Standard Costs and Variance Analysis MCQs by Hilario Tan PDF

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Warning: TT: undefined function: 32THEORYBasic concepts The best characteristics of a standard cost system is A. all variances from standard should be reviewed B. standard can pinpoint responsibility and help motivation C. all significant unfavorable variances should be reviewed D. standard cost inv...

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THEORY Basic concepts 1. The best characteristics of a standard cost system is A. all variances from standard should be reviewed B. standard can pinpoint responsibility and help motivation C. all significant unfavorable variances should be reviewed D. standard cost involves cost control which is cost reduction 2. Standard costs are used for all of the following except: A. controlling costs C. income determination B. forming a basis for price setting D. measuring efficiencies 3. Standard costs are least useful for A. Determining minimum inventory levels C. Measuring production efficiency B. Job order production systems D. Simplifying costing procedures 4. To which of the following is a standard cost nearly like? A. Budgeted cost. C. Period cost. B. Estimated cost. D. Product cost. 5. 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 budgeted costs are historical costs while standard costs are based on engineering studies. C. Can exist because establishing budgeted costs involves employee participation and standard costs do not. D. Can exist because standard costs represent what costs should be while budgeted costs represent expected actual costs. 6. Normal costing and standard costing differ in that A. normal costing is less appropriate for multiproduct firms B. only normal costing can be used with absorption costing. C. the two systems can show different overhead budget variances. D. the two systems show different volume variances if standard hours do not equal actual hours. 7. 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. Capital budget. C. Fixed budget. B. Discretionary budget. D. Flexible budget. 8. 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 Yes No Yes No salaries

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9. The primary difference between a fixed (static) budget and a variable (flexible) budget is that a fixed budget: A. includes only fixed costs; while variable budget includes only variable costs B. cannot be changed after the period begins; while a variable budget can be changed after the period begins C. is concerned only with future acquisitions of fixed assets; while a variable budget is concerned with expenses that vary with sales D. 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) 10. Standard costing will produce the same results as actual or conventional costing when standard cost variances are distributed to A. A balance sheet account C. Cost of goods sold B. An income or expense account D. Cost of goods sold and inventories 11. 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. Standard setting 12. 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 overexertion, provided they adhere to the specified method of working and are well motivated in their work? A. Standard hours C. Standard time B. Standard performance D. Standard unit 13. 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 standard equivalent units are multiplied by the actual cost per unit. D. The actual equivalent units are multiplied by the standard cost per unit. 14. The type of standard that is intended to represent challenging yet attainable results is: A. controllable cost standard D. normal standard B. expected actual standard E. theoretical standard C. flexible budget standard 15. A company using very tight standards in a standard cost system should expect that A. No incentive bonus will be paid B. Most variances will be unfavorable C. Employees will be strongly motivated to attain the standard D. Costs will be controlled better than if lower standards were used 16. A predetermined overhead rate for fixed costs is unlike a standard fixed cost per unit

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in that a predetermined overhead rate is A. likely to be higher than a standard fixed cost per unit. B. used with variable costing while a standard fixed cost is used with absorption costing. C. based on practical capacity and a standard fixed cost can be based on any level of activity. D. based on an input factor like direct labor hours and a standard cost per unit is based on a unit of output. 17. The variable factory overhead rate under the normal volume, practical capacity, and expected activity levels would be the A. Same except for expected capacity C. Same except for practical capacity B. Same except for normal volume D. Same for all three activity levels Materials & labor variances 18. 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 Favorable Favorable Unfavorable No effect variance Usage Favorable Unfavorable Favorable Unfavorable variance 19. 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 Favorable Favorable Unfavorable Unfavorable Price Favorable Unfavorable Favorable Unfavorable 20. The journal entry to record the direct materials quantity variance may be recorded A. Only when direct materials are purchased B. When inventory is taken at the end of the year. C. Only when direct materials are issued to production D. Either (A) or (C) 21. 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. Labor spending variance. B. Labor rate variance. D. Volume variance. 22. A credit balance in the labor efficiency variance indicates that:

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A. B. C. D.

