Question 1

Newbery Corporation manufactures one product.It does not maintain any beginning or ending Work in Process inventories.The company uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.There is no variable manufacturing overhead.The fixed manufacturing overhead standards for the company's only product specify 0.60 hours per unit at $9.50 per hour.The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $199,500 and budgeted activity of 21,000 hours.During the year,44,000 units were started and completed.Actual fixed overhead costs for the year were $216,200. Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash,Raw Materials,Work in Process,Finished Goods,and PP&E (net).All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When the fixed manufacturing overhead cost is recorded,which of the following entries will be made?
A) ($16,700) in the FOH Budget Variance column
B) ($16,700) in the FOH Volume Variance column
C) $16,700 in the FOH Volume Variance column
D) $16,700 in the FOH Budget Variance column

Accepted Answer

Budget variance = Actual fixed overhead - Budgeted fixed overhead
= $216,200 - $199,500
= $16,700 U
Favorable variances are entered in the worksheet as positive entries and unfavorable variances as negative entries.

Question 2

Loos Corporation uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.The direct labor standards for the company's only product specify 0.90 hours per unit at $21.50 per hour.During the year,the company started and completed 26,800 units.Direct labor employees worked 25,220 hours at an average cost of $22.50 per hour. Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash,Raw Materials,Work in Process,Finished Goods,and PP&E (net).All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When the direct labor cost is recorded,which of the following entries will be made?
A) ($25,220) in the Labor Rate Variance column
B) $25,220 in the Labor Rate Variance column
C) $25,220 in the Labor Efficiency Variance column
D) ($25,220) in the Labor Efficiency Variance column

Accepted Answer

Labor rate variance = AH × (AR - SR)
= 25,220 hours × ($22.50 per hour - $21.50 per hour)
= 25,220 hours × ($1.00 per hour)
= $25,220 U
Favorable variances are entered in the worksheet as positive entries and unfavorable variances as negative entries.

Question 3

When Raw Materials,Work in Process,and Finished Goods are recorded and carried at their standard cost,the fixed overhead applied to work in process is calculated by multiplying the predetermined overhead rate by the actual direct labor-hours worked.

Accepted Answer

In standard costing, the fixed overhead applied to work in process is calculated by multiplying the predetermined overhead rate by the standard direct labor-hours (or other allocation base) allowed for the actual output, not the actual direct labor-hours worked.

Question 4

Ciresi Corporation manufactures one product.It does not maintain any beginning or ending Work in Process inventories.The company uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.The company has provided the following information:
 The company does not have any variable manufacturing overhead costs and it recorded the following variances during the year:
 The adjusted Cost of Goods Sold after closing all of the variances to Cost of Goods Sold will be closest to:
A) $1,066,952
B) $877,902
C) $730,330
D) $582,758

Accepted Answer

11ea7761_16d6_a519_81a5_0fff70628fd1_TB2580_00 An unfavorable total variance has the effect of increasing Cost of Goods Sold and thereby decreasing Retained Earnings. A favorable variance has the opposite effects on Cost of Goods Sold and Retained Earnings.
 11ea7761_16d6_cc2a_81a5_a9bc3deb74eb_TB2580_00

Question 5

Lemke Corporation uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.The standard cost card for the company's only product is as follows:
 During the year,the company started and completed 12,300 units.Direct labor employees worked 10,540 hours at an average cost of $22.40 per hour.
Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash,Raw Materials,Work in Process,Finished Goods,and PP&E (net).All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When the direct labor cost is recorded,which of the following entries will be made?
A) $20,026 in the Labor Efficiency Variance column
B) $20,026 in the Labor Rate Variance column
C) ($20,026) in the Labor Rate Variance column
D) ($20,026) in the Labor Efficiency Variance column

Accepted Answer

Labor rate variance = AH × (AR - SR)
= 10,540 hours × ($22.40 per hour - $20.50 per hour)
= 10,540 hours × ($1.90 per hour)
= $20,026 U
Favorable variances are entered in the worksheet as positive entries and unfavorable variances as negative entries.

