Deck 11: Relevant Costs for Decision Making

Question 1

If the standard hours allowed for the actual output of the period is greater than the denominator level of activity (in hours),then the overhead budget variance will be unfavourable.

Answer 1

False

Question 2

Quantity standards indicate how much of an input should be used for manufacturing one unit of product or in providing one unit of service.

Answer 2

True

Question 3

One cause of an unfavourable overhead volume variance would be increases in cost for fixed overhead items.

Answer 3

False

Question 4

A favourable labour efficiency variance would result in a credit balance in the labour efficiency variance account.

Question 5

From a standpoint of cost control,the most effective time to recognize material price variances is when the materials are placed into production.

Question 6

In a standard costing system,under-applied or over-applied fixed overhead is equal to the sum of the fixed overhead budget variance and the fixed overhead volume variance.

Question 7

Purchase of poor quality materials will generally result in a favourable materials price variance and an unfavourable labour rate variance.

Question 8

The material quantity variance is computed based on the quantity of all materials purchased during the period.

Question 9

A flexible budget is "flexible" in the sense that a budget can be prepared for any level of activity,but once a budget is set the budget figures are not changed if actual activity later proves to be different than budgeted activity.

Question 10

In a performance report,actual costs should be compared to budgeted costs at the original budgeted activity level.

Question 11

The fixed overhead budget variance is not controllable by managers since fixed costs are not controllable.

Question 12

The static budget is a good tool for assessing whether variable costs are under control.

Question 13

The variable overhead efficiency variance reflects how efficiently variable overhead resources were used.

Question 14

Standard costs should generally be based on the actual costs of prior periods.

Question 15

Management by exception means that a manager's attention is directed toward those parts of the organization where variances between actual and budget are significant.

Question 16

A static budget is geared toward a single level of activity.

Question 17

The standard direct labour rate should not include fringe benefits.

Question 18

In a standard cost system,if the denominator activity (in hours)used to compute the predetermined overhead rate is equal to the actual activity (in hours)for the period,then there is no volume variance.

Question 19

The overhead spending variance and the overhead efficiency variance are useful only if variable overhead really should be proportional to the activity measure that is being used in the flexible budget.

Question 20

The production manager is usually held responsible for the labour efficiency variance.

Question 21

A positive revenue variance is favourable and a positive cost variance is favourable.

Question 22

The flexible budget variance is the difference between the actual results and the flexible-budget amount for the actual levels of the revenue and cost drivers.

Question 23

The unitization of fixed overhead costs is useful from a control perspective.

Question 24

A flexible budget cost variance can be decomposed into a quantity variance and a price variance.

Question 25

A flexible budget enables managers to compute a richer set of variances than a static budget does.

Question 26

Analysis of all sales volume variances provides no useful information to management.

Question 27

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.

Question 28

The standard cost card for a product includes a list of all inputs required to complete one unit of the product with the standard quantity and standard cost of each input.

Question 29

A limitation of a static budget is that a favourable revenue variance based upon higher than planned activity levels will usually result in unfavourable variable cost variances.

Question 30

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.

Question 31

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.

Question 32

In a standard cost system,the resources applied to production are recorded as additions to work in process inventory using the standard quantities and the standard prices for each actual unit added.

Question 33

When all direct material units purchased in a period are not used in production for that period,both direct material price and direct material quantity variances may be calculated for the period.

Question 34

A flexible budget is a budget that is developed using budgeted revenue or cost amounts and is not adjusted at the end of the budgeted period.

Question 35

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.

Question 36

If a company using a flexible budget has a sales revenue variance,the variance results solely from differences in budgeted versus actual selling prices.

Question 37

If a company has a favourable labour efficiency variance,it used less units of labour than were budgeted for the output units achieved.

Question 38

An unfavourable labour efficiency variance indicates that:

A) the actual labour rate was higher than the standard labour rate.
B) the labour rate variance must also be unfavourable.
C) actual labour hours worked exceeded standard labour hours for the production level achieved.
D) overtime labour was used during the period.

Question 39

The standard quantity per unit of direct materials is determined by measuring the quantity of material in one completed finished unit.

Question 40

Ideal standards,while requiring managers to work to ensure that employees accept them,can be very useful in forecasting and planning.

Question 41

Under a standard cost system,the material price variances are usually the responsibility of the:

A) production manager.
B) sales manager.
C) purchasing manager.
D) engineering manager.

Question 42

The following materials standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: What is the materials price variance for the month?

A) $2,250 F.
B) $7,540 U.
C) $7,660U.
D) $24,317 U.

