Deck 24: Standard Cost Systems

Question 1

In a standard cost system,actual costs are charged to work in process as they are incurred.

Answer 1

False

Question 2

In setting standard costs,management's expectations are that the standard costs will always be met.

Answer 2

False

Question 3

A materials price variance is arrived at by taking standard quantity times actual price,less standard price.

Answer 3

False

Question 4

A materials quantity variance is the standard price times standard quantity,less actual quantity.

Question 5

Standard costs are established only for direct labor and direct materials.

Question 6

In most companies using standard cost procedures,the costs charged to Work in Process,Finished Goods,and Cost of Goods Sold are the actual costs,not the standard costs.

Question 7

Standard costs actually are ideal costs per unit.

Question 8

In setting standards,management's level of performance expectation must be something less than ideal.

Question 9

In a standard cost system actual costs are recorded in Material,Direct Labor,and Overhead accounts,but standard costs are charged to Work in Process.

Question 10

The use of excessive quantities of material in manufacturing a product causes an unfavorable materials quantity variance.

Question 11

A favorable variance would be credited to a cost variance account.

Question 12

A standard cost is predetermined,that is,determined before actual costs of the current period have been computed.

Question 13

A favorable materials price variance indicates that actual prices paid in acquiring materials were more than standard prices.

Question 14

Standard cost systems are generally compatible with job cost systems or with process cost systems.

Question 15

Standard costs are typically reviewed once per year.

Question 16

A good standard cost system should always generate unfavorable variances.

Question 17

A standard cost is the per unit cost actually incurred under normal operating conditions.

Question 18

A labor efficiency variance relates to the number of hours actually worked,compared to the standard hours.

Question 19

The materials price variance is calculated by multiplying the difference between actual unit price and standard unit price,by the standard units purchased.

Question 20

The level of production plays an important role in determining cost standards.

Question 21

When standard costs are used in a cost accounting system:

A)A favorable cost variance results when standard amounts are less than actual costs.
B)Cost variances are shown in the year-end balance sheet as assets,if favorable,or as liabilities,if unfavorable.
C)Costs charged to the Work in Process Inventory,Finished Goods Inventory,and Cost of Goods Sold accounts are actual costs.
D)Costs charged to the Work in Process Inventory,Finished Goods Inventory,and Cost of Goods Sold accounts are at standard costs.

Question 22

An unfavorable cost variance will be debited to a cost variance account.

Question 23

In a system designed to measure cost variances,goods transferred from the Work in Process account to the Finished Goods Inventory are valued at:

A)Actual cost.
B)Market value.
C)Standard cost.
D)The lower of actual cost or market value.

Question 24

Which of the following is not an advantage of using a standard cost system?

A)It eliminates the need for analysis of variances.
B)It facilitates establishing an effective system of responsibility accounting.
C)It requires an analysis of all aspects of operations.
D)It helps management control costs.

Question 25

The purchasing manager is often included in evaluating cost variances.

Question 26

A variance is said to be unfavorable when actual costs exceed standard costs.

Question 27

External auditors are often called upon to evaluate cost variances.

Question 28

A difference between a standard cost and an actual cost would be recorded in the Work in Process account.

Question 29

The presence of fixed costs in manufacturing overhead causes the actual amount of manufacturing overhead per unit of output to vary,depending on the actual production volume attained.

Question 30

Standard costs:

A)May be used in job order cost systems but not in process cost accounting systems.
B)Should be revised upward when actual costs are higher than expected because of waste and inefficiency.
C)Are the same for all companies in a given industry.
D)Are the costs that should be incurred to produce a product under normal conditions.

Question 31

A favorable variance occurs when actual costs are less than standard costs.

Question 32

Which statement is true regarding a standard cost system?

A)Both actual and standard costs are used.
B)Only standard costs are used.
C)If variances occur,then something negative in the operations has occurred.
D)Standards are used only when actual amounts are not available.

Question 33

It is possible for the overhead volume variance to be favorable and the overhead spending variance to be unfavorable.

Question 34

The company's CEO is the only person who analyzes costs variances.

Question 35

In evaluating cost variances,the accounting department determines whether variances are favorable or unfavorable.

Question 36

A spending variance results from incurring more overhead costs than allowed for the actual level of activity achieved.