Question 6

Shankland Corporation manufactures one product.It does not maintain any beginning or ending Work in Process inventories.The company uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.There is no variable manufacturing overhead.The standard cost card for the company's only product is as follows:
 The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $67,500 and budgeted activity of 7,500 hours.During the year,24,600 units were started and completed.Actual fixed overhead costs for the year were $84,800.
Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash,Raw Materials,Work in Process,Finished Goods,and PP&E (net).All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When applying fixed manufacturing overhead to production,the Work in Process inventory account will increase (decrease)by:
A) $110,700
B) ($6,800)
C) ($110,700)
D) $6,800

Accepted Answer

Work in Process increases by the standard amount of hours allowed for the actual output multiplied by the predetermined overhead rate, which is (24,600 units × 0.50 hours per unit) × $9.00 per hour = 12,300 hours × $9.00 per hour = $110,700.

Question 7

Sousa Corporation uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.The standards for direct materials for the company's only product specify 2.8 kilos per unit at $7.50 per kilo or $21.00 per unit.During the year,the company purchased 82,100 kilos of raw material at a price of $7.40 per kilo and used 78,020 kilos of the raw material to produce 27,900 units of work in process. Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash,Raw Materials,Work in Process,Finished Goods,and PP&E (net).All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When the raw materials used in production are recorded,which of the following entries will be made?
A) $750 in the Materials Quantity Variance column
B) $750 in the Materials Price Variance column
C) ($750) in the Materials Quantity Variance column
D) ($750) in the Materials Price Variance column

Accepted Answer

The materials price variance is recorded when materials are purchased; the materials quantity variance is recorded when raw materials are used.
Materials quantity variance:
SQ = Actual output × Standard quantity = 27,900 units × 2.8 kilos per unit = 78,120 kilos
Materials quantity variance = (AQ - SQ) × SP
= (78,020 kilos - 78,120 kilos) × $7.50 per kilo
= (-100 kilos) × $7.50 per kilo
= $750 F
Favorable variances are entered in the worksheet as positive entries and unfavorable variances as negative entries.

Question 8

Platko Corporation manufactures one product.It does not maintain any beginning or ending Work in Process inventories.The company uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.There is no variable manufacturing overhead.The standard cost card for the company's only product is as follows:
 The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $348,000 and budgeted activity of 24,000 hours.During the year,38,900 units were started and completed.Actual fixed overhead costs for the year were $335,900.
Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash,Raw Materials,Work in Process,Finished Goods,and PP&E (net).All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When the fixed manufacturing overhead cost is recorded,which of the following entries will be made?
A) $12,100 in the FOH Volume Variance column
B) ($12,100) in the FOH Volume Variance column
C) $12,100 in the FOH Budget Variance column
D) ($12,100) in the FOH Budget Variance column

Accepted Answer

Budget variance = Actual fixed overhead - Budgeted fixed overhead
= $335,900 - $348,000
= $12,100 F
Favorable variances are entered in the worksheet as positive entries and unfavorable variances as negative entries.

Question 9

Juliano Corporation uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.The standard cost card for the company's only product is as follows:
 During the year,the company purchased 29,700 pounds of raw material at a price of $5.20 per pound and used 25,700 pounds of the raw material to produce 17,200 units of work in process.
Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash,Raw Materials,Work in Process,Finished Goods,and PP&E (net).All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When the raw materials used in production are recorded,which of the following entries will be made?
A) $600 in the Materials Price Variance column
B) $600 in the Materials Quantity Variance column
C) ($600) in the Materials Price Variance column
D) ($600) in the Materials Quantity Variance column

Accepted Answer

The materials price variance is recorded when materials are purchased; the materials quantity variance is recorded when raw materials are used.
Materials quantity variance:
SQ = Actual output × Standard quantity = 17,200 units × 1.5 pounds per unit = 25,800 pounds
Materials quantity variance = (AQ - SQ) × SP
= (25,700 pounds - 25,800 pounds) × $6.00 per pound
= (-100 pounds) × $6.00 per pound
= $600 F
Favorable variances are entered in the worksheet as positive entries and unfavorable variances as negative entries.

