Question 1

A company developed the following per unit materials standards for its product: 3 pounds of direct materials at $5 per pound. If 12,000 units of product were produced last month and 37,500 pounds of direct materials were used, the direct materials quantity variance was

Accepted Answer

Standard quantity of direct materials for 12,000 units = 3 pounds per unit x 12,000 units = 36,000 pounds
Direct materials quantity variance = Actual quantity of direct materials used - Standard quantity of direct materials allowed x Standard price per pound

= 37,500 pounds - 36,000 pounds x $5 per pound

= $7,500 unfavorable variance.

Question 2

Which one of the following describes the total overhead variance?

Accepted Answer

The total overhead variance is calculated as the difference between the actual overhead costs incurred and the overhead costs that were applied based on the standard cost system. This measures how well the company controlled its overhead costs in relation to what was expected or planned.

Question 3

Atkins, Inc. produces a product requiring 8 pounds of material at $1.50 per pound. Atkins produced 10,000 units of this product during 2016 resulting in a $30,000 unfavorable materials quantity variance. How many pounds of direct material did Atkins use during 2016?

Accepted Answer

The answer of Atkins, Inc. produces a product requiring 8...

Question 4

Which of the following is true?

Accepted Answer

Variance reports are internal documents that are specific to each company. The form, content, and frequency of these reports depend on the company's information needs and management preferences. Therefore, it is likely that these factors will vary among companies.

Question 5

Dillon has a standard of 1.5 pounds of materials per unit, at $6 per pound. In producing 2,000 units, Dillon used 3,100 pounds of materials at a total cost of $18,135. Dillon's materials quantity variance is

Accepted Answer

Materials quantity variance = (Standard quantity of materials - Actual quantity of materials) x Standard price per unit

Standard quantity of materials for 2,000 units = 2,000 units x 1.5 pounds per unit = 3,000 pounds

Materials quantity variance = (3,000 pounds - 3,100 pounds) x $6 per pound
                                      =  (-100 pounds) x $6 per pound
                                      = $600 unfavorable variance (U)

Question 6

Denmark Corporation's variance report for the purchasing department reports 1,000 units of material A purchased and 2,400 units of material B purchased. It also reports standard prices of $2 for Material A and $3 for Material B. Actual prices reported are $2.10 for Material A and $2.80 for Material B. Denmark should report a total price variance of

Accepted Answer

The total price variance is calculated by comparing the actual cost to the standard cost for the actual quantity of materials purchased. For Material A: (Actual Price - Standard Price) * Actual Quantity = ($2.10 - $2.00) * 1000 = $100 U. For Material B: (Actual Price - Standard Price) * Actual Quantity = ($2.80 - $3.00) * 2400 = $480 F. The total price variance is $480 F - $100 U = $380 F.

Question 7

Dillon has a standard of 2 hours of labor per unit, at $12 per hour. In producing 2,000 units, Dillon used 3,850 hours of labor at a total cost of $46,970. Dillon's labor price variance is

Accepted Answer

The labor price variance is calculated as (Actual Hours x Actual Rate) - (Actual Hours x Standard Rate). Here, the Actual Hours are 3850, and the Actual Rate can be found by dividing the total cost by the actual hours ($46970 / 3850 = $12.20). The Standard Rate is $12. So, the calculation is (3850 x $12.20) - (3850 x $12) = $59370 - $46200 = $770 Unfavorable.

Question 8

Manufacturing overhead costs are applied to work in process on the basis of

Accepted Answer

Manufacturing overhead costs are applied to work in process based on the standard hours allowed. This is because manufacturing overhead costs are indirect costs that cannot be traced directly to a specific unit of product, so they are allocated based on an estimated amount of time it should take to produce a unit (standard hours allowed). This method provides a more accurate reflection of the actual overhead costs incurred during production than using actual hours worked, which can be affected by various factors such as employee efficiency and downtime. Using the ratio of actual variable to fixed costs or actual overhead costs incurred would not provide an accurate reflection of the overhead costs associated with production.

Question 9

Shipp, Inc. manufactures a product requiring two pounds of direct material. During 2016, Shipp purchases 24,000 pounds of material for $99,200 when the standard price per pound is $4. During 2016, Shipp uses 22,000 pounds to make 12,000 products. The standard direct material cost per unit of finished product is

Accepted Answer

The total cost of direct material purchased in 2016 is $99,200. Dividing this by the total quantity purchased (24,000 pounds) gives the actual price per pound of material, which is $4.133. Since the standard price per pound is $4, it means that the company paid more than expected for the direct material.

The total quantity of direct material used during 2016 is 22,000 pounds. The standard direct material cost per unit of finished product is calculated as follows:

Standard direct material cost per unit = (Standard price per pound * Standard quantity per unit)

The standard quantity of direct material per unit is given as 2 pounds in the question. Therefore,

Standard direct material cost per unit = ($4 * 2) = $8

Therefore, the correct answer is C.

