Management Accounting Review

Quizzer on Standard Costing and Variance Analysis - Theory

1. Which of the following is a purpose of standard costing?

a. Determine break-even production level.
b. Eliminate the need for subjective decisions by management.
c. Control costs
d. Allocate cost with more accuracy.

2. In setting standards, practical standards are:

a. less widely used than ideal standards
b. standards which can be attained through efforts by the average worker at a particular task
c. generally considered no to have a better motivational impact on workers than ideal
standards
d. more frequently used with process costing than with job order costing.

3. All of the following are advantages of using standard costing except:

a. use of management by exception.
b. Use of responsibility accounting
c. Facilitation of cash and inventory planning
d. Easy determination of materiality.

4. What does a favorable direct labor efficiency variance indicate?

a. The average wage rate paid to direct labor employees was less than the standard rate.
b. The standard hours allowed for the units produced were greater than actual direct labor
hours used.
c. Actual total direct labor costs incurred were less than standard direct labor costs allowed for the
units produced.
d. The number of units produced was less than the number of units budgeted for the period.

5. The Stern Company accounts for raw materials inventory at stand cost. Stern therefore probably,
a. recognizes any price variance at the time materials are purchased.
b. Prorates variances between work-in-process, finished goods and cost of goods sold.
c. Recognizes any price variance when materials enter into production.
d. Experiences unfavorable materials price variances.

6. Berkowitz, Inc. had a favorable materials price variance in June. This means that the cost of materials:
a. used was less than the cost that should have been incurred according to standards.
b. Used was more than the cost that should have been incurred according to standards.
c. Purchased was less than the cost that should have been incurred according to standards
d. Purchased was more than the cost that should have been incurred according to standards.

7. The most appropriate time to record any variation of actual material prices from standard is:
a. at the end, when all variations will be known
b. at the time of purchase
c. at the time of material usage
d. as needed to evaluate the performance of the purchasing manager.

8. The material price variance:

a. measures the difference in price times the actual quantity purchased.
b. Measures the difference in price times the quantity allowed for production.
c. Measures the difference in price times the actual quantity used in production.
d. Measure the difference in price times the budgeted quantity purchased.

9. When dealing with variance analysis, which of the following statements is false?
a. Variances that are material should be investigated.
b. Variances that occur consistently should be investigated.
c. Variances that arise from critical cost areas should be investigated.
d. All variances should be investigated.

10. Which of the following is a true statement regarding standard costs?

a. All variances from standard should be reviewed.
b. Standard costs are related to responsibility accounting.
c. Significant unfavorable variances should be investigated, whereas significant favorable variances
should not.
d. Ideal standards help motivate employees to high levels of efficiency and are usually used.
11. Which of the following is not a potential cause of an unfavorable materials quantity variance?
a. Quantity discounts in the purchase of standard grade materials.
b. Favorable price variance due to lower grade materials purchased.
c. Favorable labor rate variance due to inexperienced workers.
d. Incorrect standards.

12. In a standard cost system, variations in the use of materials which can be calculated by comparing the
record of materials withdrawn with the standard of consumption is called:
a. efficiency variance
b. price variance
c. quantity variance
d. volume variance

13. It represents the standard cost variance defined as the difference between actual factory overhead incurred
and budgeted factory overhead based on actual hours worked:
a. volume variance
b. spending variance
c. efficiency variance
d. quantity variance

14. A debit balance in the labor efficiency variance indicate that

a. standard hours exceed actual hours
b. actual hours exceeds standard hours
c. standard rate exceeds actual rate
d. actual rate exceeds standard rate

15. What is a 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. Allocating among cost of goods manufactured and ending work in process inventory
c. Closed to cost of goods sold in the period in which they arose.
d. Capitalized as a cost of ending finished goods inventory.

16. An unfavorable labor efficiency variance connotes that:

a. the actual labor rate was higher than the standard labor rate.
b. the total variance must also be unfavorable.
c. actual labor hours worked exceeded standard labor hours for the production level achieved.

d. overtime labor was used during the period.

