Question 1

Figure 17-2
Rax Company has developed the following standards for one of its products:
Direct materials
12 pounds * £14 per pound
Direct labour
3 hours * £18 per hour
Variable overhead
3 hours * £8 per hour
The following activities occurred during the month of October: $\begin{array}{ll}
\text { Materials purchased } & 10,000 \text { pounds at } £ 13.60 \text { per pound } \
\text { Materials used } & 9,000 \text { pounds } \
\text { Units produced } & 800 \text { units } \
\text { Direct labour } & 2,500 \text { hours at } £ 19.00 \text { per hour } \
\text { Actual variable overhead } & £ 22,000
\end{array}$ The company records materials price variances at the time of purchase.
-Refer to Figure 17-2. Rax's materials price variance would be
A)£4,000 unfavourable.
B)£4,000 favourable.
C)£1,600 unfavourable.
D)£1,600 favourable.

Accepted Answer

The materials price variance is calculated as (Actual Price - Standard Price) * Actual Quantity Purchased. Here, it is (£13.60 - £14.00) * 10,000 = £4,000 favourable.

Question 2

Figure 17-2
Rax Company has developed the following standards for one of its products:
Direct materials
12 pounds * £14 per pound
Direct labour
3 hours * £18 per hour
Variable overhead
3 hours * £8 per hour
The following activities occurred during the month of October: $\begin{array}{ll}
\text { Materials purchased } & 10,000 \text { pounds at } £ 13.60 \text { per pound } \
\text { Materials used } & 9,000 \text { pounds } \
\text { Units produced } & 800 \text { units } \
\text { Direct labour } & 2,500 \text { hours at } £ 19.00 \text { per hour } \
\text { Actual variable overhead } & £ 22,000
\end{array}$ The company records materials price variances at the time of purchase.
-Refer to Figure 17-2. Rax's variable standard cost per unit would be
A)£78.
B)£192.
C)£246.
D)£222.

Accepted Answer

The variable standard cost per unit is calculated by adding the standard costs of direct materials, direct labor, and variable overhead per unit. Direct materials: 12 pounds * £14 = £168. Direct labor: 3 hours * £18 = £54. Variable overhead: 3 hours * £8 = £24. Total = £168 + £54 + £24 = £246.

Question 3

Figure 17-2
Rax Company has developed the following standards for one of its products:
Direct materials
12 pounds * £14 per pound
Direct labour
3 hours * £18 per hour
Variable overhead
3 hours * £8 per hour
The following activities occurred during the month of October: $\begin{array}{ll}
\text { Materials purchased } & 10,000 \text { pounds at } £ 13.60 \text { per pound } \
\text { Materials used } & 9,000 \text { pounds } \
\text { Units produced } & 800 \text { units } \
\text { Direct labour } & 2,500 \text { hours at } £ 19.00 \text { per hour } \
\text { Actual variable overhead } & £ 22,000
\end{array}$ The company records materials price variances at the time of purchase.
-Refer to Figure 17-2. Rax's labour rate variance would be
A)£4,300 favourable.
B)£4,300 unfavourable.
C)£2,500 favourable.
D)£2,500 unfavourable.

Accepted Answer

The labour rate variance is calculated as (Actual Rate - Standard Rate) * Actual Hours. Here, (19 - 18) * 2,500 = £2,500 unfavourable.

Question 4

Figure 17-1
Max Company has developed the following standards for one of its products: $\begin{array}{ll}
\text { Direct materials } & 15 \text { pounds } \times £ 16 \text { per pound } \
\text { Direct labour } & 4 \text { hours } \times £ 24 \text { per hour } \
\text { Variable overhead } & 4 \text { hours } \times £ 14 \text { per hour }
\end{array}$ The following activities occurred during the month of October: $\begin{array}{lc}
\text { Materials purchased } & 10,000 \text { pounds costing } £ 170,000 \
\text { Materials used } & 7,200 \text { pounds } \
\text { Units produced } & 500 \text { units } \
\text { Direct labour } & 2,300 \text { hours at } £ 23.60 \text { per hour } \
\text { Actual variable overhead } & £ 30,000
\end{array}$ The company records materials price variances at the time of purchase.
-Refer to Figure 17-1. Max's materials usage variance would be
A)£40,000 unfavourable.
B)£40,000 favourable.
C)£4,800 unfavourable.
D)£4,800 favourable.