Question 10

Dews Corporation manufactures one product.It does not maintain any beginning or ending Work in Process inventories.The company uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.There is no variable manufacturing overhead.The fixed manufacturing overhead standards for the company's only product specify 0.90 hours per unit at $20.50 per hour.The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $369,000 and budgeted activity of 18,000 hours.During the year,14,100 units were started and completed.Actual fixed overhead costs for the year were $386,200. Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash,Raw Materials,Work in Process,Finished Goods,and PP&E (net).All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When the fixed manufacturing overhead cost is recorded,which of the following entries will be made?
A) $108,855 in the FOH Volume Variance column
B) ($108,855) in the FOH Budget Variance column
C) $108,855 in the FOH Budget Variance column
D) ($108,855) in the FOH Volume Variance column

Accepted Answer

Standard hours allowed for the actual output = 14,100 units × 0.90 hours per unit = 12,690 hours
Volume variance = Budgeted fixed overhead - Fixed overhead applied to work in process
= $369,000 - (12,690 hours × $20.50 per hour)
= $369,000 - ($260,145)
= $108,855 U
Favorable variances are entered in the worksheet as positive entries and unfavorable variances as negative entries.

Question 11

Ferrero Corporation manufactures one product.It does not maintain any beginning or ending Work in Process inventories.The company uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.The company has provided the following information:
 The company does not have any variable manufacturing overhead costs and it recorded the following variances during the year:
 When the company closes its standard cost variances,the Cost of Goods Sold will increase (decrease)by:
A) $56,580
B) ($125,916)
C) ($56,580)
D) $125,916

Accepted Answer

11ea7761_16d3_bee0_81a5_01c421c21d87_TB2580_00 An unfavorable total variance has the effect of increasing Cost of Goods Sold and thereby decreasing Retained Earnings. A favorable variance has the opposite effects on Cost of Goods Sold and Retained Earnings.

Question 12

As defined it the text,the ending balance in retained earnings equals the beginning balance in retained earnings plus net operating income minus dividends.

Accepted Answer

The formula for ending balance in retained earnings is beginning balance in retained earnings + net operating income - dividends.

Question 13

Karim Corporation uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.The standard cost card for the company's only product is as follows:
 During the year,the company started and completed 31,500 units.Direct labor employees worked 23,650 hours at an average cost of $19.50 per hour.
Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash,Raw Materials,Work in Process,Finished Goods,and PP&E (net).All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When recording the direct labor costs,the Work in Process inventory account will increase (decrease)by:
A) $474,075
B) ($474,075)
C) ($461,175)
D) $461,175

Accepted Answer

Work in Process increases by the standard cost of the standard amount of hours allowed for the actual output, which is SH × SR = (31,500 units × 0.70 hours per unit) × $21.50 per hour = 22,050 hours × $21.50 per hour = $474,075.

Question 14

In the Excel spreadsheet approach in Appendix 10B in the text,each variance has its own clearing account that appears on the right-hand side of the "=" sign.This enables us to record all favorable variances as increases to their respective clearing accounts and all unfavorable variances as decreases to their accounts.

Accepted Answer

This statement is true. The clearing accounts allow us to track the favorable and unfavorable variances separately.

Question 15

Johanson Corporation uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.The standard cost card for the company's only product is as follows:
 During the year,the company purchased 89,600 pounds of raw material at a price of $7.80 per pound and used 79,120 pounds of the raw material to produce 23,300 units of work in process.
Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash,Raw Materials,Work in Process,Finished Goods,and PP&E (net).All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When recording the raw materials purchases,the Raw Materials inventory account will increase (decrease)by:
A) $698,880
B) ($716,800)
C) ($698,880)
D) $716,800

Accepted Answer

Raw Materials increases by the standard cost of the raw materials purchased, which is AQ × SP = 89,600 pounds × $8.00 per pound = $716,800

Question 16

Bialas Corporation uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.The standards for direct materials for the company's only product specify 1.6 liters per unit at $7.00 per liter or $11.20 per unit.During the year,the company purchased 36,400 liters of raw material at a price of $7.40 per liter and used 32,060 liters of the raw material to produce 20,100 units of work in process. Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash,Raw Materials,Work in Process,Finished Goods,and PP&E (net).All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When the purchase of raw materials is recorded,which of the following entries will be made?
A) ($14,560) in the Materials Quantity Variance column
B) ($14,560) in the Materials Price Variance column
C) $14,560 in the Materials Price Variance column
D) $14,560 in the Materials Quantity Variance column

Accepted Answer

The materials price variance is recorded when materials are purchased; the materials quantity variance is recorded when raw materials are used.
Materials price variance = AQ × (AP - SP)
= 36,400 liters × ($7.40 per liter - $7.00 per liter)
= 36,400 liters × ($0.40 per liter)
= $14,560 U
Favorable variances are entered in the worksheet as positive entries and unfavorable variances as negative entries.

