Question 1

Bi-land Company
Bi-land Company's standard cost is $150,000. The allowable deviation is ±10%. The actual costs for six months are as follows: $$\begin{array} { l l } 
\text { January } & \$ 130,000 \
\text { February } & \$ 120,000 \
\text { March } & \$ 145,000 \
\text { April } & \$ 160,000 \
\text { May } & \$ 170,000 \
\text { June } & \$ 180,000
\end{array}$$
-Refer to Bi-land Company. How many months resulted in a variance that is lower than the lower control limit?

Accepted Answer

The lower control limit is $150,000 - 10% = $135,000. Only February's actual cost of $120,000 is below the lower control limit.

Question 2

Min Company
Min Company has developed the following standards for one of its products. $$\begin{array} { l l } 
\text { Direct materials: } & 15 \mathrm {~kg} \times \$ 17.50 \text { per kilogram } \
\text { Direct labour: } & 4 \text { hours } \times \$ 24 \text { per hour } \
\text { Variable manufacturing overhead: } & 4 \text { hours } \times \$ 14 \text { per hour }
\end{array}$$ The following activity occurred during the month of November: $\begin{array}{ll}
\text { Materials purchased: } & 20,000 \mathrm{~kg} \text { costing } \$ 340,000 \
\text { Materials used: } & 7,200 \mathrm{~kg} \
\text { Units produced: } & 500 \text { units } \
\text { Direct labour: } & 2,300 \text { hours at } \$ 23.60 \text { per hour }
\end{array}$ The company records materials price variances at the time of purchase.
-What is the direct materials price variance?

Accepted Answer

The answer of Min Company
Min Company has developed the following...

Question 3

Refer to RJB Builders. What was the materials price variance?

Accepted Answer

The answer of Refer to RJB Builders. What was the...

Question 4

Refer to RJB Builders. What was the materials usage variance?

Accepted Answer

The materials usage variance is calculated as the difference between the actual quantity of materials used and the standard quantity of materials allowed, multiplied by the standard price per unit. In this case, the actual quantity of materials used was 10,000 units, the standard quantity of materials allowed was 9,500 units, and the standard price per unit was $2. Therefore, the materials usage variance is (10,000 - 9,500) * $2 = $2,000 U.

Question 5

Refer to Cakers Express. Assuming the company found that it had an unfavourable materials price variance of $1,000, what is the standard cost of flour?

Accepted Answer

The answer of Refer to Cakers Express. Assuming the company...

Question 6

During August, 40,000 units were produced. The standard quantity of material allowed per unit was 5 kg at a standard cost of $2.50 per kilogram. Suppose the company had a favourable usage variance of $25,000. What would have been the actual quantity of materials used?

Accepted Answer

The answer of During August, 40,000 units were produced. The...

Question 7

Refer to Royal Company. What is the material usage variance?

Accepted Answer

The answer of Refer to Royal Company. What is the...

Question 8

What is characteristic of direct materials variances?

Accepted Answer

In direct materials variances, the materials usage variance uses the actual quantity of materials used, while the materials price variance uses the actual price paid per unit of materials purchased. Therefore, choice B is correct as it correctly states that the materials price variance uses the actual quantity of materials purchased rather than the actual quantity of materials used. Choices A, C, and D have incorrect statements.

Question 9

Bi-land Company
Bi-land Company's standard cost is $150,000. The allowable deviation is ±10%. The actual costs for six months are as follows: $$\begin{array} { l l } 
\text { January } & \$ 130,000 \
\text { February } & \$ 120,000 \
\text { March } & \$ 145,000 \
\text { April } & \$ 160,000 \
\text { May } & \$ 170,000 \
\text { June } & \$ 180,000
\end{array}$$
-Refer to Bi-land Company. What are the upper and lower control limits, respectively?

Accepted Answer

The upper control limit is $150,000 + 10% of $150,000 = $165,000, and the lower control limit is $150,000 - 10% of $150,000 = $135,000.

Question 10

Refer to Cakers Express. Assuming the company found that it had a favourable materials price variance of $1,000, what is the flour's standard cost per kilogram?

Accepted Answer

The answer of Refer to Cakers Express. Assuming the company...

Question 11

What is characteristic of the use of materials variance information?

