Standard-costs-and-variance-analysis PDF

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CPA REVIEW SCHOOL OF THE PHILIPPINESManilaMANAGEMENT ADVISORY SERVICES STANDARD COSTING & VARIANCE ANALYSISTHEORY 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, provide...

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CPA REVIEW SCHOOL OF THE PHILIPPINES Manila MANAGEMENT ADVISORY SERVICES STANDARD COSTING & VARIANCE ANALYSIS

THEORY 1. 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 2. 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 3. Standard costs are used for all of the following except: A. income determination C. measuring efficiencies B. controlling costs D. forming a basis for price setting 4. Standard costs are least useful for A. Measuring production efficiency B. Simplifying costing procedures

C. Job order production systems D. Determining minimum inventory levels

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

D. Period cost.

6. 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. 7. 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 8. 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. 9. The type of standard that is intended to represent challenging yet attainable results is: A. theoretical standard D. normal standard B. flexible budget standard E. expected actual standard

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C. controllable cost standard

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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 11. 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. 12. 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. 13. 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 14. 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 15. Which of the following term is best identified with a system of standard cost? A. Contribution approach. C. Marginal costing. B. Management by exception. D. Standard accounting system. 16. Which department is typically responsible for a materials price variance? A. Engineering. B. Production. C. Purchasing. D. Sales. 17. Under a standard cost system, the materials efficiency variance are the responsibility of A. Production and industrial engineering. C. Purchasing and sales. B. Purchasing and industrial engineering. D. Sales and industrial engineering. 18. Which of the following people is most likely responsible for an unfavorable variable overhead efficiency variance? A. production supervisor C. supplier B. accountant D. purchasing agent 19. Which variance is LEAST likely to be affected by hiring workers with less skill than those already working? A. Material use variance. C. Material price variance. B. Labor rate variance. D. Variable overhead efficiency variance.

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20. 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. 21. 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 22. 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 23. Using the two-variance method for analyzing overhead, which of the following contains both variable and fixed overhead elements? A. B. C. Controllable (Budget) Variance Yes Yes Yes Volume Variance Yes Yes No Efficiency Variance Yes No No

variances D. No No No

24. 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. 25. A manager prepared the following table by which to analyze labor costs for the month: Actual Hours at Actual Hours at Standard Hours at Actual Rate Standard Rate Standard Rate $10,000 $9,800 $8,820 What variance was $980? A. Labor efficiency variance. C. Volume variance. B. Labor rate variance. D. Labor spending variance. 26. 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 27. 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 28. In the analysis of standard cost variances, the item which receives the most diverse treatment in accounting is A. Direct labor cost C. Direct material cost B. Factory overhead cost D. Variable cost. 29. When expenses estimated for the capacity attained differ from the actual expenses incurred, the resulting balance is termed the A. Activity variance. C. Unfavorable variance. B. Budget variance. D. Volume variance.

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30. 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. 31. 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. 32. 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. 33. 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. 34. 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. C. exceeded denominator hours by 1,200. B. fell short of denominator hours by 1,000.D. fell short of denominator hour by 1,200. 35. 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 36. 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. 37. The variable factory overhead rate under the normal volume, practical capacity, and expected activity levels would be the A. Same except for practical capacity C. Same except for normal volume B. Same except for expected capacity D. Same for all three activity levels

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38. 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. 39. A debit balance in the labor efficiency variance indicates that A. Standard hours exceed actual hours. C. Standard rate exceeds actual rate. B. Actual hours exceed standard hours. D. Actual rate exceeds standard rate. 40. 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 41. 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 42. 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. 43. 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 44. 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. 45. 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. 46. 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 C. An income or expense account B. A balance sheet account D. Cost of goods sold

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PROBLEMS 1. KNOTTY, Inc. estimated the cost of a project it started in October 19x4 as follows: Direct materials, P495,000; direct labor, 6,000 hours at P30 per hour; variable overhead, P24 per direct labor hour. By the end of the month, all the required materials have been used at P491,900; labor was 80% complete at 4,650 hours at P30 per hour; and, the variable overhead amounted to P113,700. The total variance for the project as at the end of the month was A. P7,500 U B. P8,400 U C. P9,000 F D. P9,00 F 2. SUPER Co. at normal capacity, operates at 600,000 labor hours with standard labor rate of P20 per hour. Variable factory overhead is applied at the rate of P12 per labor hour. Four units should be completed in an hour. Last year, 1,350,000 units were produced using 300,000 labor hours. All labor hours were paid at the standard rate, and actual overhead cost consisted of P3,738,000 for variable items and P3,000,000 fixed items. The total labor and overhead costs saved, by producing at more than standard, amounted to A. P450,000 B. P500,000 C. P750,000 D. P1,200,000 3. A defense contractor for a government space project has incurred $2,500,000 in actual design costs to date for a guidance system whose total budgeted design cost is $3,000,000. If the design phase of the project is 60% complete, what is the amount of the contractor's current overrun or savings on this design work? A. $300,000 savings. C. $500,000 savings. B. $500,000 overrun. D. $700,000 overrun. 4. Hankies Unlimited has a signature scarf for ladies that is very popular. Certain production and marketing data are indicated below: Cost per yard of cloth P36.00 Allowance for rejected scarf 5% of production Yards of cloth needed per scarf 0.475 yard Airfreight from supplier P0.60/yard Motor freight to customers P0.90 /scarf Purchase discounts from supplier 3% Sales discount to customers 2% The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf. Rejects have no market value. Materials are used at the start of production. Calculate the standard cost of cloth per scarf that Hankies Unlimited should use in its cost sheets. A. P16.87 B. P17.76 C. P18.21 D. P17.30 5. ALPHA Co. uses a standard cost system. Direct materials statistics for the month of May, 19x7 are summarize below: Standard unit price P90.00 Actual units purchased 40,000 Standard units allowed for actual production 36,250 Materials price variance- favorable P6,000 What was the actual purchase price per unit? A. P75.00 B. P85.89 C. P88.50 D. P89.85 6. ChemKing uses a standard costing system in the manufacture of its single product. The 35,000 units of raw material in inventory were purchased for $105,000, and two units of raw material are required to produce one unit of final product. In November, the company produced 12,000 units of product. The standard allowed for material was $60,000, and there was an unfavorable quantity variance of $2,500. The materials price variance for the units used in November was A. $2,500 U B. $11,000 U C. $12,500 U D. $3,500 F

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