Question 37

A standard cost is the per-unit cost incurred under:

A)Ideal operating conditions.
B)Perfect operating conditions.
C)Normal,but efficient operating conditions.
D)Minimally acceptable operating conditions.

Question 38

In establishing standard costs for labor,management must look at all of the following except:

A)Time allowed to produce each product.
B)Direct labor requirements for each product.
C)The wage rate of a direct laborer.
D)The quantity of materials for each product.

Question 39

An important advantage of a standard cost system is that standard costs:

A)Cause financial statements to be more comparable because different companies cost their inventories in the same manner.
B)Can be determined with great precision so that inventories are valued with complete accuracy.
C)Cause a lower net income,resulting in lower income taxes.
D)Focus attention on trouble spots and facilitate prompt corrective action.

Question 40

A total cost variance for materials can be caused by differences in the quantity used,or in the price paid,but not by both.

Question 41

There will be a favorable materials price variance if:

A)The standard price per unit is less than the actual price per unit.
B)The standard price per unit is greater than the actual price per unit.
C)The actual quantity purchased is greater than expected.
D)The actual quantity purchased is less than expected.

Question 42

If the actual cost per pound of direct material is less than the standard cost per pound,there is:

A)A favorable materials price variance.
B)An unfavorable materials price variance.
C)A favorable materials quantity variance.
D)A favorable total materials variance.

Question 43

There is an unfavorable labor efficiency variance when:

A)Actual hours are greater than standard hours.
B)Actual hours are less than standard hours.
C)The standard rate per hour is greater than the actual rate per hour.
D)The standard rate per hour is less than the actual rate per hour.

Question 44

The calculation of the labor rate variance is:

A)Standard rate multiplied by (standard hours minus actual hours).
B)Standard hours multiplied by (standard rate minus actual rate).
C)Actual labor hours multiplied by (standard rate minus actual rate).
D)Actual rate multiplied by (standard hours minus actual hours).

Question 45

If the hourly wage rate actually paid during January is higher than the standard rate,the result is:

A)An unfavorable labor rate variance.
B)A favorable labor rate variance.
C)An unfavorable labor efficiency variance.
D)A favorable total labor variance.

Question 46

Controlling the materials quantity variance is usually the responsibility of:

A)The cost accountant.
B)The purchasing agent.
C)The marketing director.
D)The production supervisor.

Question 47

If the standard quantity of materials is 84,500 units @ $0.15 per unit and the actual quantity is 95,000 units @ $0.12 per unit,then the total materials cost variance is:

A)$2,850 Favorable.
B)$1,575 Unfavorable.
C)$1,275 Favorable.
D)$2,850 Unfavorable.

Question 48

Using more direct labor hours for units produced than the amount allowed by the standard results in:

A)An unfavorable total labor variance.
B)An unfavorable labor efficiency variance,regardless of the wage rate paid to employees.
C)An unfavorable labor efficiency variance only if the wage rate is higher than standard cost allowed.
D)A favorable labor rate variance,because the hourly wage rate is automatically reduced when workers operate less efficiently.

Question 49

The calculation of the labor efficiency variance is:

A)Standard hourly rate multiplied by (standard hours minus actual hours).
B)Standard hours multiplied by (standard rate minus actual rate).
C)Actual labor hours multiplied by (standard rate minus actual rate).
D)Actual rate multiplied by (standard hours minus actual hours).

Question 50

The use of inexpensive,low quality,materials often results in:

A)A favorable materials quantity variance.
B)A favorable labor rate variance.
C)An unfavorable materials quantity variance.
D)An unfavorable materials price variance.

Question 51

If the standard quantity of materials is 84,500 units @ $0.15 per unit and the actual quantity is 95,000 units @ $0.12 per unit,then the materials quantity variance is:

A)$2,850 Favorable.
B)$1,575 Unfavorable.
C)$1,275 Favorable.
D)$2,850 Unfavorable.

Question 52

Favorable standard cost variances are normally closed at the end of the period by:

A)Crediting the variance account and debiting Cost of Goods Sold.
B)Debiting the variance account and crediting Cost of Goods Sold.
C)Debiting the variance account and crediting Work in Process.
D)Crediting the variance account and debiting Work in Process.