Question 17

Dalgleish Corporation manufactures one product.It does not maintain any beginning or ending Work in Process inventories.The company uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.There is no variable manufacturing overhead.The standard cost card for the company's only product is as follows:
 The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $358,750 and budgeted activity of 17,500 hours.During the year,32,900 units were started and completed.Actual fixed overhead costs for the year were $347,350.
Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash,Raw Materials,Work in Process,Finished Goods,and PP&E (net).All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When the fixed manufacturing overhead cost is recorded,which of the following entries will be made?
A) ($113,365) in the FOH Budget Variance column
B) ($113,365) in the FOH Volume Variance column
C) $113,365 in the FOH Budget Variance column
D) $113,365 in the FOH Volume Variance column

Accepted Answer

Volume variance = Budgeted fixed overhead - Fixed overhead applied to work in process
= $358,750 - (23,030 hours × $20.50 per hour)
= $358,750 - ($472,115)
= $113,365 F
Favorable variances are entered in the worksheet as positive entries and unfavorable variances as negative entries.

Question 18

Isenberg Corporation manufactures one product.It does not maintain any beginning or ending Work in Process inventories.The company uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.The company does not have any variable manufacturing overhead costs.It recorded the following variances during the year:
 When the company closes its standard cost variances,the Cost of Goods Sold will increase (decrease)by:
A) ($4,500)
B) $4,500
C) $96,955
D) ($96,955)

Accepted Answer

11ea7761_16d4_a942_81a5_11fd65d0abcd_TB2580_00 An unfavorable total variance has the effect of increasing Cost of Goods Sold and thereby decreasing Retained Earnings. A favorable variance has the opposite effects on Cost of Goods Sold and Retained Earnings.

Question 19

When Raw Materials,Work in Process,and Finished Goods are recorded and carried at their standard cost,the actual prices paid for inputs and the actual quantities of inputs that are used in production affect the costs recorded in the inventory accounts.

Accepted Answer

When inventory is recorded and carried at standard cost, the actual prices paid for inputs and the actual quantities of inputs used in production do not affect the costs recorded in the inventory accounts. Standard cost is a predetermined cost that does not change with changes in actual input prices or quantities.

Question 20

Ladue Corporation uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.The standards for direct materials for the company's only product specify 3.6 kilos per unit at $7.00 per kilo.During the year,the company purchased 67,600 kilos of raw material at a price of $6.40 per kilo and used 60,220 kilos of the raw material to produce 16,700 units of work in process. Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash,Raw Materials,Work in Process,Finished Goods,and PP&E (net).All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When recording the raw materials used in production,the Work in Process inventory account will increase (decrease)by:
A) $421,540
B) ($421,540)
C) $420,840
D) ($420,840)

Accepted Answer

Work in Process increases by the standard cost of the standard quantity of raw materials allowed for the actual output, which is SQ × SP = (16,700 units × 3.6 kilos per unit) × $7.00 per kilo = 60,120 kilos × $7.00 per kilo = $420,840.

Quiz 25: Standard Cost Systems: a Financial Reporting Perspective Using Microsoft Excel

When Raw Materials,Work in Process,and Finished Goods are recorded and carried at their standard cost,the fixed overhead applied to work in process is calculated by multiplying the predetermined overhead rate by the actual direct labor-hours worked.

As defined it the text,the ending balance in retained earnings equals the beginning balance in retained earnings plus net operating income minus dividends.

When Raw Materials,Work in Process,and Finished Goods are recorded and carried at their standard cost,the actual prices paid for inputs and the actual quantities of inputs that are used in production affect the costs recorded in the inventory accounts.