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CHAPTER 8—STANDARD COST ACCOUNTING--MATERIALS, LABOR, andFACTORY OVERHEADMULTIPLE CHOICE The purpose of standard costing is to: a. Determine optimal production level for a given period. b. Eliminate the need for subjective decisions by management. c. Control costs. d. Allocate cost with more accurac...

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CHAPTER 8—STANDARD COST ACCOUNTING--MATERIALS, LABOR, and FACTORY OVERHEAD MULTIPLE CHOICE 1. The purpose of standard costing is to: a. Determine optimal production level for a given period. b. Eliminate the need for subjective decisions by management. c. Control costs. d. Allocate cost with more accuracy. ANS: C The purpose of standard costing is to control cost and promote efficiency. PTS: 1 DIF: Easy NAT: IMA 2B - Cost Management

REF: P. OBJ: Introduction TOP: AACSB - Analytic

2. When performing input-output variance analysis in standard costing, "standard hours allowed" is a means of measuring: a. Standard output at standard hours. b. Actual output at standard hours. c. Standard output at actual hours. d. Actual output at actual hours. ANS: B Standard hours allowed in standard costing requires determining the allowed hours by converting the actual units or equivalent units produced by the standard hours set for each unit on the standard cost card. PTS: 1 DIF: Moderate REF: P. NAT: IMA 2D - Performance Measurement

OBJ: 3 TOP: AACSB - Reflective

3. Which of the following terms best identifies a function of standard costs? a. Management by exception b. Contribution approach c. Marginal costing d. Standardized accounting system ANS: A A standard cost system shows the deviations from management's expectation of cost for its manufactured products. These variances (deviations) are exceptions from the established goals; therefore, they are better able to manage when the exceptions are reported by the standard cost system. PTS: 1 DIF: Moderate REF: P. NAT: IMA 2D - Performance Measurement

OBJ: Introduction TOP: AACSB - Reflective

4. When computing variances from standard costs, the difference between actual and standard price multiplied by actual quantity yields: a. Combined price--quantity variance. b. Price variance. c. Volume variance. d. Mix variance. ANS: B

The difference between actual and standard price multiplied by actual quantity yields a price variance. PTS: 1 DIF: Easy REF: P. NAT: IMA 2D - Performance Measurement

OBJ: 3 TOP: AACSB - Analytic

5. If a company follows a practice of isolating variances at the earliest point in time, what would be the appropriate time to isolate and recognize a direct material price variance? a. When material is purchased b. When material is used in production c. When purchase order is originated d. When material is issued ANS: A The earliest point in time to isolate a direct material price variance is when the material is purchased, because at that time the difference between actual price and standard price is known. PTS: 1 DIF: Easy REF: P. NAT: IMA 2D - Performance Measurement

OBJ: 4 TOP: AACSB - Reflective

6. The materials purchase price variance, in a standard cost system, is obtained by multiplying the: a. Actual price by the difference between actual quantity purchased and standard quantity used. b. Actual quantity purchased by the difference between actual price and standard price. c. Standard price by the difference between standard quantity purchased and standard quantity used. d. Standard quantity purchased by the difference between actual price and standard price. ANS: B The materials purchase price variance is obtained by multiplying the actual quantity purchased by the difference between actual price and standard price. PTS: 1 DIF: Moderate REF: P. NAT: IMA 2D - Performance Measurement

OBJ: 4 TOP: AACSB - Analytic

7. If the total materials variance (actual cost of materials used compared with the standard cost of the standard amount of materials required) for a given operation is favorable, why must this variance be further evaluated as to price and usage? a. There is no need to further evaluate the total materials variance if it is favorable. b. Generally accepted accounting principles require that all variances be analyzed in three stages. c. All variances must appear in the annual report to equity owners for proper disclosure. d. It is done so that management can evaluate the efficiency of the purchasing and production functions. ANS: D All variances, favorable or unfavorable, must be evaluated. The analysis of a favorable materials variance allows management to evaluate the efficiency of the purchasing and production functions through study of the price and usage variances. PTS: 1 DIF: Hard REF: P. NAT: IMA 2D - Performance Measurement

OBJ: 5 TOP: AACSB - Reflective

8. What type of direct material variances for price and quantity will arise if the actual number of pounds of materials used exceeds standard pounds allowed but actual cost was less than standard cost?

a. b. c. d.