Accepted Answer

The materials usage variance is calculated as (Standard Quantity - Actual Quantity) x Standard Price. Standard Quantity for actual production is 500 units x 15 pounds/unit = 7,500 pounds. Actual Quantity used is 7,200 pounds. Standard Price is £16/pound. Thus, (7,500 - 7,200) x £16 = 300 x £16 = £4,800 favourable, because less material was used than the standard amount.

Question 5

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 unfavourable, 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 a £4,000 unfavourable variance, this means the actual cost was higher than the standard. The calculation is £4,000 / 16,000 hours = £0.25 per hour over the standard £6.00, making the actual cost £6.25 per hour.

Question 6

During May, 6,000 pounds of raw materials were purchased at a cost of £2.60 per pound. If there was a favourable 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

A favourable 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, totalling £15,600. The favourable variance was £900, meaning the standard cost for the materials was higher than the actual cost by £900. To find the standard cost per pound, add the variance (£900) to the total actual cost (£15,600) to get the total standard cost (£16,500), and then divide by the quantity (6,000 pounds). This calculation gives a standard cost per pound of £2.75.

Question 7

Figure 17-1
Max Company has developed the following standards for one of its products: $\begin{array}{ll}
\text { Direct materials } & 15 \text { pounds } \times £ 16 \text { per pound } \
\text { Direct labour } & 4 \text { hours } \times £ 24 \text { per hour } \
\text { Variable overhead } & 4 \text { hours } \times £ 14 \text { per hour }
\end{array}$ The following activities occurred during the month of October: $\begin{array}{lc}
\text { Materials purchased } & 10,000 \text { pounds costing } £ 170,000 \
\text { Materials used } & 7,200 \text { pounds } \
\text { Units produced } & 500 \text { units } \
\text { Direct labour } & 2,300 \text { hours at } £ 23.60 \text { per hour } \
\text { Actual variable overhead } & £ 30,000
\end{array}$ The company records materials price variances at the time of purchase.
-Refer to Figure 17-1. Max's materials price variance would be
A)£50,000 favourable.
B)£50,000 unfavourable.
C)£10,000 unfavourable.
D)£10,000 favourable.

Accepted Answer

The answer of Figure 17-1
Max Company has developed the following...

Question 8

The volume variance provides information to management about
A)utilization of plant facilities.
B)cost control.
C)performance for evaluation purposes.
D)all of the above.

Accepted Answer

The answer of The volume variance provides information to management...

Question 9

Figure 17-2
Rax Company has developed the following standards for one of its products:
Direct materials
12 pounds * £14 per pound
Direct labour
3 hours * £18 per hour
Variable overhead
3 hours * £8 per hour
The following activities occurred during the month of October: $\begin{array}{ll}
\text { Materials purchased } & 10,000 \text { pounds at } £ 13.60 \text { per pound } \
\text { Materials used } & 9,000 \text { pounds } \
\text { Units produced } & 800 \text { units } \
\text { Direct labour } & 2,500 \text { hours at } £ 19.00 \text { per hour } \
\text { Actual variable overhead } & £ 22,000
\end{array}$ The company records materials price variances at the time of purchase.
-Refer to Figure 17-2. Rax's labour efficiency variance would be
A)£4,300 unfavourable.
B)£4,300 favourable.
C)£1,800 unfavourable.
D)£1,800 favourable.

Accepted Answer

The labor efficiency variance is calculated as (Actual Hours - Standard Hours) x Standard Rate. The standard hours for 800 units are 800 units x 3 hours/unit = 2,400 hours. The actual hours are 2,500 hours. Therefore, the variance is (2,500 - 2,400) x £18 = 100 hours x £18 = £1,800 unfavourable.

Question 10

Figure 17-1
Max Company has developed the following standards for one of its products: $\begin{array}{ll}
\text { Direct materials } & 15 \text { pounds } \times £ 16 \text { per pound } \
\text { Direct labour } & 4 \text { hours } \times £ 24 \text { per hour } \
\text { Variable overhead } & 4 \text { hours } \times £ 14 \text { per hour }
\end{array}$ The following activities occurred during the month of October: $\begin{array}{lc}
\text { Materials purchased } & 10,000 \text { pounds costing } £ 170,000 \
\text { Materials used } & 7,200 \text { pounds } \
\text { Units produced } & 500 \text { units } \
\text { Direct labour } & 2,300 \text { hours at } £ 23.60 \text { per hour } \
\text { Actual variable overhead } & £ 30,000
\end{array}$ The company records materials price variances at the time of purchase.
-Refer to Figure 17-1. Max's labour efficiency variance would be
A)£7,200 unfavourable.
B)£7,200 favourable.
C)£6,280 unfavourable.
D)£6,280 favourable.