Question 43

Which of the following is the most probable reason a company would experience an unfavourable labour rate variance and a favourable labour 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 labour to be used in order to produce a standard unit.

Question 44

Drake Company purchased materials on account.The entry to record the purchase of materials having a standard cost of $1.50 per gram from a supplier at $1.60 per gram would include a:

A) credit to raw materials inventory.
B) debit to work in process.
C) credit to materials price variance.
D) debit to materials price variance.

Question 45

A favourable labour rate variance indicates that:

A) actual hours exceed standard hours.
B) standard hours exceed actual hours.
C) the actual rate exceeds the standard rate.
D) the standard rate exceeds the actual rate.

Question 46

If the actual labour hours worked exceed the standard labour hours allowed,what type of variance will occur?

A) Favourable labour efficiency variance.
B) Favourable labour rate variance.
C) Unfavourable labour efficiency variance.
D) Unfavourable labour rate variance.

Question 47

Which department is usually held responsible for an unfavourable materials quantity variance?

A) Marketing.
B) Purchasing.
C) Engineering.
D) Production.

Question 48

Dahl Company,a clothing manufacturer,uses a standard costing system.Each unit of a finished product contains 2 metres of cloth.However,there is unavoidable waste of 20%,calculated on input quantities,when the cloth is cut for assembly.The cost of the cloth is $3 per metre.The standard direct material cost for cloth per unit of finished product is:

A) $4.80.
B) $6.00.
C) $7.20.
D) $7.50.

Question 49

Information on Fleming Company's direct material costs follows: What was the company's direct material price variance?

A) $1,000 favourable.
B) $1,000 unfavourable.
C) $2,000 favourable.
D) $2,000 unfavourable.

Question 50

The terms "standard quantity allowed" or "standard hours allowed" mean:

A) the actual output in units multiplied by the standard output allowed.
B) the actual input in units multiplied by the standard output allowed.
C) the actual output in units multiplied by the standard input allowed.
D) the standard output in units multiplied by the standard input allowed.

Question 51

The Porter Company has a standard cost system.In July the company purchased and used 22,500 grams of direct material at an actual cost of $53,000;the materials quantity variance was $1,875 unfavourable;and the standard quantity of materials allowed for July production was 21,750 grams.The materials price variance for July was?

A) $2,725 F.
B) $2,725 U.
C) $3,250 F.
D) $3,250 U.

Question 52

Cox Company's direct material costs for the month of January were as follows: For January there was a favourable direct material quantity variance of?

A) $3,360.
B) $3,375.
C) $3,400.
D) $3,800.

Question 53

Which of the following entries would correctly record the charging of direct labour costs to work in process given an unfavourable labour efficiency variance and a favourable labour rate variance?

A) Work in process Labour efficiency variance Labour rate variance Wages payable
B) Work in process Wages payable
C) Work in process Labour efficiency variance Labour rate variance Wages payable
D) Work in process Labour rate variance Labour efficiency variance Wages payable

Question 54

Tower Company planned to produce 3,000 units of its single product,Titactium,during November.The standards for one unit of Titactium specify six grams of materials at $0.30 per gram.Actual production in November was 3,100 units of Titactium.There was a favourable materials price variance of $380 and an unfavourable materials quantity variance of $120.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 gram for materials was less than the standard cost per gram.
D) the actual usage of materials was less than the standard allowed.

Question 55

A favourable material price variance coupled with an unfavourable material usage variance would most likely result from:

A) problems with processing machines.
B) the purchase of low quality materials.
C) problems with labour efficiency.
D) changes in the product mix.

Question 56

Last month 75,000 grams of direct material were purchased and 71,000 grams were used.If the actual purchase price per gram was $0.50 more than the standard purchase price per gram,then the material price variance was?

A) $2,000 F
B) $35,500 U
C) $37,500 U
D) $37,500 F

Question 57

What does a credit balance in a direct labour efficiency variance account indicate?

A) The average wage rate paid to direct labour employees was less than the standard rate.
B) The standard hours allowed for the units produced were greater than actual direct labour hours used.
C) Actual total direct labour costs incurred were less than standard direct labour costs allowed for the units produced.
D) The number of units produced was less than the number of units budgeted for the period.

Question 58

A labour 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.

Question 59

During March,Younger Company's direct material costs for product T were as follows: Younger's material quantity variance for March was?

A) $1,250 unfavourable.
B) $1,250 favourable.
C) $1,300 unfavourable.
D) $1,300 favourable.

Question 60

The following materials standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: What is the materials quantity variance for the month?

