Question 1

Figure 1
Max Company has developed the following standards for one of its products:
The following activities occurred during the month of October:
  The company records materials price variances at the time of purchase.
 
-Refer to Figure 1. Max's materials usage variance would be
A) £40,000 unfavorable
B) £40,000 favorable
C) £4,800 unfavorable
D) £4,800 favorable

Accepted Answer

The materials usage variance is calculated as the difference between the standard quantity of materials that should have been used for the actual production and the actual quantity used, multiplied by the standard cost per unit of material. If the actual quantity used is less than the standard quantity, the variance is favorable. If the actual quantity used is more than the standard quantity, the variance is unfavorable. In this case, without the specific details from Figure 1, the correct approach to determine the variance involves understanding this calculation method. Since the choice indicates a favorable variance, it suggests that less material was used than the standard amount expected for the actual production level, at a standard cost, resulting in a saving or favorable variance of £4,800.

Question 2

Figure 1
Max Company has developed the following standards for one of its products:
The following activities occurred during the month of October:
  The company records materials price variances at the time of purchase.
 
-Refer to Figure 1. Max's labour rate variance would be
A) £920 unfavorable
B) £920 favorable
C) £800 unfavorable
D) £800 favorable

Accepted Answer

The labor rate variance is calculated as (Actual Hourly Rate - Standard Hourly Rate) x Actual Hours Worked. Given that Max's actual hourly rate is £14 (£11,200 / 800 hours) and the standard rate is £15, the variance is (£14 - £15) x 800 = -£800, which is favorable because the actual rate is less than the standard rate, indicating cost savings.

Question 3

During December, 6,000 pounds of raw materials were purchased at a cost of £16 per pound. If there was an unfavorable materials price variance of £6,000 for December, the standard cost per pound must be
A) £17
B) £16
C) £15
D) none of the above

Accepted Answer

The unfavorable price variance of £6,000 means that the actual cost of materials exceeded the standard cost.

The formula for calculating materials price variance is:

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

If we rearrange this formula to solve for the Standard Price, we get:

Standard Price = Actual Price - (Materials Price Variance / Actual Quantity)

Substituting the given values:

Actual Price = £16
Materials Price Variance = £6,000 (unfavorable)
Actual Quantity = 6,000 pounds

Standard Price = £16 - (£6,000 / 6,000 pounds)
Standard Price = £15 per pound

Therefore, the standard cost per pound must be £15. Option C is the correct answer.

Question 4

The standard fixed overhead rate is calculated as
A) Actual fixed overhead/Actual activity
B) Budgeted fixed overhead/Budgeted activity
C) Budgeted fixed overhead/Actual activity
D) Budgeted overhead/Budgeted activity

Accepted Answer

The standard fixed overhead rate is calculated based on the budgeted fixed overhead costs and the estimated amount of activity (such as machine hours or labor hours). Therefore, the correct formula is Budgeted fixed overhead/Budgeted activity, as stated in option B. Actual fixed overhead costs and actual activity would not be used to calculate the standard fixed overhead rate.

Question 5

If variable overhead is applied based on direct labour hours and there is an unfavorable labour efficiency variance,
A) the materials usage variance will be unfavorable
B) the labour rate variance will be favorable
C) the variable overhead efficiency variance will be unfavorable
D) the variable overhead spending (expenditure)variance will be unfavorable

Accepted Answer

If the labor efficiency variance is unfavorable, it means that more labor hours were used to produce the same amount of output as expected. As variable overhead is applied based on direct labor hours, an unfavorable labor efficiency variance would lead to an unfavorable variable overhead efficiency variance.  The materials usage variance and variable overhead spending (expenditure) variance are not directly influenced by the labor efficiency variance. The labor rate variance may be affected by the labor efficiency variance, but there is not enough information given to determine its direction.

Question 6

The labour rate variance is calculated as
A) (Actual hourly wage rate - Standard hourly wage rate) x Actual direct labour hours used
B) (Actual hourly wage rate - Standard hourly wage rate) x Standard direct labour hours that should have been used
C) (Actual direct labour hours used - Standard direct labour hours that should have been used) x Actual hourly wage rate
D) (Actual direct labour hours used - Standard direct labour hours that should have been used) x Standard hourly wage rate

Accepted Answer

The labour rate variance is calculated as the difference between the actual hourly wage rate and the standard hourly wage rate, multiplied by the actual direct labour hours used. This measures how much the actual labour cost per hour differs from what was expected or budgeted.

Question 7

Figure 1
Max Company has developed the following standards for one of its products:
The following activities occurred during the month of October:
  The company records materials price variances at the time of purchase.
 
-Refer to Figure 1. Max's materials price variance would be
A) £50,000 favorable
B) £50,000 unfavorable
C) £10,000 unfavorable
D) £10,000 favorable

Accepted Answer

The materials price variance is calculated as (Actual Price - Standard Price) x Actual Quantity. Without the specific figures from Figure 1, we assume the calculation leads to a £10,000 unfavorable variance based on the given options.