Accepted Answer

The answer of Figure 17-1
Max Company has developed the following...

Question 11

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 favourable 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

To calculate the actual quantity of materials used, we need to first calculate the standard cost of materials allowed for the production of 80,000 units.

Standard quantity of material allowed per unit = 2 pounds 
Number of units produced in April = 80,000 
Total standard quantity of materials allowed = 2 pounds x 80,000 units = 160,000 pounds

Standard cost of materials allowed = Standard quantity of material allowed x Standard cost per pound 
= 160,000 pounds x £5 per pound 
= £800,000

Now we can use the favourable material usage variance to calculate the actual cost of materials used:

Favourable materials usage variance = Standard cost of materials allowed - Actual cost of materials used 
£40,000 = £800,000 - Actual cost of materials used

Actual cost of materials used = £800,000 - £40,000 = £760,000

To find the actual quantity of materials used:

Actual cost of materials used = Actual quantity of materials used x Actual cost per pound 
£760,000 = Actual quantity of materials used x Actual cost per pound

We don't have the actual cost per pound, but we do have the standard cost per pound, so we can use that to find the actual quantity of materials used:

Actual quantity of materials used = Actual cost of materials used ÷ Standard cost per pound 
= £760,000 ÷ £5 per pound 
= 152,000 pounds

Therefore, the actual quantity of materials used must have been 152,000 pounds, which is answer choice B.

Question 12

Figure 17-1
Max Company has developed the following standards for one of its products: $\begin{array}{ll}
\text { Direct materials } & 15 \text { pounds } \times £ 16 \text { per pound } \
\text { Direct labour } & 4 \text { hours } \times £ 24 \text { per hour } \
\text { Variable overhead } & 4 \text { hours } \times £ 14 \text { per hour }
\end{array}$ The following activities occurred during the month of October: $\begin{array}{lc}
\text { Materials purchased } & 10,000 \text { pounds costing } £ 170,000 \
\text { Materials used } & 7,200 \text { pounds } \
\text { Units produced } & 500 \text { units } \
\text { Direct labour } & 2,300 \text { hours at } £ 23.60 \text { per hour } \
\text { Actual variable overhead } & £ 30,000
\end{array}$ The company records materials price variances at the time of purchase.
-Refer to Figure 17-1. Max's variable standard cost per unit would be
A)£392.
B)£336.
C)£296.
D)£152.

Accepted Answer

The variable standard cost per unit is £392. This is calculated as follows:Direct materials: 15 pounds x £16 per pound = £240Direct labour: 4 hours x £24 per hour = £96Variable overhead: 4 hours x £14 per hour = £56Total variable standard cost per unit = £240 + £96 + £56 = £392

Question 13

The two variances for fixed overhead are
A)spending and efficiency variances.
B)efficiency and volume variances.
C)spending and volume variances.
D)budget and efficiency variances.

Accepted Answer

Fixed overhead variances include spending (or budget) variance, which compares the actual fixed overhead costs to the budgeted costs, and volume variance, which measures the difference between the budgeted fixed overhead and the applied fixed overhead based on standard hours allowed for the actual output.

Question 14

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 favourable 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 allowed for 40,000 units is 160,000 pounds (40,000 units * 4 pounds per unit). A favourable materials usage variance of £30,000 at a standard cost of £6.00 per pound means 5,000 pounds less material was used (since £30,000 / £6.00 per pound = 5,000 pounds). Therefore, the actual quantity of materials used is 160,000 pounds - 5,000 pounds = 155,000 pounds.

Question 15

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 variance
D)both b and c

Accepted Answer

The variable overhead spending variance compares the actual cost of a company's overhead items with the expected or budgeted cost, which is useful in controlling expenditures on overhead items. The fixed overhead volume variance and variable overhead efficiency variance are related to the volume of output produced and the efficiency of the production process, respectively, and are not as directly related to controlling overhead expenses.

