Deck 11: Standard Costs and Balanced Scorecard

Question 1

Normal standards should be rigorous but attainable.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

Inventories cannot be valued at standard cost in financial statements.

Question 7

Standard cost + price variance + quantity variance = Budgeted cost.

Question 8

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

Question 9

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.

Question 10

Normal standards incorporate normal contingencies of production into the standards.

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 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.

Question 19

Actual costs that vary from standard costs always indicate inefficiencies.

Question 20

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

Question 21

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.

Question 22

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

Question 23

Standards may be useful in setting selling prices for finished goods.

Question 24

In using variance reports, top management normally looks carefully at every variance.

Question 25

In concept, standards and budgets are essentially the same.

Question 26

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

Question 27

The use of standard costs in inventory costing is prohibited in financial statements.

Question 28

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

Question 29

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

Question 30

The use of an inexperienced worker instead of an experienced employee can result in a favorable labor price variance but probably an unfavorable quantity variance.

Question 31

The total overhead variance is the difference between actual overhead costs and overhead costs applied to work done.

Question 32

What is a standard cost?

A) The total number of units times the budgeted amount expected
B) Any amount that appears on a budget
C) The total amount that appears on the budget for product costs
D) The amount management thinks should be incurred to produce a good or service

Question 33

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.

Question 34

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

Question 35

The overhead controllable variance is the difference between the actual overhead costs incurred and the budgeted costs for the standard hours allowed.

Question 36

The materials price standard is based on the purchasing department's best estimate of the cost of raw materials.

Question 37

The overhead controllable variance relates primarily to fixed overhead costs.

Question 38

The overhead volume variance relates only to fixed overhead costs.

Question 39

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.

Question 40

The materials price variance is normally caused by the production department.

Question 41

Standard costs

A) may show past cost experience.
B) help establish expected future costs.
C) are the budgeted cost per unit in the present.
D) All of these answers are correct.

Question 42

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.

Question 43

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.

Question 44

A standard differs from a budget because a standard

A) is a predetermined cost.
B) contributes to management planning and control.
C) is a unit amount.
D) none of these; a standard does not differ from a budget.

Question 45

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.

Question 46

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.

Question 47

The final decision as to what standard costs should be is the responsibility of

A) the quality control engineer.
B) the managerial accountants.
C) the purchasing agent.
D) management.

Question 48

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.

Question 49

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 answers are correct.

Question 50

If a company is concerned with the potential negative effects of establishing standards, it 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.

Question 51

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."

Question 52

Using standard costs

A) can make management planning more difficult.
B) promotes greater economy.
C) does not help in setting prices.
D) weakens management control.

Question 53

The labor time requirements for standards may be determined by the

A) sales manager.
B) product manager.
C) industrial engineers.
D) payroll department manager.

Question 54

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 shareholders is required.

Question 55

Standard costs may be used by

A) universities.
B) governmental agencies.
C) charitable organizations.
D) All of these answers are correct.

Question 56

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.

Question 57

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.

Question 58

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.

Question 59

The most rigorous of all standards is the

A) normal standard.
B) realistic standard.
C) ideal standard.
D) conceivable standard.

Question 60

Using standard costs

A) makes employees less "cost-conscious."
B) provides a basis for evaluating cost control.
C) makes management by exception more difficult.
D) increases clerical costs.

Question 61

Allowance for spoilage is part of the direct

A) materials price standard.
B) materials quantity standard.
C) labor price standard.
D) labor quantity standard.

Question 62

The standard predetermined overhead rate used in setting the standard overhead cost is determined by dividing

A) budgeted overhead costs by an expected standard activity index.
B) actual overhead costs by an expected standard activity index.
C) budgeted overhead costs by actual activity.
D) actual overhead costs by actual activity.

Question 63

An unfavorable materials quantity variance would occur if

A) more materials were purchased than were 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.

Question 64

Use the following information for questions
Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and fringe benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance for rest periods and setup is .2 hours and .1 hours, respectively.

-The standard direct materials quantity per unit is

A) 2.6 pounds.
B) 2.7 pounds.
C) 2.9 pounds.
D) 3.0 pounds.

Question 65

Scorpion Production Company planned to use 1 yard of plastic per unit budgeted at $81 a yard. However, the plastic actually cost $80 per yard. The company actually made 3,900 units, although it had planned to make only 3,300 units. Total yards used for production were 3,960. How much is the total materials variance?

A) $48,600 U
B) $4,860 U
C) $3,960 F
D) $900 U

Question 66

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.

Question 67

The direct materials quantity standard would not be expressed in

A) pounds.
B) barrels.
C) dollars.
D) board feet.

Question 68

Use the following information for questions
Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and fringe benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance for rest periods and setup is .2 hours and .1 hours, respectively.

-The standard direct labor hours per unit is

A) 1 hour.
B) 1.1 hours.
C) 1.2 hours.
D) 1.3 hours.

Question 69

The direct labor quantity standard is sometimes called the direct labor

A) volume standard.
B) effectiveness standard.
C) efficiency standard.
D) quality standard.

Question 70

Allowances should not be made in the direct labor quantity standard for

A) wasted time.
B) rest periods.
C) cleanup.
D) machine downtime.

Question 71

Use the following information for questions
Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and fringe benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance for rest periods and setup is .2 hours and .1 hours, respectively.

-The standard direct labor rate per hour is

A) $ 12.00.
B) $ 12.30.
C) $15.60.
D) $15.90.

Question 72

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) 1
B) 2
C) 3
D) 2 and 3

Question 73

Use the following information for questions
Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and fringe benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance for rest periods and setup is .2 hours and .1 hours, respectively.

-The standard direct materials price per pound is

A) $1.96.
B) $2.00.
C) $2.13
D) $2.17

Question 74

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.

Question 75

The standard direct materials quantity does not include allowances for

A) unavoidable waste.
B) normal spoilage.
C) unexpected spoilage.
D) all of the above are included.

Question 76

Hofburg's standard quantities for 1 unit of product include 2 pounds of materials and 1.5 labor hours. The standard rates are $2 per pound and $7 per hour. The standard overhead rate is $8 per direct labor hour. The total standard cost of Hofburg's product is

A) $14.50.
B) $17.00.
C) $22.50.
D) $26.50.

Question 77

Which of the following statements is true?

A) Variances are the differences between total actual costs and total standard costs.
B) When actual costs exceed standard costs, the variance is favorable.
C) An unfavorable variance results when actual costs are decreasing but standards are not changed.
D) All of the above are true.

Question 78

If actual direct materials costs 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.

Question 79

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.

Question 80

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.