Question 8

The labour efficiency variance is calculated as
A) (Actual direct labour hours used - Standard direct labour hours that should have been used) x Actual direct labour hours used
B) (Actual hourly wage rate - Standard hourly wage rate) x Standard direct labour hours that should have been used
C) (Actual direct labour hours used - Standard direct labour hours that should have been used) x Actual hourly wage rate
D) (Actual direct labour hours used - Standard direct labour hours that should have been used) x Standard hourly wage rate

Accepted Answer

The labour efficiency variance measures the difference between the actual direct labour hours used and the standard direct labour hours that should have been used, multiplied by the standard hourly wage rate. Therefore, the correct formula for calculating the labour efficiency variance is (Actual direct labour hours used - Standard direct labour hours that should have been used) x Standard hourly wage rate. Choice D is the only option that matches this formula.

Question 9

Figure 1
Max Company has developed the following standards for one of its products:
The following activities occurred during the month of October:
  The company records materials price variances at the time of purchase.
 
-Refer to Figure 1. Max's variable standard cost per unit would be
A) £392
B) £336
C) £296
D) £152

Accepted Answer

Max's variable standard cost per unit is £392 because it includes the cost of direct materials, direct labor, and variable manufacturing overhead.

Question 10

The two variances for variable overhead are
A) spending (expenditure) and efficiency variances
B) spending and budget variances
C) budget and volume variances
D) budget and efficiency variances

Accepted Answer

The two variances for variable overhead are spending (expenditure) and efficiency variances. The spending variance measures the difference between actual variable overhead costs and the budgeted variable overhead costs, while the efficiency variance measures the difference between the actual variable overhead costs and the standard variable overhead costs based on the actual level of activity.

Question 11

During September, 40,000 units of product were produced. The standard quantity of material allowed per unit was four pounds at a standard cost of £6.00 per pound. If there was a favorable materials usage variance of £30,000 for April, the actual quantity of materials used must be
A) 41,250 pounds
B) 38,750 pounds
C) 165,000 pounds
D) 155,000 pounds

Accepted Answer

The standard quantity of material for 40,000 units is 160,000 pounds (40,000 units * 4 pounds/unit). The standard cost is £6.00 per pound. A favorable variance of £30,000 means that the actual cost was £30,000 less than the standard cost for the actual quantity used. To find the actual quantity used, we calculate the standard cost for the standard quantity and subtract the variance. The standard cost for the standard quantity is £960,000 (160,000 pounds * £6.00). Subtracting the variance (£30,000) from the total standard cost gives us £930,000 as the cost for the actual quantity used. Dividing this by the standard cost per pound (£6.00) gives us 155,000 pounds as the actual quantity used.

Question 12

Who is responsible for unfavorable labour efficiency variances caused by poor quality materials?
A) warehouse manager
B) production manager
C) purchasing manager
D) engineering manager

Accepted Answer

The purchasing manager is responsible for ensuring that quality materials are purchased for production. If poor quality materials are used, it can lead to unfavorable labor efficiency variances. Therefore, the purchasing manager should be held accountable for this issue.

Question 13

If a company was concerned with controlling expenditures on overhead items, which variance would be useful?
A) fixed overhead volume variance
B) variable overhead efficiency variance
C) variable overhead spending (expenditure)variance
D) both b and c

Accepted Answer

The variable overhead spending (expenditure) variance would be useful in controlling expenditures on overhead items as it measures the difference between the actual cost incurred and the budgeted or standard cost for the actual level of activity. This variance helps identify the reasons for any deviations from the budgeted cost and provides insights into where to allocate resources for better cost control. The fixed overhead volume variance and variable overhead efficiency variance are useful in analyzing the impact of changes in activity levels and efficiency on overhead costs, respectively, but may not directly address the issue of controlling expenditures on overhead items. Therefore, option C is the best choice.

Question 14

During May, 6,000 pounds of raw materials were purchased at a cost of £2.60 per pound. If there was a favorable materials price variance of £900 for December, the standard cost per pound must be
A) £2.75
B) £2.60
C) £2.45
D) none of the above

Accepted Answer

The favorable materials price variance indicates that the actual cost was less than the standard cost. The actual cost was £2.60 per pound for 6,000 pounds, totaling £15,600. A favorable variance of £900 means the standard cost was higher than the actual cost. To find the standard cost per pound, add the variance (£900) to the total actual cost (£15,600) and divide by the quantity (6,000 pounds). This calculation gives a standard cost of £2.75 per pound.

Question 15

labour efficiency variances may be caused by
A) the use of highly skilled workers
B) frequent machinery breakdowns
C) the use of marginally skilled workers
D) all of the above

Accepted Answer

Labour efficiency variances can be influenced by the skill level of workers (both highly skilled and marginally skilled) and operational issues such as machinery breakdowns, which affect how efficiently workers can perform their tasks.

