Deck 25: Budgetary Control and Responsibility Accounting

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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.

Answer 3

False

Question 4

Actual costs that vary from standard costs always indicate inefficiencies.

Question 5

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 6

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

Question 7

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

Question 8

Inventories cannot be valued at standard cost in financial statements.

Question 9

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

Question 10

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

Question 11

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

Question 12

Normal standards incorporate normal contingencies of production into the standards.

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

Normal standards should be rigorous but attainable.

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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 24

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

Question 25

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

Question 26

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

Question 27

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 28

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 29

The overhead controllable variance relates primarily to fixed overhead costs.

Question 30

The overhead volume variance relates only to fixed overhead costs.

Question 31

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

Question 32

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

Question 33

In concept, standards and budgets are essentially the same.

Question 34

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

Question 35

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

Question 36

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 37

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

Question 38

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

Question 39

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

Question 40

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 41

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 42

Standard costs may be used by

A) universities.
B) governmental agencies.
C) charitable organizations.
D) all of these.

Question 43

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.

Question 44

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 45

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 46

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 47

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 48

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 49

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 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.

Question 51

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 52

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 53

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 54

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 55

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 56

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 57

The most rigorous of all standards is the

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

Question 58

The direct materials quantity standard would not be expressed in

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

Question 59

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.

Question 60

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 61

A company developed the following per-unit standards for its product: 2 pounds of direct materials at $4 per pound. Last month, 1,000 pounds of direct materials were purchased for $3,800. The direct materials price variance for last month was

A) $3,800 favorable.
B) $200 favorable.
C) $100 favorable.
D) $200 unfavorable.

Question 62

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.

Question 63

The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month, 2,800 gallons of direct materials that actually cost $10,600 were used to produce 1,500 units of product. The direct materials quantity variance for last month was

A) $800 favorable.
B) $600 favorable.
C) $800 unfavorable.
D) $1,400 unfavorable.

Question 64

The purchasing agent of the Aldrich Company ordered materials of lower quality in an effort to economize on price. What variance will most likely result?

A) Favorable materials quantity variance
B) Favorable total materials variance
B) Unfavorable materials price variance
D) Unfavorable labor quantity variance

Question 65

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 66

Which one of the following statements is true?

A) If the materials price variance is unfavorable, then the materials quantity variance must also be unfavorable.
B) If the materials price variance is unfavorable, then the materials quantity variance must be favorable.
C) Price and quantity variances move in the same direction. If one is favorable, the others will be as well.
D) There is no correlation of favorable or unfavorable for price and quantity variances.

Question 67

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 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.

Question 69

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.

Question 70

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.

Question 71

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.

Question 72

The per-unit standards for direct labor are 2 direct labor hours at $15 per hour. If in producing 1,200 units, the actual direct labor cost was $32,000 for 2,000 direct labor hours worked, the total direct labor variance is

A) $1,200 unfavorable.
B) $4,000 favorable.
C) $2,500 unfavorable.
D) $4,000 unfavorable.

Question 73

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 74

The standard number of hours that should have been worked for the output attained is 6,000 direct labor hours and the actual number of direct labor hours worked was 6,300. If the direct labor price variance was $3,150 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

Question 75

The direct labor quantity standard is sometimes called the direct labor

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

Question 76

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 77

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.

Question 78

Fugate 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 2,600 units, although it had planned to make only 2,200 units. Total yards used for production were 2,640. How much is the total materials variance?

A) $32,400 U
B) $3,240 U
C) $2,640 F
D) $600 U

Question 79

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 80

The standard rate of pay is $15 per direct labor hour. If the actual direct labor payroll was $88,200 for 6,000 direct labor hours worked, the direct labor price (rate) variance is

A) $1,800 unfavorable.
B) $1,800 favorable.
C) $2,250 unfavorable.
D) $2,250 favorable.