actual hours exceed standard hours standard hours exceed actual hours actual rate and actual hours exceed standard rate and standard hours standard rate and standard hours exceed actual rate and actual hours

23. A debit balance in the labor efficiency variance indicates that A. Actual hours exceed standard hours. C. Standard hours exceed actual hours. B. Actual rate exceeds standard rate. D. Standard rate exceeds actual rate. 24. 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 Favorabl Favorable Unfavorable Unfavorable e Labor Efficiency Favorabl Unfavorable Favorable Unfavorable Variance e 25. The variance resulting from obtaining an output different from the one expected on the basis of input is the: A. efficiency variance C. usage variance B. mix variance D. yield variance Overhead variances 26. In the analysis of standard cost variances, the item which receives the most diverse treatment in accounting is A. Direct labor cost C. Factory overhead cost B. Direct material cost D. Variable cost. 27. The total overhead variance is A. Based on actual hours worked for the units produced. B. The difference between budgeted overhead and applied overhead. C. The difference between actual overhead costs and applied overhead. D. The difference between actual overhead costs and budgeted overhead. 28. 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. 29. 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. 30. The production volume variance occurs when using the

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A. Absorption costing approach because of production exceeding the sales. B. Variable costing approach because of sales exceeding the production for the period. C. Variable costing approach because of production exceeding the sales for the period. D. Absorption costing approach because production differs from that used in setting the fixed overhead rate used in applying fixed overhead to production. 31. 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. fell short of denominator hours by 1,000. B. exceeded denominator hours by 1,200. D. fell short of denominator hours by 1,200. 32. 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) Yes Yes Yes No Variance Volume Variance Yes Yes No No Efficiency Variance Yes No No No 33. 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 Increased Increased Unchanged Unchanged Variance Volume Increased Unchanged Increased Unchanged Variance 34. 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 differences for overhead costs B. Quantity differences for overhead costs C. Price and quantity differences for overhead costs. D. Differences caused by production volume variation Responsibility for variances 35. Which department is typically responsible for a materials price variance? A. Engineering. C. Purchasing.

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B. Production.

D. Sales.

36. 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. 37. Which of the following people is most likely responsible for an unfavorable variable overhead efficiency variance? A. accountant C. purchasing agent B. production supervisor D. supplier 38. Which of the following standard costing variances would be least controllable by a production supervisor? A. Labor efficiency. C. Overhead efficiency. B. Materials usage. D. Overhead volume. Investigating variances 39. Management scrutinizes variances because A. It is desirable under conventional knowledge on good management. B. Management needs to determine the benefits foregone by such variances. C. Management desires to detect such variances to be able to plan for promotions. D. Management recognizes the need to know why variances happen to be able to make corrective actions and fairly reward good performers. 40. 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. Processing a large number of rush orders. C. Inadequately training and supervising the labor force. D. Producing more units than planned for in the master budget. 41. Which variance is LEAST likely to be affected by hiring workers with less skill than those already working? A. Labor rate variance. C. Material use variance. B. Material price variance. D. Variable overhead efficiency variance. 42. Which of the following unfavorable variances is directly affected by the relative position of a production process on a learning curve? A. Materials mix. C. Labor efficiency. B. Materials price. D. Labor rate. 43. Which one of the following would not explain an adverse direct labor efficiency variance? A. A reduction in direct labor training B. Poor scheduling of direct labor hours C. Unusually lengthy machine breakdowns D. Setting standard efficiency at a level that is too low