Quantity

Price

Favorable Unfavorable Favorable Unfavorable

Favorable Favorable Unfavorable Unfavorable

ANS: B The use of material in excess of standard will create an unfavorable usage (quantity) variance. If the actual cost of the material is less than standard cost, this gives rise to a favorable price variance. PTS: 1 DIF: Easy REF: P. NAT: IMA 2D - Performance Measurement

OBJ: 3 TOP: AACSB - Reflective

9. Woodside Company manufactures tables with vinyl tops. The standard material cost for the vinyl used per Style-R table is $7.20 based on 8 square feet of vinyl at a cost of $.90 per square foot. A production run of 1,000 tables in January resulted in usage of 8,300 square feet of vinyl at a cost of $.85 per square foot, a total cost of $7,055. The materials quantity variance resulting from the above production run was: a. $255 favorable. b. $255 unfavorable. c. $270 unfavorable. d. $270 favorable. ANS: C Materials quantity variance = (actual quantity of materials used - standard quantity of materials allowed) x standard price of material Materials quantity variance = (8,300 - 8,000*) x $.90 * 1,000 units produced x 8 sq. ft. per unit Actual quantity Standard quantity Excess of actual quantity over standard Standard price Materials quantity variance (unfavorable) PTS: 1 DIF: Moderate REF: P. NAT: IMA 2D - Performance Measurement

8,300 sq. ft. 8,000 sq. ft. 300 sq. ft. $ .90 sq. ft. $ 270

OBJ: 3 TOP: AACSB - Analytic

10. Ben's Climbing Gear, Inc. has direct material costs as follows: Actual units of direct materials used Standard price per unit of direct materials Materials quantity variance--favorable

20,000 $2.50 $5,000

What was Ben's standard quantity of material allowed? a. $18,000 b. $24,000 c. $20,000 d. $22,000 ANS: D Materials quantity variance = (actual quantity of materials used - standard quantity of materials allowed) x standard unit price of material

$5,000 F = ($20,000 - standard quantity of materials allowed) x $2.50 $2,000 F* = $20,000 - standard quantity of materials allowed $22,000** = standard quantity of materials allowed * 5,000 F/ 2.50 ** 20,000 + 2,000 (note that the favorable variance is added to the actual quantity to arrive at the standard quantity because by definition, a favorable variance occurs when standard quantities exceed actual quantities.) PTS: 1 DIF: Moderate REF: P. NAT: IMA 2D - Performance Measurement

OBJ: 3 TOP: AACSB - Analytic

11. Thomas Company uses a standard cost system and recognizes the materials purchase price variance at the time materials are purchased. Information for raw materials for Product RBI for the month of October follows: $1.75 $1.65 4,000 3,900 3,800

Standard unit price Actual purchase price per unit Actual quantity purchased Actual quantity used Standard quantity allowed for actual production

units units units

What is the materials purchase price variance? a. $390 favorable b. $390 unfavorable c. $400 favorable d. $400 unfavorable ANS: C Materials purchase price variance = (actual unit price of materials - standard unit price of materials) x actual quantity of materials purchased Materials purchase price variance = ($1.65 - $1.75) x 4,000 Actual unit price Standard unit price Excess of standard price over actual Quantity purchased Purchase price variance (favorable - standard price exceeds actual) PTS: 1 DIF: Moderate REF: P. NAT: IMA 2D - Performance Measurement

$1.65 1.75 $ .10 4,000 units $ 400

OBJ: 4 TOP: AACSB - Analytic

12. Thomas Company uses a standard cost system and recognizes the materials purchase price variance at the time materials are purchased. Information for raw materials for Product RBI for the month of October follows: Standard unit price Actual purchase price per unit Actual quantity purchased Actual quantity used Standard quantity allowed for actual production

$1.75 $1.65 4,000 3,900 3,800

units units units

What is the entry to record the purchase of materials? a. Materials Material purchase price variance Accounts payable

6,600 400 7,000

b. Materials

7,000

c. Materials

6,600

d. Materials

6,600

Material purchase price variance Accounts payable

400 6,600

Accounts payable

6,600

Material purchase price variance Accounts payable

330 6,270

ANS: B Materials purchase price variance = (actual unit price of materials - standard unit price of materials) x actual quantity of materials purchased Materials purchase price variance = ($1.65 - $1.75) x 4,000 Materials purchase price variance = $400 F (because standard price exceeded actual price) Materials (recorded at standard price 4,000 x 1.75) Material purchase price variance Accounts payable (actual 4,000 x 1.65)

PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management

7,000 400 6,600

REF: P. OBJ: 4 TOP: AACSB - Analytic

13. Thomas Company uses a standard cost system and recognizes the materials purchase price variance at the time materials are purchased. Information for raw materials for Product RBI for the month of October follows: Standard unit price Actual purchase price per unit Actual quantity purchased Actual quantity used Standard quantity allowed for actual production

