Standard-Costing (test bank) problems and solutions PDF

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PERFORMANCE EVALUATION THROUGHSTANDARD COSTSTRUE-FALSE STATEMENTS Inventories cannot be valued at standard cost in financial statements. Standard cost is the industry average cost for a particular item. A standard is a unit amount, whereas a budget is a total amount. Standard costs may be incorporat...

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PERFORMANCE EVALUATION THROUGH STANDARD COSTS TRUE-FALSE STATEMENTS 1.

Inventories cannot be valued at standard cost in financial statements.

2.

Standard cost is the industry average cost for a particular item.

3.

A standard is a unit amount, whereas a budget is a total amount.

4.

Standard costs may be incorporated into the accounts in the general ledger.

5.

An advantage of standard costs is that they simplify costing of inventories and reduce clerical costs.

6.

Setting standard costs is relatively simple because it is done entirely by accountants.

7.

Normal standards should be rigorous but attainable.

8.

Actual costs that vary from standard costs always indicate inefficiencies.

9.

Ideal standards will generally result in favorable variances for the company.

10.

Normal standards incorporate normal contingencies of production into the standards.

11.

Once set, normal standards should not be changed during the year.

12.

In developing a standard cost for direct materials, a price factor and a quantity factor must be considered.

13.

A direct labor price standard is frequently called the direct labor efficiency standard.

14.

The standard predetermined overhead rate must be based on direct labor hours as the standard activity index.

15.

Standard cost cards are the subsidiary ledger for the Work in Process account in a standard cost system.

16.

A variance is the difference between actual costs and standard costs.

17.

If actual costs are less than standard costs, the variance is favorable.

18.

A materials quantity variance is calculated as the difference between the standard direct materials price and the actual direct materials price multiplied by the actual quantity of direct materials used.

19.

An unfavorable labor quantity variance indicates that the actual number of direct labor hours worked was greater than the number of direct labor hours that should have been worked for the output attained.

82 20.

Test Bank for Managerial Accounting, Second Edition Standard cost + price variance + quantity variance = Budgeted cost.

21.

The overhead controllable variance relates primarily to fixed overhead costs.

22.

The overhead volume variance relates only to fixed overhead costs.

23.

If production exceeds normal capacity, the overhead volume variance will be favorable.

24.

There could be instances where the production department is responsible for a direct materials price variance.

25.

The starting point for determining the causes of an unfavorable materials price variance is the purchasing department.

26.

A two-variance analysis of overhead consists of a controllable variance and a volume variance.

27.

Variance analysis facilitates the principle of "management by exception."

*28.

A credit to a Materials Quantity Variance account indicates that the actual quantity of direct materials used was greater than the standard quantity of direct materials allowed.

*29.

A standard cost system may be used with a job order cost system but not a process cost system.

*30.

A debit to the Overhead Volume Variance account indicates that the standard hours allowed for the output produced was greater than the standard hours at normal capacity.

Answers to True-False Statements Item

1. 2. 3. 4. 5.

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F F T T T

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6. 7. 8. 9. 10.

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F T F F T

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11. 12. 13. 14. 15.

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F T F F F

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16. 17. 18. 19. 20.

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T T F T F

Item

21. 22. 23. 24. 25.

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F T T T T

Item

26. 27. *28. *29. *30.

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T T F F F

Performance Evaluation Through Standard Costs

8-3

MULTIPLE CHOICE QUESTIONS 31.

A standard cost is a. a cost which is paid for a group of similar products. b. the average cost in an industry. c. a predetermined cost. d. the historical cost of producing a product last year.

32.

The difference between a budget and a standard is that a. a budget expresses what costs were, while a standard expresses what costs should be. b. a budget expresses management's plans, while a standard reflects what actually happened. c. a budget expresses a total amount while a standard expresses a unit amount. d. standards are excluded from the cost accounting system, whereas budgets are generally incorporated into the cost accounting system.

33.