Question 53

Excessive overtime hours worked by direct labor workers often results in:

A)An unfavorable labor rate variance.
B)A favorable labor rate variance.
C)A favorable materials price variance.
D)An unfavorable materials price variance.

Question 54

Unfavorable standard cost variances are normally closed at the end of the period by:

A)Debiting the variance account and crediting Cost of Goods Sold.
B)Crediting the variance account and debiting Cost of Goods Sold.
C)Debiting the variance account and crediting Work in Process.
D)Crediting the variance account and debiting Work in Process.

Question 55

If the standard quantity of materials is 84,500 units @ $0.15 per unit and the actual quantity is 95,000 units @ $0.12 per unit,then the journal entry to record the cost of materials used includes:

A)A debit to Work in Process Inventory of $11,400.
B)A debit to Work in Process Inventory of $12,675.
C)A debit to Materials Price variance of $2,850.
D)A credit to Materials Price variance of $1,575.

Question 56

If the standard quantity of materials is 84,500 units @ $0.15 per unit and the actual quantity is 95,000 units @ $0.12 per unit,then the materials price variance is:

A)$2,850 Favorable.
B)$1,575 Unfavorable.
C)$1,275 Favorable.
D)$2,850 Unfavorable.

Question 57

If actual direct labor cost was $7,560 and standard labor cost was $7,000,the journal entry to record this would include:

A)A credit to the labor rate variance account of $560 and a credit to Direct Labor of $7,000.
B)A debit to the labor rate variance account of $560 and a debit to Direct Labor of $7,000.
C)A credit to the labor rate variance account of $560 and a debit to Direct Labor of $7,560.
D)A debit to the labor rate variance account of $560 and a credit to Direct Labor of $7,560.

Question 58

Greenleaf's flexible budget for June,based on actual output,called for the use of 10,000 square feet of materials at a standard cost of $9.90 per square foot.Company records show that the actual price paid for the materials used in June was $9.70 per square foot,and that the direct materials price variance for the month was $2,090 favorable.The materials quantity variance for Greenleaf's June operations was:

A)$1,000 favorable.
B)$4,455 unfavorable.
C)$4,365 favorable.
D)Impossible to determine from the data given.

Question 59

Controlling the materials price variance is usually the responsibility of:

A)The purchasing agent.
B)The marketing director.
C)The production supervisor.
D)The cost accountant.

Question 60

If the actual amount of direct materials used in production was less than the standard amount allowed for units produced,there was:

A)A favorable materials price variance.
B)A favorable total materials variance.
C)A favorable materials quantity variance.
D)An unfavorable materials quantity variance.

Question 61

An unfavorable overhead volume variance results from:

A)An unfavorable overhead spending variance.
B)Poor decisions made by the production manager.
C)Producing at levels of output which exceed normal output levels.
D)Producing at levels of output which fall short of normal output levels.

Question 62

A large favorable variance from standard costs at the end of the year should be:

A)Carried forward to the next fiscal year.
B)Shown as other income in the income statement.
C)Added to cost of goods sold in the income statement.
D)Allocated between ending inventories and cost of goods sold.

Question 63

EJB Company used a "normal" production level of 10,000 units to determine the standard per-unit cost of manufacturing overhead.Which of the following is not true?

A)There is no overhead volume variance for a given month if actual production that month is 10,000 units.
B)When actual production exceeds 10,000 units,use of standard costs results in a favorable overhead volume variance.
C)When actual production is less than 10,000 units,use of standard costs results in an unfavorable total overhead variance.
D)Overhead variances arising as a result of producing more or less than 10,000 units do not indicate either strong or poor performance by the Production Department.

Question 64

Establishing standard cost amounts
Explain why the determination of standard cost amounts should not be the sole responsibility of a company's cost accountant.

Question 65

Accounting terminology
Listed below are seven technical accounting terms introduced or emphasized in this chapter: Each of the following statements may (or may not)describe one of these technical terms.In the space provided beside each statement,indicate the accounting term described,or answer "None" if the statement does not correctly describe any of the terms.
____ (a)A materials variance which is the responsibility of the Purchasing Department.
____ (b)The variance which exists whenever actual production levels differ from normal levels.
____ (c)Unit costs expected to be incurred under normal conditions.
____ (d)A labor variance caused by a difference between standard and actual hours required to complete a task.
____ (e)The variance caused by incurring more overhead costs than allowed for at a given level of production.

