Question 1

Differences between standard and budgeted costs are referred to as standard cost variances.

Accepted Answer

False

Question 2

For planning purposes, ideal standards are more useful than attainable standards.

Accepted Answer

Ideal standards are often too optimistic as they assume perfect conditions, which can be demotivating and unrealistic for planning. Attainable standards, being more realistic, are generally more useful for planning as they provide achievable targets for employees and management.

Question 3

A favorable labor efficiency variance indicates that employees worked more quickly than expected.

Accepted Answer

A favorable labor efficiency variance means that actual labor hours worked were less than the standard labor hours allowed for the production of a given output. This indicates that employees worked more quickly than expected.

Question 4

The material price variance is equal to the standard price per unit of material times the actual quantity of material used.

Accepted Answer

The material price variance is the difference between the actual cost per unit of material and the standard cost per unit of material, multiplied by the quantity of material used. Therefore, the formula for material price variance is:

Material Price Variance = (Actual Price - Standard Price) x Actual Quantity

Question 5

The labor rate variance measures whether the rate paid to employees is more or less than the company's standard rate.

Accepted Answer

The labor rate variance calculates the difference between the actual rate paid to employees and the standard rate. It helps to identify whether the company is paying more or less than its own defined standards.

Question 6

Unfavorable variances are red flags that a manager has performed poorly.

Accepted Answer

Unfavorable variances can result from many factors, not just poor management performance. They can be due to external factors like increased material costs, changes in market demand, or unforeseen circumstances, which are beyond a manager's control.

Question 7

The use of standard costs is limited to manufacturing companies.

Accepted Answer

While standard costs are commonly used in manufacturing companies to set benchmarks for material and labor costs, they can also be used in non-manufacturing industries such as service and retail.

Question 8

A favorable overhead volume variance is a signal that the actual quantity produced was greater than the quantity anticipated.

Accepted Answer

The overhead volume variance measures the difference between the actual overhead incurred and the overhead that was expected based on the standard cost per unit produced. A favorable overhead volume variance occurs when the actual quantity produced is greater than the quantity anticipated, meaning that more units were produced than expected, resulting in a lower overhead cost per unit.

Question 9

In a standard costing system, manufactured goods are recorded at the variable cost that should have been incurred to produce the items.

Accepted Answer

In a standard costing system, manufactured goods are recorded at predetermined standard costs, which may include both variable and fixed costs. The idea is to compare actual costs with standard costs to identify any variances and take corrective actions.

Question 10

The labor rate variance is equal to the difference between the actual number of labor hours worked and the standard labor hours allowed, times the standard labor wage rate.

Accepted Answer

The labor rate variance is calculated as the difference between the actual hourly wage rate paid and the standard wage rate, multiplied by the actual number of hours worked.

Question 11

The labor rate variance is also known as the labor efficiency variance.

Accepted Answer

The labor rate variance and labor efficiency variance are two separate variances. The labor rate variance measures the difference between the actual and standard labor rate, while the labor efficiency variance measures the difference between the actual and standard labor hours.

Question 12

The material quantity variance compares the actual quantity of material purchased with the quantity of material used.

Accepted Answer

The material quantity variance compares the actual quantity of material used in production to the standard quantity of material that should have been used for the actual output.

Question 13

Ideal standards are synonymous with favorable variances, while attainable standards are synonymous with unfavorable variances.

Accepted Answer

This statement is false. Ideal standards are set based on theoretical perfection and may not always be achievable. Attainable standards are set based on realistic expectations and are a better reflection of actual performance. Variance, whether favorable or unfavorable, is based on the difference between actual performance and the standard set.  So, attainable standards can have both favorable and unfavorable variances, and the same is true for ideal standards.

Question 14

A material price variance measures whether more or less material was used in producing inventory.

Accepted Answer

A material price variance measures the difference between the actual cost of materials used and the expected cost of materials based on the standard price. It does not measure the amount of material used in producing inventory, which is instead measured by a material quantity variance.

Question 15

An unfavorable overhead volume variance always indicates that overhead is overapplied during the period.

Accepted Answer

An unfavorable overhead volume variance can indicate either that overhead was overapplied during the period or that the actual volume of activity was lower than expected.

Question 16

Budgeted costs are the same as standard costs.

Accepted Answer

Budgeted costs are the estimated costs for a future period, while standard costs are predetermined costs that are used as a benchmark for measuring actual costs. While budgeted costs can be based on standard costs, they are not the same thing.

Question 17

The total variance for manufacturing overhead is the difference between the flexible budget for overhead and actual overhead costs.

Accepted Answer

The total variance for manufacturing overhead is actually the difference between the applied overhead costs (based on the predetermined overhead rate) and the actual overhead costs.

Question 18

Ideal standards are developed under the assumption that no obstacles to the production process will be encountered.

Accepted Answer

Ideal standards are based on the assumption that all production processes will run smoothly without encountering any delays, obstacles or hindrances. This means that there would be no abnormal conditions such as machine breakdowns, unexpected absenteeism, inventory shortages or quality issues. Ideal standards are viewed as the best-case scenario, whereas practical or attainable standards take into account the challenges that may arise during the production process.

Question 19

An unfavorable controllable overhead variance indicates that more cost was incurred on overhead costs than allowed in the flexible budget.

Accepted Answer

An unfavorable controllable overhead variance occurs when actual overhead costs exceed the budgeted amount that was allowed in the flexible budget. This indicates that more cost was incurred on overhead costs than planned, which can have a negative impact on profitability.

Question 20

A variance analysis generally involves decomposing the difference between standard and actual costs into three components-direct materials, direct labor, and manufacturing overhead.

Accepted Answer

A variance analysis typically involves analyzing the difference between standard and actual costs and breaking it down by direct materials, direct labor, and manufacturing overhead variances.

Quiz 11: Standard Costs and Variance Analysis