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44. Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a favorable efficiency variance? A. Defective materials caused more labor to be used to product a standard unit. B. Because of the production schedule, workers from other production areas were assigned to assist in this particular process. C. The mix of workers assigned to the particular job was heavily weighted toward the use of higher-paid, experienced individuals. D. The mix of workers assigned to the particular job was heavily weighted toward the use of new, relatively low-paid unskilled workers. 45. 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 costs being recorded as planned. B. Overhead being substantially composed of fixed costs. C. Overhead being substantially composed of variable costs. D. Products being simultaneously manufactured in single runs. 46. Overapplied factory overhead results when A. A plant is operated at less than its normal capacity. B. Factory overhead costs incurred are less than the costs charged to production. C. Factory overhead costs incurred are greater than the costs charged to production. D. Factory overhead costs incurred are unreasonably large in relation to the number of units produced. PROBLEMS Flexible budget 1. Premised on past experience, Mayo Corp. adopted the following budgeted formula for estimating shipping expenses. The company’s shipments average 12 kilos per shipment. Shipping costs = P8,000 + (0.25 x kgs. shipped) Planned Actual Sales order 800 780 Shipments 800 820 Units shipped 8,000 9,000 Sales 240,000 288,000 Total kilograms shipped 9,600 12,300 The actual shipping costs for the month amounted to P10,500. The appropriate monthly flexible budget allowance for shipping costs for purposes of performance evaluation would be A. P10,250 C. P10,400 B. P10,340 D. P11,075 Standard setting 2. Hankies Unlimited has a signature scarf for ladies that is very popular. Certain production and marketing data are indicated below:

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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 C. P17.76 B. P17.30 D. P18.21 3. The following direct labor information pertains to the manufacture of product Glu: Time required to make one unit 2 direct labor hours Number of direct workers 50 Number of productive hours per week, per worker 40 Weekly wages per worker $500 Workers’ benefits treated as direct labor costs 20% of wages What is the standard direct labor cost per unit of product Glu? A. $12. C. $24. B. $15. D. $30. 4. PALOS Manufacturing Co. has an expected production level of 175,000 product units for 19x7. Fixed factory overhead is P450,000 and the company applies factory overhead on the basis of expected production level at the rate of P5.20 per unit. The variable overhead cost per unit is A. P2.57 C. P2.93 B. P2.63 D. P3.02 Materials variances 5. 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 C. $11,000 U B. $3,500 F D. $12,500 U 6. The Porter Company has a standard cost system. In July the company purchased and used 22,500 pounds of direct material at an actual cost of $53,000; the materials quantity variance was $1,875 Unfavorable; and the standard quantity of materials allowed for July production was 21,750 pounds. The materials price variance for July was: A. $2,725 F. C. $3,250 F. B. $2,725 U. D. $3,250 U.

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7. Cox Company's direct material costs for the month of January were as follows: Actual quantity purchased 18,000 kilograms Actual unit purchase price $ 3.60 per kilogram $ 3,600 Materials price variance – unfavorable(basedon purchases) Standard quantity allowed for actual production 16,000 kilograms Actual quantity used 15,000 kilograms For January there was a favorable direct material quantity variance of A. $3,360. C. $3,400. B. $3,375. D. $3,800. 8. 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 C. P88.50 B. P85.89 D. P89.85 9. JKL Company has a standard of 15 parts of component X costing P1.50 each. JKL purchased 14,910 units of component X for P22,145. JKL generated a P220 favorable price variance and a P3,735 favorable quantity variance. If there were no changes in the component inventory, how many units of finished product were produced? A. 994 units. C. 1,090 units. B. 1,000 units D. 1,160 units Questions 10 and 11 are based on the following information. Valenzuela Plastics Inc. has set a standard cost, P5.25 per unit for Material D and P12.25 per unit for Material E. In June, Valenzuela bought 17,500 units of Material D and 8,750 units of Material E. All Material D, except 1,400 units were bought at the standard unit cost. The 1,400 units had a unit cost of P6.15. Valenzuela bought 7,875 units of Material E at standard cost and 875 units at a unit cost of P14. In accordance with the standard two units of Material D and one unit of Material E should be used to make each unit of Product F. In January, 7,000 units of Product F were made and 15,050 units of Material D were used and 7,175 units of Material E were used. 10. The total materials price variance is A. P2,791.25 F B. P2,791,25 U

C. P13,781.25 F D. P13,781.25 U

11. The total materials quantity variance is A. P7,656.25 F C. P13,781.25 F B. P7,656.25 U D. P13,781.25 U Labor variances

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12. Pane Company's direct labor costs for April are as follows: Standard direct labor hours Actual direct labor ...