$1.75 $1.65 4,000 3,900 3,800

units units units

What is the materials quantity variance? a. $175 unfavorable b. $165 unfavorable c. $175 favorable d. $165 favorable ANS: A Materials quantity variance = (actual quantity of materials used - standard quantity of materials allowed) x standard unit price of materials Materials quantity variance = (3,900 - 3,800) x $1.75 = $175 U (because actual amounts exceeded standard) PTS: 1 DIF: Moderate REF: P. NAT: IMA 2D - Performance Measurement

OBJ: 3 TOP: AACSB - Analytic

14. Thomas Company uses a standard cost system and recognizes the materials purchase price variance at the time materials are purchased. Information for raw materials for Product RBI for the month of October follows: $1.75 $1.65 4,000 3,900 3,800

Standard unit price Actual purchase price per unit Actual quantity purchased Actual quantity used Standard quantity allowed for actual production What is the entry to record material usage? a. Work in process

Materials quantity variance Materials b. Work in process Materials quantity variance Materials c. Work in process Materials quantity variance Materials d. Work in process Materials quantity variance Materials

units units units

6,825 175 7,000 6,825 175 6,435 6,270 165 6,435 6,650 175 6,825

ANS: D Materials quantity variance = (actual quantity of materials used - standard quantity of materials allowed) x standard unit price of materials Materials quantity variance = (3,900 - 3,800) x $1.75 = $175 U (because actual amounts exceeded standard) Work in process (3,800 x 1.75) Materials quantity variance Materials (3,900 x 1.75)

PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management

6,650 175 6,875

REF: P. OBJ: 4 TOP: AACSB - Analytic

15. The direct labor costs for Boundary Company follow: Standard direct labor hours Actual direct labor hours Direct labor efficiency variance--favorable Direct labor rate variance--favorable Total payroll What was Boundary's standard direct labor rate? a. $ 11.95 b. $ 11.49 c. $ 11.60 d. $ 12.00 ANS: D

34,000 33,000 $ 12,000 $ 1,650 $394,350

Labor efficiency variance = (actual number of labor hours worked - standard number of labor hours allowed) x standard labor rate per hour $12,000 F = (33,000 -34,000) x standard labor rate per hour 33,000 34,000 1,000

Actual hours Standard hours Standard hours allowed in excess of actual hours Efficiency variance: $12,000 / 1,000 hours = $12.00 standard rate PTS: 1 DIF: Moderate REF: P. NAT: IMA 2D - Performance Measurement

hours

OBJ: 3 TOP: AACSB - Analytic

16. Alyssa Corporation uses a standard cost system. Direct labor information for Product CER for the month of October is as follows: $8.00 per hour $8.30 per hour 1,400 hours $ 800 unfavorable

Standard rate Actual rate paid Standard hours allowed for actual production Labor efficiency variance What are actual hours worked? a. 1,330 b. 1,400 c. 1,500 d. 1,300

ANS: C Labor efficiency variance = (actual number of labor hours worked - standard number of labor hours allowed) x standard labor rate per hour $ 800 U = (actual number of labor hours worked - 1,400) x $8.00 Standard hours × standard rate: 1,400 hours × $8

$ 11,200 800 $12,000

Efficiency variance (unfavorable) Actual hours (X) × $8

X=

$12,000 $8

= 1,500 hours

PTS: 1 DIF: Moderate REF: P. NAT: IMA 2D - Performance Measurement

OBJ: 3 TOP: AACSB - Analytic

17. Earl Company's direct labor costs for the month of January follow: Actual direct labor hours Standard direct labor hours Direct labor rate variance--unfavorable Total payroll

18,000 19,000 $ 1,800 $117,000

What was Earl's standard direct labor rate? a. $6.50 b. $6.60 c. $6.16 d. $6.40 ANS: D Labor rate variance = (actual labor rate per hour - standard labor rate per hour) x actual number of hours worked $1,800 U = (6.50** - standard labor rate per hour) x 18,000 1,800 U / 18,000 = .10 .10 = 6.50 - standard labor rate per hour 6.40 = standard labor rate per hour (since variance is unfavorable, the standard rate is less than the actual rate) **Total payroll / actual labor hours worked = actual labor rate per hour $117,000 / 18,000 = $6.50 PTS: 1 DIF: Moderate REF: P. NAT: IMA 2D - Performance Measurement

OBJ: 3 TOP: AACSB - Analytic

18. Earl Company's direct labor costs for the month of January follow: Actual direct labor hours Standard direct labor hours Direct labor rate variance--unfavorable Total payroll