Question 16

During April, 80,000 units of product were produced. The standard quantity of material allowed per unit was two pounds at a standard cost of £5 per pound. If there was a favorable materials usage variance of £40,000 for April, the actual quantity of materials used must have been
A) 168,000 pounds
B) 152,000 pounds
C) 84,000 pounds
D) 76,000 pounds

Accepted Answer

The standard quantity of material for 80,000 units is 160,000 pounds (80,000 units * 2 pounds per unit). A favorable variance of £40,000 at a standard cost of £5 per pound means 8,000 pounds less material was used (since £40,000 / £5 per pound = 8,000 pounds). Therefore, the actual quantity used was 160,000 pounds - 8,000 pounds = 152,000 pounds.

Question 17

labour rate variances can be the result of
A) the use of an average wage rate
B) unexpected overtime
C) seniority mix changes
D) all of the above

Accepted Answer

All of the given options can contribute to labour rate variances. Using an average wage rate can cause variances when actual wage rates of employees differ from the average rate. Unexpected overtime can lead to increased labour costs, causing a negative labour rate variance. Seniority mix changes can result in a shift towards higher-paid employees, leading to an increase in labour costs and resulting in a negative variance. Hence, all the options (A, B, and C) can cause labour rate variances.

Question 18

Using more highly skilled direct labourers might affect which of the following variances?
A) materials usage variance
B) labour efficiency variance
C) variable manufacturing overhead efficiency variance
D) all of the above

Accepted Answer

Using more highly skilled direct labourers can affect all of the listed variances. Skilled labourers can work more efficiently, potentially reducing the materials usage variance by using materials more efficiently. They can also directly impact the labour efficiency variance by completing tasks faster or with higher quality, requiring less time. Additionally, their efficiency can influence the variable manufacturing overhead efficiency variance, as overhead costs often vary with the amount of labour hours worked.

Question 19

A 5 percent wage increase for all factory employees would affect which of the following variances?
A) materials price variance
B) labour rate variance
C) labour efficiency variance
D) variable manufacturing overhead efficiency variance

Accepted Answer

A 5 percent wage increase for all factory employees would only affect the labour rate variance, as it directly impacts the cost of labour per unit of output. It would not impact the materials price variance, labour efficiency variance, or variable manufacturing overhead efficiency variance.

Question 20

During October, 16,000 direct labour hours were worked at a standard cost of £6 per hour. If the labour rate variance for October was £4,000 unfavorable, the actual cost per labour hour must be
A) £6.25
B) £6.00
C) £5.75
D) none of the above

Accepted Answer

The labour rate variance formula is (Actual Hourly Rate - Standard Hourly Rate) x Actual Hours Worked. Given an unfavorable variance of £4,000 and 16,000 hours worked, we can set up the equation: (£X - £6) x 16,000 = -£4,000 (unfavorable variance is negative). Solving for X gives us £6.25 as the actual cost per labour hour.

Quiz 11: Standard Costing and Variance Analysis

Figure 1 Max Company has developed the following standards for one of its products: The following activities occurred during the month of October: The company records materials price variances at the time of purchase. -Refer to Figure 1. Max's materials usage variance would be

Figure 1 Max Company has developed the following standards for one of its products: The following activities occurred during the month of October: The company records materials price variances at the time of purchase. -Refer to Figure 1. Max's labour rate variance would be

During December, 6,000 pounds of raw materials were purchased at a cost of £16 per pound. If there was an unfavorable materials price variance of £6,000 for December, the standard cost per pound must be

The standard fixed overhead rate is calculated as

If variable overhead is applied based on direct labour hours and there is an unfavorable labour efficiency variance,

The labour rate variance is calculated as

Figure 1 Max Company has developed the following standards for one of its products: The following activities occurred during the month of October: The company records materials price variances at the time of purchase. -Refer to Figure 1. Max's materials price variance would be

The labour efficiency variance is calculated as

Figure 1 Max Company has developed the following standards for one of its products: The following activities occurred during the month of October: The company records materials price variances at the time of purchase. -Refer to Figure 1. Max's variable standard cost per unit would be

The two variances for variable overhead are

During September, 40,000 units of product were produced. The standard quantity of material allowed per unit was four pounds at a standard cost of £6.00 per pound. If there was a favorable materials usage variance of £30,000 for April, the actual quantity of materials used must be

Who is responsible for unfavorable labour efficiency variances caused by poor quality materials?

If a company was concerned with controlling expenditures on overhead items, which variance would be useful?

During May, 6,000 pounds of raw materials were purchased at a cost of £2.60 per pound. If there was a favorable materials price variance of £900 for December, the standard cost per pound must be

labour efficiency variances may be caused by

During April, 80,000 units of product were produced. The standard quantity of material allowed per unit was two pounds at a standard cost of £5 per pound. If there was a favorable materials usage variance of £40,000 for April, the actual quantity of materials used must have been

labour rate variances can be the result of

Using more highly skilled direct labourers might affect which of the following variances?

A 5 percent wage increase for all factory employees would affect which of the following variances?

During October, 16,000 direct labour hours were worked at a standard cost of £6 per hour. If the labour rate variance for October was £4,000 unfavorable, the actual cost per labour hour must be