Deck 16: Activity Based Costing

Question 1

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.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

The overhead volume variance relates only to fixed overhead costs.

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

Normal standards incorporate normal contingencies of production into the standards.

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

The overhead controllable variance relates primarily to fixed overhead costs.

Question 14

Actual costs that vary from standard costs always indicate inefficiencies.

Question 15

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

Question 16

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 17

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

Question 18

Normal standards should be rigorous but attainable.

Question 19

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

Question 20

Inventories cannot be valued at standard cost in financial statements.

Question 21

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 22

In concept standards and budgets are essentially the same.

Question 23

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

Question 24

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 25

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 26

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

Question 27

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

Question 28

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 29

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

Question 30

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 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

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

Question 34

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 35

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

Question 36

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 37

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

Question 38

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

Question 39

Standard costs may be used by

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

Question 40

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 41

Marburg Co.expects direct materials cost of $6 per unit for 100000 units (a total of $600000 of direct materials costs).Marburg's standard direct materials cost and budgeted direct materials cost is

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

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 44

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 45

provides input of historical costs to the standard setting process.

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

Question 46

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 47

The most rigorous of all standards is the

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

Question 48

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 49

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 50

The direct materials quantity standard would not be expressed in

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

Question 51

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 52

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 53

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 54

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 55

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 56

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 57

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 58

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 59

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 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

The standard direct materials price per pound is

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

Question 62

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 63

The standard direct labor rate per hour is

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

Question 64

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

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

Question 65

A company developed the following per-unit standards for its product: 2 pounds of direct materials at $4 per pound.Last month 1500 pounds of direct materials were purchased for $5700.The direct materials price variance for last month was

A)$5700 favorable.
B)$300 favorable.
C)$150 favorable.
D)$300 unfavorable.

Question 66

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 67

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 68

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

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 70

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 71

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 72

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 3900 units although it had planned to make only 3300 units.Total yards used for production were 3960.How much is the total materials variance?

A)$48600 U
B)$4860 U
C)$3960 F
D)$900 U

Question 73

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 74

The purchasing agent of the Poplin Inc.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
C)Unfavorable materials price variance
D)Unfavorable labor quantity variance

Question 75

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 76

Unfavorable materials price and quantity variances are generally the responsibility of the

Question 77

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 78

The per-unit standards for direct materials are 2 gallons at $4 per gallon.Last month 11200 gallons of direct materials that actually cost $42400 were used to produce 6000 units of product.The direct materials quantity variance for last month was

A)$3200 favorable.
B)$2400 favorable.
C)$3200 unfavorable.
D)$5600 unfavorable.

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

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.