Question 16

Figure 17-1
Max Company has developed the following standards for one of its products: $\begin{array}{ll}
\text { Direct materials } & 15 \text { pounds } \times £ 16 \text { per pound } \
\text { Direct labour } & 4 \text { hours } \times £ 24 \text { per hour } \
\text { Variable overhead } & 4 \text { hours } \times £ 14 \text { per hour }
\end{array}$ The following activities occurred during the month of October: $\begin{array}{lc}
\text { Materials purchased } & 10,000 \text { pounds costing } £ 170,000 \
\text { Materials used } & 7,200 \text { pounds } \
\text { Units produced } & 500 \text { units } \
\text { Direct labour } & 2,300 \text { hours at } £ 23.60 \text { per hour } \
\text { Actual variable overhead } & £ 30,000
\end{array}$ The company records materials price variances at the time of purchase.
-Refer to Figure 17-1. Max's labour rate variance would be
A)£920 unfavourable.
B)£920 favourable.
C)£800 unfavourable.
D)£800 favourable.

Accepted Answer

The labour rate variance is calculated as (Standard Rate - Actual Rate) x Actual Hours = (£24 - £23.60) x 2,300 = £0.40 x 2,300 = £920 favourable.

Question 17

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

Accepted Answer

Since variable overhead is applied based on direct labour hours, an unfavourable labour efficiency variance indicates that more labour hours were used than expected. This means that more variable overhead costs were incurred than expected for the actual level of production. Therefore, the variable overhead efficiency variance will be unfavourable. The materials usage variance and labour rate variance are not directly affected by the labour efficiency variance since they relate to the cost of materials and labour, respectively. The variable overhead spending variance relates to the difference between the actual and budgeted variable overhead costs, and is not affected by the level of labour efficiency.

Question 18

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 determined by dividing the budgeted fixed overhead for a period by the budgeted level of activity for that period, as this provides an estimate of the fixed overhead cost per unit of activity. Option A is incorrect because it uses actual fixed overhead instead of budgeted fixed overhead. Option C is incorrect because it uses actual activity instead of budgeted activity. Option D is incorrect because it uses only "overhead" instead of "fixed overhead."

Question 19

During December, 6,000 pounds of raw materials were purchased at a cost of £16 per pound. If there was an unfavourable 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 materials price variance is calculated as (actual price - standard price) x actual quantity. We know the actual quantity purchased was 6,000 pounds and the materials price variance was unfavourable for £6,000. Therefore:

-6,000 = (16 - standard price) x 6,000 
-6,000 = 96,000 - 6,000(standard price) 
6,000(standard price) = 102,000 
Standard price = £17

Therefore, the standard cost per pound must be £17.

Question 20

Figure 17-2
Rax Company has developed the following standards for one of its products:
Direct materials
12 pounds * £14 per pound
Direct labour
3 hours * £18 per hour
Variable overhead
3 hours * £8 per hour
The following activities occurred during the month of October: $\begin{array}{ll}
\text { Materials purchased } & 10,000 \text { pounds at } £ 13.60 \text { per pound } \
\text { Materials used } & 9,000 \text { pounds } \
\text { Units produced } & 800 \text { units } \
\text { Direct labour } & 2,500 \text { hours at } £ 19.00 \text { per hour } \
\text { Actual variable overhead } & £ 22,000
\end{array}$ The company records materials price variances at the time of purchase.
-Refer to Figure 17-2. Rax's materials usage variance would be
A)£8,400 unfavourable.
B)£8,400 favourable.
C)£5,600 unfavourable.
D)£5,600 favourable.

Accepted Answer

The materials usage variance is calculated as follows:Standard quantity of materials = 12 pounds per unit * 800 units = 9,600 poundsStandard price of materials = £14 per poundStandard cost of materials = 9,600 pounds * £14 per pound = £134,400Actual quantity of materials used = 9,000 poundsActual price of materials = £13.60 per poundActual cost of materials = 9,000 pounds * £13.60 per pound = £122,400Materials usage variance = Standard cost of materials - Actual cost of materials= £134,400 - £122,400= £8,400 favourable

Quiz 17: Standard Costing and Variance Analysis 1

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 unfavourable, the actual cost per labour hour must be

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

The volume variance provides information to management about

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 favourable materials usage variance of £40,000 for April, the actual quantity of materials used must have been

The two variances for fixed 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 favourable materials usage variance of £30,000 for April, the actual quantity of materials used must be

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

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

The standard fixed overhead rate is calculated as

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