17. Which of the following is one of the purposes of standard cost?

a. To simplify costing procedure and expedite cost reports.
b. To replace budgets and budgeting
c. To use them as a basis of product costing for external reporting purposes.
d. To eliminate having to account for underapplied or overapplied factory overhead at the end of the
accounting period.

18. Which of the following unfavorable variances would be directly affected by the position of a production
process on a learning curve?
a. Material mix
b. Material price
c. Labor rate
d. Labor efficiency

19. The difference between the actual labor rate multiplied by the actual labor hours and the standard labor rate
multiplied by the standard labor hours is the:
a. total labor variance
b. labor rate variance
c. labor usage variance
d. labor efficiency variance.

20. What type of direct materials variance for price and usage will arise if the actual number of pounds of
materials used exceeds standard pounds allowed but actual cost was less than standard cost?
Usage Price
a. Unfavorable Favorable
b. Unfavorable Unfavorable
 c. Favorable Unfavorable
d. Favorable Favorable

21. Under the two variance method for analyzing factory overhead, the controllable variance is the difference
between:
a. Budget allowance based on standard hours allowed and the factory overhead applied to
production
b. Budget allowance based on standard hours and budget based on actual hours worked.
c. Actual factory overhead and the factory overhead applied to production.
d. Actual factory overhead and the budget allowance based on standard hours allowed.

22. Under the two-variance method for analyzing factory overhead, the controllable (budget) variance is the
difference between the
a. budget allowance based on standard hours allowed and the factory overhead applied to production.
b. budget allowance based on standard hours allowed and the budget allowance based on actual hours
worked.
c. actual factory overhead and the factory overhead applied to production.
d. actual factory overhead and the budget allowance based on standard hours allowed.

23. Which of the following is the most probable reason a company would experience an unfavorable labor rate
variance and a favorable labor efficiency variance?
a. The mix of workers assigned to the particular job was heavily weighted towards the use of higher paid
experienced individuals.
b. The mix of workers assigned to the particular job was heavily weighted towards the use of new relatively low
paid unskilled workers.
c. The production schedule workers from other production areas were assigned to assist this particular process.
d. Defective materials caused more labor to be used to produce a standard unit.

24. 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, whereas budgeted costs
represent expected actual costs.
c. Can exist because budgeted costs are historical costs, whereas standard costs are based on
engineering studies.
d. Cannot exist because they should be the same amounts.

25. A standard costing system is most often used by a firm in conjunction with:
a. Management by objectives
b. Target rates of return
c. Participative Management Programs
d. Flexible Budgets

26. The purpose of identifying manufacturing variances and assigning their responsibility to a person/
department should be to:
a. Use the knowledge about the variances to promote learning and continuous improvement in
the manufacturing operations.
b. Trace the variances to finished goods so that the inventory can be properly valued at year end.
c. Determine the proper cost of the products produced so that selling prices can be adjusted
accordingly.
d. Pinpoint fault for operating problems in the organization.

27. The efficiency variance for either labor or materials can be divided into:
a. Spending variance and yield variance.
b. Yield variance and price variance.
c. Volume variance and mix variance.
d. Yield variance and mix variance.

28. An unfavorable direct labor efficiency variance could be caused by a (an):

a. Unfavorable variable overhead spending variance.
b. Unfavorable materials usage variance.
c. Unfavorable fixed overhead volume variance.
d. Favorable variable overhead spending variance.

29. Under a standard cost system, labor price variances are usually not attributable to:
a. union contracts approved before the budgeting cycle.
b. Labor rate predictions.
c. The use of a single average standard rate
 d. The assignment of different skill levels of workers than planned.

30. Variable overhead is applied on the basis of standard direct labor hours. If, for a given period, the direct
labor efficiency variance is unfavorable. The variable overhead efficiency variance will be:
a. Favorable
b. Unfavorable
c. Zero
d. The same amount as the labor efficiency variance.

