Question 1

When more hours of labor time are necessary to complete a job than the standard allows, the labor efficiency variance is unfavorable.

Accepted Answer

A higher number of labor hours results in higher labor costs, which negatively impacts labor efficiency variance.

Question 2

The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate.

Accepted Answer

This is the correct definition of the variable overhead efficiency variance formula.

Question 3

A quantity standard indicates how much of an input should be used to make a unit of product or provide a unit of service.

Accepted Answer

A quantity standard specifies the amount of input required to make a unit of product or provide a unit of service. It helps in controlling costs and ensuring quality consistency.

Question 4

If variable manufacturing overhead is applied based on direct labor-hours, it is impossible to have a favorable labor rate variance and unfavorable variable overhead rate variance for the same period.

Accepted Answer

It is possible to have a favorable labor rate variance and an unfavorable variable overhead rate variance if there is a difference between the actual direct labor-hours used and the estimated direct labor-hours used to calculate the variable overhead rate variance. For example, if actual direct labor-hours are higher than estimated, the variable overhead rate variance would be unfavorable because the fixed overhead costs would be spread over more hours, resulting in a lower rate per hour. However, if the actual labor rate paid is lower than the estimated rate used to calculate the labor rate variance, then the labor rate variance would be favorable.

Question 5

When the materials price variance is recorded at the time of purchase, raw materials are recorded as inventory at standard cost.

Accepted Answer

When the materials price variance is recorded at the time of purchase, the raw materials are recorded at standard cost in inventory, and the variance is recognized separately in the general ledger. This allows for more accurate tracking of the variance and can help identify potential cost savings opportunities.

Question 6

The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the fixed part of the predetermined overhead rate.

Accepted Answer

The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate, not the fixed part.

Question 7

In general, the production manager is responsible for the materials price variance.

Accepted Answer

The responsibility for materials price variance typically falls on the purchasing department or procurement team, who are in charge of negotiating prices with suppliers and purchasing the materials. However, the production manager may be involved in monitoring and controlling materials usage, which can impact the materials quantity variance.

Question 8

If skilled workers with high hourly rates of pay are given duties that require little skill and call for lower hourly rates of pay, this will result in a favorable labor rate variance.

Accepted Answer

This statement is false. Skilled workers with high hourly rates of pay should be given duties that require their skill set, even if it means paying a higher hourly rate of pay. If they are given duties that require little skill and lower hourly rates of pay, this could result in a lower quality of work and ultimately lead to unfavorable labor rate variances.

Question 9

The labor efficiency variance is labeled favorable (F) if the actual hours used is less than the standard hours allowed for the actual output.

Accepted Answer

This is the definition of a favorable labor efficiency variance.

Question 10

The standard labor rate per hour should not include any employment taxes.

Accepted Answer

The standard labor rate per hour should include employment taxes, as these are additional costs incurred by the employer for each hour of labor.

Question 11

The variable overhead efficiency variance does not actually measure how efficiently variable manufacturing overhead resources were used.

Accepted Answer

The variable overhead efficiency variance measures the efficiency of the use of the variable manufacturing overhead resources in relation to the actual number of units produced.

Question 12

The standard price per unit for direct materials should reflect the final, delivered cost of the materials.

Accepted Answer

The standard price per unit for direct materials should be based on the final, delivered cost of the materials, which includes all costs associated with purchasing, receiving and bringing the materials to the production facility. This ensures that the standard cost of the finished product accurately reflects the true cost of the materials used in production.

Question 13

An unfavorable materials quantity variance occurs when the actual quantity used in production is less than the standard quantity allowed for the actual output of the period.

Accepted Answer

An unfavorable materials quantity variance occurs when the actual quantity used in production is MORE than the standard quantity allowed for the actual output of the period.

Question 14

If demand is insufficient to keep everyone busy and workers are not laid off, an unfavorable (U) variable overhead efficiency variance often will be a result unless managers build excessive inventories.

Accepted Answer

If demand is low and workers are not laid off, they may have idle time which can lead to a negative variable overhead efficiency variance. To avoid this, managers may choose to build excess inventory, which can also have negative implications for the business.

Question 15

The materials price variance is computed based on the amount of materials purchased during the period.

Accepted Answer

The materials price variance is calculated based on the difference between the actual price paid for materials and the standard price expected to be paid for the amount of materials purchased during the period.

Question 16

If the actual hourly rate is greater than the standard hourly rate, the labor rate variance is labeled unfavorable (U).

Accepted Answer

This is correct. An unfavorable labor rate variance means that the actual hourly rate paid was higher than the standard rate, which can result in additional costs for the company.

Question 17

The standard quantity or standard hours allowed refers to the amount of the input that should have been used to produce the actual output of the period.

Accepted Answer

The standard quantity or standard hours allowed is the expected amount of input needed to produce a given output, not necessarily what was actually used.

Question 18

Material price variances are often isolated at the time materials are purchased, rather than when they are placed into production, to facilitate earlier recognition of variances.

Accepted Answer

Material price variances are typically calculated when materials are purchased, rather than when they are placed into production. This allows for earlier identification and analysis of any variances in the cost of the materials.

Question 19

If demand is insufficient to keep everyone busy and workers are not laid off, a favorable (F) labor efficiency variance often will be a result.

Accepted Answer

The statement is incorrect. A favorable labor efficiency variance occurs when workers are able to complete more units than expected with the same amount of labor. It has nothing to do with demand or the possibility of layoffs.

Question 20

The labor rate variance measures the difference between the actual hourly rate and the standard hourly rate, multiplied by the standard hours allowed for the actual output.

Accepted Answer

The labor rate variance measures the difference between the actual hourly rate and the standard hourly rate, multiplied by the actual hours worked, not the standard hours allowed for the actual output.

Quiz 10: Standard Costs and Variances