Question 66

The Victor Corporation has been incurring favorable overhead volume variances in each of the last several months.These persistent favorable variances indicate:

A)Victor's management is unusually efficient.
B)The overhead application rate should be revised upward.
C)Monthly output is consistently under budget.
D)Monthly output is consistently over that budgeted.

Question 67

Overhead volume variances indicate:

A)Efficient performance.
B)Inefficient performance.
C)Fluctuations in the level of production from month to month.
D)Inadequate budgeting.

Question 68

Standard costs
Define standard costs.Under what conditions should previously established standard costs be revised?

Question 69

Standard cost system materials variances
Levron Corporation manufactures a line of cosmetics.The standard price of the ingredients in its beauty cream is $7 per ounce; the standard amount of material allowed per jar is 1.25 ounces.During December,5,300 jars were produced,requiring 6,784 ounces of ingredients at a total direct materials cost of $37,312.
(a)Calculate the materials price variance for December.Indicate whether it is favorable (F)or unfavorable (U).$__________
(b)Who is responsible for this variance? _________
(c)Calculate the materials quantity variance for December.Indicate whether it is favorable (F)or unfavorable (U).$__________
(d)What is Levron Corporation's total materials variance for December? Indicate whether it is favorable (F)or unfavorable (U).$__________

Question 70

Dawson Company has a union contract which calls for an 8% cost of living increase in the wages paid to all factory workers as of July 1 of the current year.This suggests that:

A)The labor rate variance for July will be unfavorable.
B)The labor rate variances during the first half of the current year have been favorable.
C)The standard labor cost per unit should be revised as of July 1.
D)The labor efficiency variance for July will be unfavorable.

Question 71

A large unanticipated reduction in the property taxes on a company's factory would,all other things equal,most likely cause:

A)A favorable overhead spending variance.
B)An unfavorable overhead spending variance.
C)A favorable overhead volume variance.
D)An unfavorable overhead volume variance.

Question 72

The total overhead variance is the difference between:

A)Budgeted overhead and applied overhead.
B)Actual overhead and budgeted overhead.
C)Actual overhead and applied overhead.
D)Applied overhead and budgeted overhead.

Question 73

If fewer units are produced than had been estimated when standard unit costs were determined,there would normally be:

A)A favorable labor efficiency (usage)variance.
B)An unfavorable overhead volume variance.
C)A favorable materials quantity variance.
D)An unfavorable overhead spending variance.

Question 74

An unfavorable volume variance in a factory is generally:

A)The responsibility of the production manager.
B)Viewed as an idle capacity loss.
C)The result of actual volume exceeding normal volume.
D)Treated as part of the controllable factory overhead variance.

Question 75

An unfavorable labor efficiency variance is most likely to occur if:

A)Employees are paid at an overtime wage rate.
B)Employees are inefficient and units must be reworked.
C)Labor cost per unit exceeds materials costs per unit.
D)Employee turnover rates are low.

Question 76

In a standard cost system,finished goods are reported in:

A)The balance sheet at standard cost.
B)The balance sheet at actual cost.
C)The income statement at standard cost.
D)The income statement at actual cost.

Question 77

Factory overhead variances are usually recorded when:

A)Overhead is applied to Work in Process.
B)Goods are finished and transferred to finished goods inventory.
C)Goods are sold.
D)Actual factory overhead costs are incurred.

Question 78

A supervisor's salary is an example of:

A)Direct labor.
B)Variable factory overhead.
C)A standard cost.
D)Fixed manufacturing costs.

Question 79

An unfavorable labor rate variance could most likely result from all of the following except:

A)Producing at levels of output which exceed normal output levels.
B)Using highly skilled laborers to perform tasks normally performed by unskilled laborers.
C)Having laborers work excessive overtime hours.
D)Using outdated standard cost figures.

Question 80

The overhead spending variance:

A)Occurs automatically whenever actual production levels differ from the "normal" production level used to compute the standard overhead cost per unit.
B)Is the difference between amounts spent for actual manufacturing overhead costs and the amount applied to production.
C)Is computed as the difference between variable overhead per the flexible budget and actual variable overhead costs incurred.
D)Is the portion of the total overhead variance that is considered "controllable" by the production manager.