not the same. Standard costs differ from budgeted costs in the standard costs a. Are based on the engineering studies while budgeted costs are historical costs. b. Costs that were incurred for actual production, while budgeted costs are costs that should have been incurred for such production. c. Are costs that should have been incurred for actual production, while budgeted costs are costs that should be incurred for budgeted or planned production. d. Are always expressed in total amounts, while budgeted costs are always expressed in per-unit amounts.

C

Henley Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labor hours. For the month of January, the fixed manufacturing overhead volume variance was $2,220 favorable. The company uses a fixed manufacturing overhead rate of $1.85 per direct labor hour. During January, the standard direct labor hours allowed for the month's output: A. exceeded denominator hours by 1,000. B. fell short of denominator hours by 1,000. C. exceeded denominator hours by 1,200. D. fell short of denominator hour by 1,200.

C

In a standard costing system, actual costs are compared with standard costs. The difference or variance is determined, and responsibility for such variance is assigned or identified to a particular person or department, in order to a. Determine who is at fault and render the appropriate punishment. b. Be able to set the correct selling price of the product. c. Use the knowledge about the variances to promote learning and continuous improvement in the manufacturing operations. d. Trace the variances to the proper inventory accounts so that they may be valued at actual costs.

C

Normal costing and standard costing differ in that A. the two systems can show different overhead budget variances. B. only normal costing can be used with absorption costing. C. the two systems show different volume variances if standard hours do not equal actual hours. D. normal costing is less appropriate for multiproduct firms

C

Overapplied factory overhead results when A. A plant is operated at less than its normal capacity. B. Factory overhead costs incurred are greater than the costs charged to production. C. Factory overhead costs incurred are less than the costs charged to production. D. Factory overhead costs incurred are unreasonably large in relation to the number of units produced.

C

Standard costing is used to isolate the variances between standards costs and actual costs. It allows management to measure performance and correct inefficiencies, thereby helping to a. Allocate costs accurately. b. Determine the break-even point. c. Control costs. d. Eliminate management's need for subjective decisions.

C

The difference between actual costs and standard cost is called a. Favorable variance b. Unfavorable variance c. variance d. variable

C

The materials efficiency variance is the difference between actual and standard quantities used in production, multiplied by the standard price. This variance may be the responsibility of a. Purchasing department b. Sales department c. production department d. personnel department

C

The standard fixed factory overhead rate is computed based on a selected denominator level, i.e., a predetermined activity level. If the standard hours allowed for actual production is equal to this predetermined activity level for a given period, the volume variance will be a. a. favorable b. unfavorable c. zero d. impossible to compute

C

The total overhead variance is A. The difference between actual overhead costs and budgeted overhead. B. Based on actual hours worked for the units produced. C. The difference between actual overhead costs and applied overhead. D. The difference between budgeted overhead and applied overhead.

C

The variance resulting from obtaining an output different from the one expected on the basis of input is the: A. mix variance B. usage variance C. yield variance D. efficiency variance

C

This management practice involves giving significant attention only to those areas in which material variances from expectations occur, that is, giving less attention on areas operation as expected. a. Responsibility Accounting b. Management by objectives c. management by exception d. materials controL

C

Using the two-variance method for analyzing overhead, which of the following variances contains both variable and fixed overhead elements? A. B. C. D. Controllable (Budget) Variance Yes Yes Yes No Volume Variance Yes Yes No No Efficiency Variance Yes No No NO

C

What type of direct material variances for price and usage will arise if the actual number of pounds of materials used was less than standard pounds allowed but actual cost exceeds standard cost? A. B. C. D. Usage Unfavorable Favorable Favorable Unfavorable Price Favorable Favorable Unfavorable Unfavorable

C

When standard costs are used in a process-costing system, how, if at all, are equivalent units of production (EUP) involved or used in the cost report at standard? A. Equivalent units are not used. B. Equivalent units are computed using a special approach. C. The actual equivalent units are multiplied by the standard cost per unit. D. The standard equivalent units are multiplied by the actual cost per unit.

C

Which department is typically responsible for a materials price variance? A. Engineering. B. Production. C. Purchasing. D. Sales.

C

Which of the following statements is correct? a. A standard costs system can never be used in both the job order and process costing systems. b. Standard costing can be used in job order costing, but not in process costing system. c. Standard costing can be used in either the job order costing system or process costing system. d. A standard cost system can be used in process costing system, but not in job order costing system.

C

Which variance is LEAST likely to be affected by hiring workers with less skill than those already working? A. Material use variance. B. Labor rate variance. C. Material price variance. D. Variable overhead efficiency variance.

C

.For a recent month, the accountant's standard cost variance analysis report showed a significant amount of unfavorable materials efficiency (quantity or usage) variance that warrants and investigation. The investigation of this variance should begin with the a. Personnel manager b. Purchasing manager only c. Production manager only. d. Production manager or purchasing manager

D

A company reported a significant materials efficiency variance for the month of January. All of the following are possible explanations for this variance except A. Cutting back preventive maintenance. B. Inadequately training and supervising the labor force. C. Processing a large number of rush orders. D. Producing more units than planned for in the master budget.

D

If factory overhead is applied on the basis of output, the variable factory overhead efficiency variance will be a. equal to the direct labor efficiency variance b. unfavorable, if actual production is less than the budgeted production c. favorable, if actual production is greater than budgeted production d. zero

D

If the actual labor rate exceeds the standard labor rate and the actual labor hours exceed the number of hours allowed, the labor rate variance and labor efficiency variance will be A. B. C. D. Labor Rate Variance Favorable Favorable Unfavorable Unfavorable Labor Efficiency Variance Favorable Unfavorable Favorable Unfavorable

D

Management scrutinizes variances because A. Management desires to detect such variances to be able to plan for promotions. B. Management needs to determine the benefits foregone by such variances. C. It is desirable under conventional knowledge on good management. D. Management recognizes the need to know why variances happen to be able to make corrective actions and fairly reward good performers.

D

Standard costs are least useful for A. Measuring production efficiency B. Simplifying costing procedures C. Job order production systems D. Determining minimum inventory levels

D

The difference between the actual price or rate paid and the standard price or rate that should have been paid, multiplied by the actual quantity or actual time is called a. Efficiency variance b. Quantity variance c. Time variance d. Spending variance

D

The type of standard that is intended to represent challenging yet attainable results is: A. theoretical standard B. flexible budget standard C. controllable cost standard D. normal standard E. expected actual standard

D

The variable factory overhead rate under the normal volume, practical capacity, and expected activity levels would be the A. Same except for practical capacity B. Same except for expected capacity C. Same except for normal volume D. Same for all three activity levels

D

Under the two-way variance analysis (two variance method) for factory overhead, the difference between the actual factory overhead cost incurred and the factory overhead applied to actual production is called a. volume variance b. controllable variance c. efficiency variance d. total or net overhead variance

D

Which of the following does not describe practical standards? a. Currently attainable standards. b. Can be used for product costing and cash budgeting c. Performance that is reasonably expected to be achieved with an allowance for normal spoilage, waste, and downtime. d. Negate the need to adjust standards if working conditions change

D

Which of the following unfavorable variances is directly affected by the relative position of a production process on a learning curve? A. Materials mix. B. Materials price. C. Labor rate. D. Labor efficiency.

D

Which one of the following terms best describes the rate of output which qualified workers can achieve as an average over the working day or shift, without over-exertion, provided they adhere to the specified method of working and are well motivated in their work? A. Standard time B. Standard hours C. Standard unit D. Standard performance

D