Standard costs may be used by a. universities. b. governmental agencies. c. charitable organizations. d. all of these.

34.

Which of the following statements is false? a. A standard cost is more accurate than a budgeted cost. b. A standard is a unit amount. c. In concept, standards and budgets are essentially the same. d. The standard cost of a product is equivalent to the budgeted cost per unit of product.

35.

Budget data are not journalized in cost accounting systems with the exception of a. the application of manufacturing overhead. b. direct labor budgets. c. direct materials budgets. d. cash budget data.

36.

It is possible that a company's financial statements may report inventories at a. budgeted costs. b. standard costs. c. both budgeted and standard costs. d. none of these.

37.

If standard costs are incorporated into the accounting system, a. it may simplify the costing of inventories and reduce clerical costs. b. it can eliminate the need for the budgeting process. c. the accounting system will produce information which is less relevant than the historical cost accounting system. d. approval of the stockholders is required.

38.

Standard costs a. may show past cost experience. b. help establish expected future costs. c. are the budgeted costs per unit in the present. d. all of these.

84 39.

Test Bank for Managerial Accounting, Second Edition Which of the following statements about standard costs is false? a. Properly set standards should promote efficiency. b. Standard costs facilitate management planning. c. Standards should not be used in "management by exception." d. Standard costs can simplify the costing of inventories.

40.

Which of the following is not considered an advantage of using standard costs? a. Standard costs can reduce clerical costs. b. Standard costs can be useful in setting prices for finished goods. c. Standard costs can be used as a means of finding fault with performance. d. Standard costs can make employees "cost-conscious."

41.

If a company is concerned with the potential negative effects of establishing standards, they should a. set loose standards that are easy to fulfill. b. offer wage incentives to those meeting standards. c. not employ any standards. d. set tight standards in order to motivate people.

42.

A standard which represents an efficient level of performance that is attainable under expected operating conditions is called a(n) a. ideal standard. b. loose standard. c. tight standard. d. normal standard.

43.

Ideal standards a. are rigorous but attainable. b. are the standards generally used in a master budget. c. reflect optimal performance under perfect operating conditions. d. will always motivate employees to achieve the maximum output.

44.

The final decision as to what standard cost should be is the responsibility of a. the quality control engineer. b. the managerial accountants. c. the purchasing agent. d. management.

45.

The labor time requirements for standards may be determined by the a. sales manager. b. product manager. c. industrial engineers. d. payroll department manager.

46.

The two levels that standards may be set at are a. normal and fully efficient. b. normal and ideal. c. ideal and less efficient. d. fully efficient and fully effective.

Performance Evaluation Through Standard Costs 47.

The most rigorous of all standards is the a. normal standard. b. realistic standard. c. ideal standard. d. conceivable standard.

48.

Most companies that use standards set them at a. the normal level. b. a conceivable level. c. the ideal level. d. last year's level.

49.

A managerial accountant 1. does not participate in the standard setting process. 2. provides knowledge of cost behaviors in the standard setting process. 3. provides input of historical costs to the standard setting process. a. b. c. d.

1 2 3 2 and 3

50.

The cost of freight-in a. is to be included in the standard cost of direct materials. b. is considered a selling expense. c. should have a separate standard apart from direct materials. d. should not be included in a standard cost system.

51.

The direct materials quantity standard would not be expressed in a. pounds. b. barrels. c. dollars. d. board feet.

52.

The direct materials quantity standard should a. exclude unavoidable waste. b. exclude quality considerations. c. allow for normal spoilage. d. always be expressed as an ideal standard.

53.

The direct labor quantity standard is sometimes called the direct labor a. volume standard. b. effectiveness standard. c. efficiency standard. d. quality standard.

54. A manufacturing company would include setup and downtime in their direct a. materials price standard. b. materials quantity standard. c. labor price standard. d. labor quantity standard.

