Question 1

The direct labor time variance measures the efficiency of the direct labor force.

Accepted Answer

The direct labor time variance is a measure of the difference between the actual labor hours worked and the standard labor hours allowed for the actual output achieved. Therefore, it is an indicator of how efficiently the direct labor force is performing.

Question 2

Standard costs are determined by multiplying expected price by expected quantity.

Accepted Answer

This statement is true. Standard costs are determined by multiplying the expected price per unit by the expected quantity of units to be produced.

Question 3

The variance from standard for factory overhead resulting from incurring a total amount of factory overhead cost that is greater or less than the amount budgeted for the level of operations achieved is termed controllable variance.

Accepted Answer

This statement accurately describes controllable variance.

Question 4

A budget performance report compares actual results with the budgeted amounts and reports differences for possible investigation.

Accepted Answer

A budget performance report is a tool that compares actual results with budgeted amounts and highlights any differences. These differences are then investigated to determine the reasons and to take corrective action if needed.

Question 5

If the standard to produce a given amount of product is 600 direct labor hours at $17 and the actual was 500 hours at $15, the time variance was $1,500 unfavorable.

Accepted Answer

The question asks for the time variance, which is calculated by multiplying the difference in actual and standard hours by the standard rate. 
Time variance = (Actual hours - Standard hours) x Standard rate
Time variance = (500 - 600) x $17 = -$1,700 (unfavorable)
Therefore, the statement provided is false.

Question 6

While setting standards, the managers should never allow for spoilage or machine breakdowns in their calculations.

Accepted Answer

Managers should take into account possible spoilage or machine breakdowns during the setting of standards to ensure accurate and realistic standards are established. Ignoring these factors can result in unattainable or improper standards.

Question 7

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials price variance was $800 favorable.

Accepted Answer

To calculate the direct materials price variance, we use the following formula:

Direct Materials Price Variance = (Actual Quantity of Direct Materials Purchased x Actual Price) - (Actual Quantity of Direct Materials Purchased x Standard Price)

Plugging in the given values, we get:

Direct Materials Price Variance = (800 x $12) - (800 x $11) = $9,600 - $8,800 = $800 unfavorable

Therefore, the correct answer is B, not favorable as stated in the statement.

Question 8

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials quantity variance was $1,000 unfavorable.

Accepted Answer

The direct materials quantity variance formula is (Standard Quantity - Actual Quantity) x Standard Price. Using the given numbers, the variance should be calculated as (1,000 - 800) x $11 = $2,200 unfavorable. Therefore, the statement is false that the variance was $1,000 unfavorable.

Question 9

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials quantity variance was $2,200 unfavorable.

Accepted Answer

The direct materials quantity variance is calculated based on the difference in quantity, not price. The variance is (Standard Quantity - Actual Quantity) x Standard Price, which is (1000 - 800) x $11 = $2,200 favorable, not unfavorable.

Question 10

Because accountants have financial expertise, they are the only ones that are able to set standard costs for the production area.

Accepted Answer

While accountants play an important role in analyzing and reporting costs for the production area, standard costs are typically set collaboratively by cross-functional teams including production specialists, engineers, and cost accountants.

Question 11

The variance from standard for factory overhead cost resulting from operating at a level above or below 100% of normal capacity is termed volume variance.

Accepted Answer

This statement is true. The variance from standard for factory overhead cost resulting from operating at a level above or below 100% of normal capacity is called volume variance.

Question 12

Standards are designed to evaluate price and quantity variances separately.

Accepted Answer

Standards provide separate evaluations for price and quantity variances to help identify the causes of deviations from expected costs and volume levels. By analyzing these variances separately, managers can pinpoint specific areas of the production process that need improvement or corrective action.

Question 13

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials price variance was $800 unfavorable.

Accepted Answer

The direct materials price variance is calculated as (Actual Price - Standard Price) x Actual Quantity. Here, it is ($12 - $11) x 800 = $800 unfavorable.

Question 14

If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 500 hours at $17, the time variance was $1,700 unfavorable.

Accepted Answer

The given information provides information about the labor rate variance, not the time variance. The formula for the time variance is (actual hours - standard hours) x standard rate, which would be (500 - 600) x 15 = $-1,500, indicating an unfavorable variance.

Question 15

If the standard to produce a given amount of product is 2,000 units of direct materials at $12 and the actual was 1,600 units at $13, the direct materials quantity variance was $5,200 favorable.

Accepted Answer

The direct materials quantity variance formula is (Standard quantity - Actual quantity) x Standard price.

Using the information given: 
- Standard quantity: 2,000 units 
- Actual quantity: 1,600 units 
- Standard price: $12

Plugging these values into the formula: 
(2,000 - 1,600) x $12 = $4,800 favorable

Therefore, the correct answer is B, as the given answer of $5,200 favorable does not align with the actual calculation.

Question 16

If the standard to produce a given amount of product is 500 direct labor hours at $15 and the actual was 600 hours at $17, the rate variance was $1,200 favorable.

Accepted Answer

The information given only allows us to calculate the labor rate variance, which is calculated as (actual rate - standard rate) x actual hours. Using the given information, the labor rate variance would be calculated as ($17 - $15) x 600 = $1,200 unfavorable, not favorable. Therefore, the statement is false.

Question 17

Principle of exceptions allows managers to focus on correcting variances between standard costs and actual costs.

Accepted Answer

The principle of exceptions states that managers should focus on correcting significant variances or exceptions between standard costs and actual costs, rather than spending time and resources investigating every small variance. This allows managers to focus on areas where improvements can have the greatest impact on the success of the organization.

Question 18

A favorable cost variance occurs when actual cost is less than budgeted cost at actual volumes.

Accepted Answer

A favorable cost variance means that the actual cost of producing goods or services is less than what was budgeted for at the actual production volumes. Therefore, the statement is true.

Question 19

An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds actual cost.

Accepted Answer

An unfavorable cost variance occurs when actual cost exceeds budgeted cost at actual volumes.

Question 20

If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 600 hours at $17, the rate variance was $1,200 unfavorable.

Accepted Answer

The rate variance is calculated as (Actual Rate - Standard Rate) x Actual Hours. Here, it is ($17 - $15) x 600 = $1,200 unfavorable.

Quiz 23: Performance Evaluation Using Variances From Standard Costs