31. Overtime conditions and pay were recently set by the personnel department. The production department has
just received a request for a rush order from the sales department. The production department protests that
an additional overtime costs will be incurred as a result of the order. The sales department argues that the
order is from an important customer. The production department processes the order. To control costs which
department should never be charged with overtime costs generated as a result of the rush order?
a. Personnel department
b. Production department
c. Sales department
d. Shared by production department and sales department

32. The best basis upon which cost standards should be set to measure controllable production inefficiencies is
a. Engineering standards based on ideal performance.
b. Normal capacity.
c. Recent average historical performance.
d. Engineering standards based on attainable performance.

33. The cost based upon theoretical cost less an allowance for internal or external contingencies is a description
of which type of standard cost?
a. Currently attainable (expected).
b. Normal.
c. Theoretical.
d. Practical.

34. A company employing very tight (high) standards in a 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 standards.
d. Costs will be controlled better than if lower standards are used.

35. 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

36. Which of the following factors should not be considered when deciding whether to investigate a variance?
a. Magnitude of the variance
b. Trend of the variances over time
c. Likelihood that an investigation will eliminate future occurrences of the variance.
d. Whether the variance is favorable or unfavorable

37. Which department is customarily held responsible for an unfavorable materials usage variance?
a. Quality control
b. Engineering
c. Purchasing
d. Production

38. How should a usage variance that is significant 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.

39. An unfavorable price variance occurs because of

a. Price increases on raw materials.
b. Price decreases on raw materials.
c. Less than anticipated levels of waste in the manufacturing process.
d. More than anticipated levels of waste in the manufacturing process.
40. The standards that allow for no machine breakdowns or other work interruptions and that require peak
efficiency at all times are referred to as:
a. normal standards.
b. practical standards.
c. ideal standards.
d. budgeted standards.

41. To measure controllable production inefficiencies, which of the following is the best basis for a company to use in
establishing the standard hours allowed for the output of one unit of product?
a. Average historical performance for the last several years.
b. Engineering estimates based on ideal performance.
c. Engineering estimates based on attainable performance.
d. The hours per unit that would be required for the present workforce to satisfy expected demand over the
long run.

42. Which of the following statements concerning practical standards is incorrect?

a. Practical standards can be used for product costing and cash budgeting.
b. Practical standards can be attained by the average worker.
c. When practical standards are used, there is no reason to adjust standards if an old machine
is replaced by a newer, faster machine.
d. Under practical standards, large variances are less likely than under ideal standards.

43. 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 issued.
b. When material is purchased.
c. When material is used in production.
d. When production is completed.

44. An unfavorable labor efficiency variance indicates that:

a. The actual labor rate was higher than the standard labor rate.
b. The labor rate variance must also be unfavorable.
c. Actual labor hours worked exceeded standard labor hours for the production level achieved.
d. Overtime labor was used during the period.

45. What does a credit balance in a direct labor efficiency variance account indicate?
a. the average wage rate paid to direct labor employees was less than the standard rate.
b. the standard hours allowed for the units produced were greater than actual direct labor
hours used.
c. actual total direct labor costs incurred were less than standard direct labor costs allowed for the
units produced.
d. the number of units produced was less than the number of units budgeted for the period.

46. If the actual labor hours worked exceed the standard labor hours allowed, what type of variance will occur?
a. Favorable labor efficiency variance.
b. Favorable labor rate variance.
c. Unfavorable labor efficiency variance.
d. Unfavorable labor rate variance.

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

48. Which department is usually held responsible for an unfavorable materials quantity variance?
a. Marketing
b. Purchasing
c. Engineering
d. Production

49. Tower Company planned to produce 3,000 units of its single product, Titactium, during November. The
standards for one unit of Titactium specify six pounds of materials at P0.30 per pound. Actual production in
 November was 3,100 units of Titactium. There was a favorable materials price variance of P380 and an
unfavorable materials quantity variance of P120. Based on these variances, one could conclude that:
a. more materials were purchased than were used.
b. more materials were used than were purchased.
c. the actual cost per pound for materials was less than the standard cost per pound.
d. the actual usage of materials was less than the standard allowed.

50. A labor efficiency variance resulting from the use of poor quality materials should be charged to:
a. the production manager.
b. the purchasing agent.
c. manufacturing overhead.
d. the engineering department.