8-5

Test Bank for Managerial Accounting, Second Edition 86 55. Allowance for spoilage is part of the direct a. materials price standard. b. materials quantity standard. c. labor price standard. d. labor quantity standard. 56. The total standard cost to produce one unit of product is shown a. at the bottom of the income statement. b. at the bottom of the balance sheet. c. on the standard cost card. d. in the Work in Process Inventory account. 57. An unfavorable materials quantity variance would occur if a. more materials are purchased than are used. b. actual pounds of materials used were less than the standard pounds allowed. c. actual labor hours used were greater than the standard labor hours allowed. d. actual pounds of materials used were greater than the standard pounds allowed. 58. If actual direct material costss are greater than standard direct materials costs, it means that a. actual costs were calculated incorrectly. b. the actual unit price of direct materials was greater than the standard unit price of direct materials. c. the actual unit price of raw materials or the actual quantities of raw materials used was greater than the standard unit price or standard quantities of raw materials expected. d. the purchasing agent or the production foreman is inefficient. 59. If actual costs are greater than standard costs, there is a(n) a. normal variance. b. unfavorable variance. c. favorable variance. d. error in the accounting system. 60. A total materials variance is analyzed in terms of a. price and quantity variances. b. buy and sell variances. c. quantity and quality variances. d. tight and loose variances. 61. A company developed the following per-unit standards for its product: 2 pounds of direct materials at $6 per pound. Last month, 1,000 pounds of direct materials were purchased for $5,700. The direct materials price variance for last month was a. $5,700 favorable. b. $300 favorable. c. $150 favorable. d. $300 unfavorable. 62.

The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month, 5,600 gallons of direct materials that actually cost $21,200 were used to produce 3,000 units of product. The direct materials quantity variance for last month was a. $1,600 favorable. b. $1,200 favorable. c. $1,600 unfavorable. d. $2,800 unfavorable.

Performance Evaluation Through Standard Costs

8-7

63.

The per-unit standards for direct labor are 2 direct labor hours at $12 per hour. If in producing 1,200 units, the actual direct labor cost was $25,600 for 2,000 direct labor hours worked, the total direct labor variance is a. $960 unfavorable. b. $3,200 favorable. c. $2,000 unfavorable. d. $3,200 unfavorable.

64.

The standard rate of pay is $10 per direct labor hour. If the actual direct labor payroll was $39,200 for 4,000 direct labor hours worked, the direct labor price (rate) variance is a. $800 unfavorable. b. $800 favorable. c. $1,000 unfavorable. d. $1,000 favorable.

65.

The standard number of hours that should have been worked for the output attained is 8,000 direct labor hours and the actual number of direct labor hours worked was 8,400. If the direct labor price variance was $4,200 unfavorable, and the standard rate of pay was $9 per direct labor hour, what was the actual rate of pay for direct labor? a. $8.50 per direct labor hour b. $7.50 per direct labor hour c. $9.50 per direct labor hour d. $9.00 per direct labor hour

66.

Variances from standards are a. expressed in total dollars. b. expressed on a per-unit basis. c. expressed on a percentage basis. d. all of these.

67.

A favorable variance a. is an indication that the company is not operating in an optimal manner. b. implies a positive result if quality control standards are met. c. implies a positive result if standards are flexible. d. means that standards are too loosely specified.

68.

The total materials variance is equal to the a. materials price variance. b. difference between the materials price variance and materials quantity variance. c. product of the materials price variance and the materials quantity variance. d. sum of the materials price variance and the materials quantity variance.

69.

The total overhead variance is equal to the a. sum of the total materials variance and the total labor variance. b. difference between the total materials variance and the total labor variance. c. sum of the controllable variance and the volume variance. d. total variance minus the controllable variance and the volume variance.

88 70.

Test Bank for Managerial Accounting, Second Edition The total variance is $5,000. The total materials variance is $2,000. The total labor variance is twice the total overhead variance. What is the total overhead variance? a. $500. b. $1,000. c. $1,500. d. $2,000.

71.