A) $6,664 F.
B) $6,732 F.
C) $13,720U.
D) $13,860 U.

Question 61

The materials quantity variance is:

A) $760U.
B) $760F.
C) $800U.
D) $4,000F.

Question 62

The Fletcher Company uses standard costing.The following data are available for October: The standard quantity of material allowed for October production is:

A) 23,000 lbs.
B) 24,000 lbs.
C) 24,500 lbs.
D) 25,000 lbs.

Question 63

For the month of April,Thorp Co.'s records disclosed the following data relating to direct labour: For the month of April,actual direct labour hours amounted to 2,000.In April,Thorp's standard direct labour rate per hour was:

A) $4.50.
B) $4.75.
C) $5.00.
D) $5.50.

Question 64

Borden Enterprises uses standard costing.For the month of April,the company reported the following data: • Standard direct labour rate: $10 per hour
• Standard hours allowed for actual production: 8,000
• Actual direct labour rate: $9.50 per hour
• Labour efficiency variance: $4,800 F
The labour rate variance for April is:

A) $2,850 U.
B) $2,850 F.
C) $3,760 F.
D) $3,760 U.

Question 65

Information on Kennedy Company's direct material costs follows: What was the actual purchase price per unit,rounded to the nearest penny?

A) $3.06.
B) $3.11.
C) $3.45.
D) $3.75.

Question 66

The labour rate variance is:

A) $440 F.
B) $440 U.
C) $480 F.
D) $480 U.

Question 67

The following labour standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: What is the labour rate variance for the month?

A) $1,295 F.
B) $2,877 F.
C) $4,246 F.
D) $4,246 U.

Question 68

Lab Corp.uses a standard cost system.Direct labour information for Product CER for the month of October follows: What are the actual hours worked?

A) 1,400.
B) 1,402.
C) 1,598.
D) 1,600.

Question 69

The materials price variance is:

A) $400 U.
B) $400 F.
C) $600 F.
D) $600 U.

Question 70

The following standards for variable manufacturing overhead have been established for a company that makes only one product: The following data pertain to operations for the last month: What is the variable overhead efficiency variance for the month?

A) $130 F.
B) $130 U.
C) $4,320 F.
D) $4,320 U.

Question 71

The price variance for the direct material acquired by the company during March is:

A) $7,550 favourable.
B) $7,550 unfavourable.
C) $8,250 unfavourable.
D) $8,250 favourable.

Question 72

The direct material quantity variance for March is:

A) $3,500 unfavourable.
B) $3,500 favourable.
C) $3,550 favourable.
D) $3,550 unfavourable.

Question 73

The direct labour rate variance for March is:

A) $8,000 favourable.
B) $8,000 unfavourable.
C) $48,000 unfavourable.
D) $48,000 favourable.

Question 74

The standards for direct labour for a product are 2.5 hours at $8 per hour.Last month,9,000 units of the product were made and the labour efficiency variance was $8,000 F.The actual number of hours worked during the past period was:

A) 20,500.
B) 21,500.
C) 22,500.
D) 23,500.

Question 75

Yola Company manufactures a product with standards for direct labour of 4 direct labour-hours per unit at a cost of $12.00 per direct labour-hour.During June,1,000 units were produced using 4,100 hours at $12.20 per hour.The direct labour efficiency variance was:

A) $1,200 favourable.
B) $1,200 unfavourable.
C) $2,020 favourable.
D) $2,020 unfavourable.

Question 76

The following labour standards have been established for a particular product: The following data pertain to operations concerning the product for the last month: What is the labour efficiency variance for the month?

A) $19,017 F.
B) $19,017 U.
C) $16,029 F.
D) $16,577 F.

Question 77

In a certain standard costing system the following results occurred last period: labour rate variance,$1,000 U;labour efficiency variance,$2,800 F;and the actual labour rate was $0.20 more per hour than the standard labour rate.The number of actual direct labour hours used last period was:

A) 4,800.
B) 5,000.
C) 5,400.
D) 9,000.

Question 78

The following standards for variable manufacturing overhead have been established for a company that makes only one product: The following data pertains to operations for the last month: What is the variable overhead spending variance for the month?

A) $112 F.
B) $130 U.
C) $4,338 U.
D) $4,450 U.

Question 79

The Reedy Company uses a standard costing system.The following data are available for November: The actual direct labour rate for November is:

A) $8.80.
B) $8.90.
C) $9.00.
D) $9.20.

Question 80

The direct labour efficiency variance for March is:

A) $5,500 unfavourable.
B) $5,500 favourable.
C) $5,625 favourable.
D) $5,625 unfavourable.