18,000 19,000 $ 1,800 $117,000

What was Earl's direct labor efficiency variance? a. $6,500 favorable b. $6,400 unfavorable c. $1,800 favorable d. $6,400 favorable ANS: D Labor efficiency variance = (actual number of labor hours worked - standard number of labor hours allowed) x standard labor rate per hour Labor efficiency variance = (18,000 - 19,000) x $6.40* Labor efficiency variance = 1,000 x 6.40 = $6,400 F (standard exceeded actual) * The standard labor rate must be calculated prior to calculating the variance above by using the labor rate variance as follows: Labor rate variance = (actual labor rate per hour - standard labor rate per hour) x actual number of hours worked $1,800 U = (6.50** - standard labor rate per hour) x 18,000 1,800 U / 18,000 = .10 .10 = 6.50 - standard labor rate per hour 6.40 = standard labor rate per hour (since variance is unfavorable, the standard rate is less than the actual rate)

**Total payroll / actual labor hours worked = actual labor rate per hour $117,000 / 18,000 = $6.50 PTS: 1 DIF: Hard REF: P. NAT: IMA 2D - Performance Measurement

OBJ: 3 TOP: AACSB - Analytic

19. What is the normal year-end treatment of immaterial variances recognized in a cost accounting system utilizing standards? a. Reclassified to deferred charges until all related production is sold b. Closed to cost of goods sold in the period in which they arose c. Allocated among cost of goods manufactured and ending work in process inventory d. Capitalized as a cost of ending finished goods inventory ANS: B The normal year-end treatment of immaterial variances of standard costs is to close them to cost of goods sold in the period in which they arose. PTS: 1 DIF: Moderate REF: P. NAT: IMA 2E - External Financial Reporting

OBJ: 4 TOP: AACSB - Analytic

20. Standard costing will produce the same income before extraordinary items as actual costing when standard cost variances are assigned to: a. Work in process and finished goods inventories. b. An income or expense account. c. Cost of goods sold and inventories. d. Cost of goods sold. ANS: C If standard cost variances are assigned to cost of goods sold and inventories, the result is the same as actual costing, resulting in the same income before extraordinary items. PTS: 1 DIF: Hard REF: P. NAT: IMA 2E - External Financial Reporting

OBJ: 4 TOP: AACSB - Reflective

21. How should an efficiency variance that is material in amount be treated at the end of an accounting period? a. Reported as a deferred charge or credit b. Allocated among work in process inventory, finished goods inventory, and cost of goods sold c. Charged or credited to cost of goods manufactured d. Allocated among cost of goods manufactured, finished goods inventory, and cost of goods sold ANS: B A variance that is material in amount should be allocated among work in process inventory, finished goods inventory, and cost of goods sold at the end of an accounting period. PTS: 1 DIF: Easy REF: P. NAT: IMA 2E - External Financial Reporting

OBJ: 4 TOP: AACSB - Analytic

22. Overapplied factory overhead would result if: a. Factory overhead costs incurred were greater than standard costs charged to production. b. The plant was operated at less than normal capacity. c. Factory overhead costs incurred were less than standard costs charged to production. d. Factory overhead costs incurred were unreasonably large in relation to units produced.

ANS: C Overapplied overhead would result if factory overhead costs incurred were less than costs charged to production. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

REF: P. OBJ: 8 TOP: AACSB - Reflective

23. The Johns Company budgeted factory overhead at $125,000 for the period for Department A based on a budgeted volume of 50,000 direct labor hours. At the end of the period, the factory overhead control account for Department A had a balance of $126,000. The actual (and allowed) direct labor hours were 52,000. What was the over- or underapplied factory overhead for the period? a. $6,500 underapplied b. $6,500 overapplied c. $4,000 underapplied d. $4,000 overapplied ANS: D Actual factory overhead incurred - factory overhead applied = over- or underapplied factory overhead Budgeted overhead / budgeted direct labor hours = $125,000 / 50,000 = factory overhead application rate per direct labor hour Actual and allowed direct labor hours Factory overhead applied Actual factory overhead incurred Overapplied factory overhead for the period PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management

$ 2.50 x 52,000 $130,000 126,000 $ 4,000

REF: P. OBJ: 8 TOP: AACSB - Analytic

24. Information on Shonda Company's factory overhead costs follows: $95,000 $28,000 30,000 $3.25 $1.00

Actual variable factory overhead Actual fixed factory overhead Standard hours allowed for actual production Standard variable overhead rate per direct labor hour Standard fixed overhead rate per direct labor hour What is the total factory overhead variance? a. $4,500 unfavorable b. $4,500 ...