The formula for the materials price variance is a. (AQ × SP) – (SQ × SP). b. (AQ × AP) – (AQ × SP). c. (AQ × AP) – (SQ × SP). d. (AQ × SP) – (SQ × AP).

72.

The formula for the materials quantity variance is a. (SQ × AP) – (SQ × SP). b. (AQ × AP) – (AQ × SP). c. (AQ × SP) – (SQ × SP). d. (AQ × AP) – (SQ × SP).

73.

A company uses 6,300 pounds of materials and exceeds the standard by 300 pounds. The quantity variance is $900 unfavorable. What is the standard price? a. $1.00. b. $2.00. c. $3.00. d. Cannot be determined from the data provided.

74.

A company purchases 15,000 pounds of materials. The materials price variance is $3,000 favorable. What is the difference between the standard and actual price paid for the materials? a. $1.00. b. $.20. c. $5.00. d. Cannot be determined.

75.

A company uses 20,000 pounds of materials for which they paid $4.50 a pound. What is the materials price variance? a. $.50. b. $1.00. c. $2.50. d. Cannot be determined from the data provided.

76.

If the materials price variance is $1,200 F and the materials quantity and labor variances are each $900 U, what is the total materials variance? a. $1,200 F b. $900 U c. $300 F d. $1,350 U

Performance Evaluation Through Standard Costs

8-9

Use the following information for questions 77–79. Staley Company has a materials price standard of $3.00 per pound. Two thousand pounds of materials were purchased at $3.30 a pound. The actual quantity of materials used was 2,000 pounds, although the standard quantity allowed for the output was 1,800 pounds. 77.

Staley Company's materials price variance is a. $60 U. b. $600 U. c. $540 U. d. $600 F.

78.

Staley Company's materials quantity variance is a. $600 U. b. $600 F. c. $660 F. d. $660 U.

79.

Staley Company's total materials variance is a. $1,200 U. b. $1,200 F. c. $1,260 U. d. $1,260 F.

80.

The matrix approach to variance analysis a. will yield slightly different variances than the formula approach. b. is more accurate than the formula approach. c. does not separate the price and quantity variance calculations. d. provides a convenient structure for determining each variance.

81.

Labor efficiency is measured by the a. materials quantity variance. b. total labor variance. c. labor quantity variance. d. labor rate variance.

82.

An unfavorable labor quantity variance may be caused by a. paying workers higher wages than expected. b. misallocation of workers. c. worker fatigue or carelessness. d. higher pay rates mandated by union contracts.

83.

The investigation of materials price variance usually begins in the a. first production department. b. purchasing department. c. controller's office. d. accounts payable department.

84.

The investigation of a materials quantity variance usually begins in the a. production department. b. purchasing department. c. sales department. d. controller's department.

Test Bank for Managerial Accounting, Second Edition 81 0 85. If the labor quantity variance is unfavorable and the cause is inefficient use of direct labor, the responsibility rests with the a. sales department. b. production department. c. budget office. d. controller's department. 86.

An overhead volume variance is calculated as the difference between normal capacity hours and standard hours allowed a. times the total predetermined overhead rate. b. times the predetermined variable overhead rate. c. times the predetermined fixed overhead rate. d. divided by actual number of hours worked.

87.

Manufacturing overhead costs are applied to work in process on the basis of a. actual hours worked. b. standard hours allowed. c. ratio of actual variable to fixed costs. d. actual overhead costs incurred.

88.

Which of the following statements is false? a. The overhead volume variance indicates whether plant facilities were used efficiently during the period. b. The costs that cause the overhead volume variance are usually controllable costs. c. The overhead volume variance relates solely to fixed costs. d. The overhead volume variance is favorable if standard hours allowed for output is greater than the standard hours at normal capacity.

89.

If the standard hours allowed are less than the standard hours at normal capacity, a. the overhead volume variance will be unfavorable. b. variable overhead costs will be underapplied. c. the overh...