Question 10

The predetermined overhead rate for Zane Company is $5, comprised of a variable overhead rate of $3 and a fixed rate of $2. The amount of budgeted overhead costs at normal capacity of $150,000 was divided by normal capacity of 30,000 direct labor hours, to arrive at the predetermined overhead rate of $5. Actual overhead for June was $8,900 variable and $5,400 fixed, and 1,500 units were produced. The direct labor standard is 2 hours per unit produced. The total overhead variance is

Accepted Answer

The total overhead variance is calculated by comparing the actual overhead costs to the applied overhead based on the standard cost system. The applied overhead for 1500 units produced, at 2 hours per unit, is 3000 hours. At a predetermined rate of $5 per hour, the applied overhead is $15,000 ($5 * 3000 hours). The actual overhead is the sum of actual variable and fixed overheads, which is $8900 + $5400 = $14,300. The difference between the applied overhead ($15,000) and the actual overhead ($14,300) is $700, indicating a favorable variance since the actual costs were less than what was applied based on the standards.

Question 11

Dillon has a standard of 2 hours of labor per unit, at $12 per hour. In producing 2,000 units, Dillon used 3,850 hours of labor at a total cost of $46,970. Dillon's labor quantity variance is

Accepted Answer

Standard labor hours per unit = 2
Standard rate per hour = $12

Standard cost per unit = 2 x $12 = $24

Actual hours of labor = 3850
Actual cost of labor = $46970

Actual cost per unit = $46970 / 2000 = $23.485

Labor Quantity Variance = (Actual Hours - Standard Hours) x Standard Rate

= (3850 - 4000) x $12

= $1800 F

Question 12

Dillon has a standard of 2 hours of labor per unit, at $12 per hour. In producing 2,000 units, Dillon used 3,850 hours of labor at a total cost of $46,970. Dillon's total labor variance is

Accepted Answer

First, calculate the standard labor cost per unit:

2 hours/unit x $12/hour = $24/unit

Then, calculate the standard labor cost for the production of 2000 units:

$24/unit x 2000 units = $48,000

Next, calculate the actual labor cost for the production of 2000 units:

$46970

Finally, calculate the labor variance:

Actual labor cost - Standard labor cost
= $46970 - $48000
= $1030 F

Question 13

Dillon has a standard of 1.5 pounds of materials per unit, at $6 per pound. In producing 2,000 units, Dillon used 3,100 pounds of materials at a total cost of $18,135. Dillon's materials price variance is

Accepted Answer

The answer of Dillon has a standard of 1.5 pounds...

Question 14

Dillon has a standard of 1.5 pounds of materials per unit, at $6 per pound. In producing 2,000 units, Dillon used 3,100 pounds of materials at a total cost of $18,135. Dillon's total variance is

Accepted Answer

The answer of Dillon has a standard of 1.5 pounds...

Question 15

When is a variance considered to be 'material'?

Accepted Answer

A variance is considered to be 'material' when it is large compared to the actual cost. Material variances are significant enough to affect the decision-making process of management. The other options (infrequent, unfavorable, and could have been controlled more effectively) do not necessarily indicate whether a variance is material or not.

Question 16

The standard direct labor cost for producing one unit of product is 5 direct labor hours at a standard rate of pay of $20. Last month, 15,000 units were produced and 73,500 direct labor hours were actually worked at a total cost of $1,350,000. The direct labor quantity variance was

Accepted Answer

The direct labor quantity variance is calculated as (Actual Hours - Standard Hours) x Standard Rate. Standard hours for 15000 units = 15000 units * 5 hours/unit = 75000 hours. The variance is (73500 - 75000) x $20 = -1500 x $20 = -$30000, which is favorable because actual hours worked were less than the standard hours allowed.

Question 17

The predetermined overhead rate for Zane Company is $5, comprised of a variable overhead rate of $3 and a fixed rate of $2. The amount of budgeted overhead costs at normal capacity of $150,000 was divided by normal capacity of 30,000 direct labor hours, to arrive at the predetermined overhead rate of $5. Actual overhead for June was $9,500 variable and $6,050 fixed, and standard hours allowed for the product produced in June was 3,000 hours. The total overhead variance is

Accepted Answer

Actual hours worked = 3000
Actual variable overhead = $9500
Actual fixed overhead = $6050
Total actual overhead = $15550

Flexible overhead budget = Actual hours worked x predetermined overhead rate
Flexible overhead budget = 3000 x $5
Flexible overhead budget = $15000

Variance = Total actual overhead - Flexible overhead budget
Variance = $15550 - $15000
Variance = $550 U

Therefore, the total overhead variance is $550 U. Option C is correct.

Question 18

Clark Company manufactures a product with a standard direct labor cost of two hours at $18.00 per hour. During July, 2,000 units were produced using 4,200 hours at $18.30 per hour. The labor price variance was

Accepted Answer

The labor price variance is calculated as (Actual Hourly Rate - Standard Hourly Rate) x Actual Hours Worked. Here, it is ($18.30 - $18.00) x 4200 = $0.30 x 4200 = $1260 Unfavorable (U), because the actual rate is higher than the standard rate.

Question 19

Clark Company manufactures a product with a standard direct labor cost of two hours at $18.00 per hour. During July, 2,000 units were produced using 4,200 hours at $18.30 per hour. The labor quantity variance was

Accepted Answer

The answer of Clark Company manufactures a product with a...

Question 20

The total overhead variance is the difference between the

Accepted Answer

Total overhead variance measures the difference between actual overhead costs and overhead costs applied based on standard hours allowed.

Quiz 22: Standard Costs and Balanced Scorecard