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.

Accepted Answer

An unfavorable labor quantity variance occurs when more labor hours are used than what was planned, resulting in a higher cost of labor than anticipated.

Question 2

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

Accepted Answer

The standard predetermined overhead rate can be based on various activity indices such as machine hours, direct labor hours, direct labor cost, or any other measure that correlates with overhead costs, not just direct labor hours.

Question 3

The overhead volume variance relates only to fixed overhead costs.

Accepted Answer

True

Question 4

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

Accepted Answer

That is correct. When actual costs are less than standard costs, it means that the company is spending less than it planned to, resulting in a favorable variance.

Question 5

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

Accepted Answer

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

Question 6

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

Accepted Answer

Standard costs can be incorporated into the general ledger accounts as a way to compare actual costs to expected costs.

Question 7

Normal standards incorporate normal contingencies of production into the standards.

Accepted Answer

Normal standards are based on the assumption of normal contingencies of production, such as usual machine breakdowns, typical material waste, and average worker fatigue. These contingencies are already incorporated into the standards, which means they are expected to occur and are factored into the time and cost estimates.

Question 8

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

Accepted Answer

Ideal standards are set at levels that assume perfect efficiency and conditions, which are rarely met in practice, often leading to unfavorable variances when actual performance is compared to these high benchmarks.

Question 9

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

Accepted Answer

The answer of A standard is a unit amount whereas...

Question 10

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

Accepted Answer

A direct labor price standard is different from a direct labor efficiency standard. The former sets a price or rate for labor, while the latter sets a standard for the amount of time or effort required to complete a specific task.

Question 11

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

Accepted Answer

Standard cost is a predetermined cost set by management, based on various factors such as past performance, industry standards, and cost analysis. It is not necessarily the industry average cost for a particular item.

Question 12

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

Accepted Answer

While accountants do play a role in setting standard costs, it is a collaborative effort involving multiple departments such as production, operations, and purchasing. It also requires analyzing historical data, market trends, and input from various stakeholders.

Question 13

The overhead controllable variance relates primarily to fixed overhead costs.

Accepted Answer

The answer of The overhead controllable variance relates primarily to...

Question 14

Actual costs that vary from standard costs always indicate inefficiencies.

Accepted Answer

Actual costs can vary from standard costs due to a variety of factors, not just inefficiencies. These factors can include changes in market prices, unexpected events, or changes in production methods.

Question 15

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

Accepted Answer

Normal standards may need to be changed during the year due to various reasons such as changes in business environment, unexpected circumstances, and new insights gained from experience. Flexibility is important in ensuring that standards are relevant and achievable.

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.

Accepted Answer

A materials quantity variance is calculated as the difference between the standard quantity of materials that should have been used for the production output and the actual quantity used, multiplied by the standard price per unit of materials.

Question 17

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

Accepted Answer

Standard cost for direct materials is calculated by considering a price factor (the cost of the material per unit) and a quantity factor (the amount of material required per unit of production).

Question 18

Normal standards should be rigorous but attainable.

Accepted Answer

Normal standards should be challenging enough to promote growth and improvement, but they should also be achievable to avoid discouragement and demotivation.

Question 19

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

Accepted Answer

Standard costs provide a predetermined cost for each unit of inventory, making it easier to calculate the total cost of inventory on hand. This simplifies the costing process and reduces clerical costs associated with tracking actual costs.

Question 20

Inventories cannot be valued at standard cost in financial statements.

Accepted Answer

Inventories can be valued at standard cost in financial statements, as long as the standard cost is a reliable measure of the actual inventory costs. However, if standard cost is not a reliable measure, alternative methods such as actual cost or net realizable value must be used.

Quiz 16: Activity Based Costing