Accepted Answer

The use of materials variance information is primarily concerned with tracking the difference between the actual usage of materials and the expected usage, which is the responsibility of the production manager. The materials price variance is concerned with the difference between the actual cost of materials and the expected cost, which is the responsibility of the purchasing department. While the purchasing department may be concerned with minimizing scrap, waste, and rework, this is not specifically related to the use of materials variance information.

Question 12

Refer to Risco Company. Assuming the company determined that it had a favourable materials usage variance of $2,000, what was the actual quantity of materials used? (Round your answer to the nearest kg)

Accepted Answer

The answer of Refer to Risco Company. Assuming the company...

Question 13

Which formula is used to calculate the materials price variance?

Accepted Answer

The materials price variance is calculated by comparing the actual price paid for materials to the standard price, multiplied by the actual quantity purchased.

Question 14

During November, Rubix Company produced 10,000 units. The standard quantity of material allowed per unit was 10 kg at a standard cost of $3 per kilogram. Suppose the company had an unfavourable usage variance of $18,750 for November. What would have been the actual quantity of materials used?

Accepted Answer

The standard quantity of material allowed is 10,000 units * 10 kg/unit = 100,000 kg. The usage variance is calculated as (Actual Quantity - Standard Quantity) * Standard Cost. Given an unfavorable variance of $18,750, we solve for Actual Quantity: (Actual Quantity - 100,000 kg) * $3 = $18,750, which gives Actual Quantity = 106,250 kg.

Question 15

Which statement best describes the material price variance?

Accepted Answer

The material price variance is the difference between the actual cost of a quantity of material and its expected or standard cost, taking into account any difference in the actual unit price and the standard unit price. This variance is calculated by multiplying the actual quantity purchased by the difference between the actual unit price and the standard unit price. Therefore, option C is the correct choice as it states that the material price variance is the difference between the actual and standard unit price of an input multiplied by the number of inputs purchased.

Question 16

Which statements best describes a characteristic of variances?

Accepted Answer

Unfavourable variances occur when actual prices or usage exceed standard prices or usage, indicating higher costs than planned.

Question 17

Which formula is used to calculate the materials usage variance?

Accepted Answer

The answer of Which formula is used to calculate the...

Question 18

Bi-land Company
Bi-land Company's standard cost is $150,000. The allowable deviation is ±10%. The actual costs for six months are as follows: $$\begin{array} { l l } 
\text { January } & \$ 130,000 \
\text { February } & \$ 120,000 \
\text { March } & \$ 145,000 \
\text { April } & \$ 160,000 \
\text { May } & \$ 170,000 \
\text { June } & \$ 180,000
\end{array}$$
-Refer to Bi-land Company. How many months resulted in a variance that is higher than the upper control limit?

Accepted Answer

The upper control limit is $150,000 + 10% of $150,000 = $165,000. The months with costs higher than this limit are May ($170,000) and June ($180,000), resulting in 2 months.

Question 19

Which statement best describes variances?

Accepted Answer

A favourable materials price variance means that materials were purchased at a lower price than expected. This could happen if a company found a cheaper supplier or negotiated a better deal with an existing supplier.

Answer: A
 A favourable labour rate variance means that the actual labour cost was lower than the budgeted labour cost. This could happen if lower wage workers were hired or if existing workers with higher wages quit.

Answer: D
 An unfavourable labour efficiency variance means that more hours were required to complete a job than anticipated. Using higher quality materials that result in fewer inspections would improve efficiency, resulting in a favourable labour efficiency variance. Therefore, it cannot be the correct answer.

Answer: C
 A favourable materials usage variance means that fewer materials were used than anticipated to produce a given output. Increased waste caused by not efficiently utilizing raw materials would result in more materials being used, making this statement incorrect.

Question 20

Refer to Risco Company. Suppose the actual cost was $87 per kilogram and the company purchased 27,500 kg of steel. All materials purchased were used. What is the materials usage variance?

Accepted Answer

The materials usage variance is calculated as the difference between the actual cost of materials used and the standard cost of materials used. In this case, the actual cost of materials used is $87 per kilogram * 27,500 kg = $2,382,500. The standard cost of materials used is $75 per kilogram * 27,500 kg = $2,062,500. Therefore, the materials usage variance is $2,382,500 - $2,062,500 = $320,000 U.

Quiz 10: Standard Costing: a Managerial Control Tool