Question 1

In developing a standard cost for direct materials, a price factor and a quantity factor must be considered.

Accepted Answer

This is true. In order to develop a standard cost for direct materials, both the price per unit of material and the quantity of material to be used in production must be considered. The price factor is based on the cost of the materials purchased, while the quantity factor reflects the amount of materials needed to produce one unit of product. Together, these factors are used to determine the standard cost for direct materials, which can then be used for cost control and variance analysis.

Question 2

Standard costs may be incorporated into the accounts in the general ledger.

Accepted Answer

Standard costs are used to establish expected costs for materials, labor, and overhead. These costs can be incorporated into the accounts in the general ledger to track actual costs versus expected costs and analyze variances.

Question 3

A materials quantity variance is calculated as the difference between the standard direct materials price and the actual direct materials price multiplied by the actual quantity of direct materials used.

Accepted Answer

A materials quantity variance is calculated as the difference between the standard quantity of materials that should have been used for the production output and the actual quantity used, multiplied by the standard price per unit of materials.

Question 4

Actual costs that vary from standard costs always indicate inefficiencies.

Accepted Answer

Actual costs can vary from standard costs due to a variety of factors, not just inefficiencies. These factors can include changes in market prices, unexpected events, or changes in production methods.

Question 5

An unfavorable labor quantity variance indicates that the actual number of direct labor hours worked was greater than the number of direct labor hours that should have been worked for the output attained.

Accepted Answer

An unfavorable labor quantity variance means that more direct labor hours were used than what was expected given the level of output achieved.

Question 6

Once set, normal standards should not be changed during the year.

Accepted Answer

Normal standards may need to be adjusted or revised throughout the year based on changing circumstances or new information. It is important to regularly review and update standards to ensure they are still relevant and effective.

Question 7

Standard cost cards are the subsidiary ledger for the Work in Process account in a standard cost system.

Accepted Answer

The answer of Standard cost cards are the subsidiary ledger...

Question 8

Inventories cannot be valued at standard cost in financial statements.

Accepted Answer

Inventories can be valued at standard cost in financial statements, but it may not always give an accurate reflection of their actual market value. Therefore, companies may use other methods, such as FIFO or LIFO, to value their inventories in financial statements.

Question 9

A variance is the difference between actual costs and standard costs.

Accepted Answer

A variance is defined as the difference between actual costs and standard costs in the context of cost accounting.

Question 10

Standard cost is the industry average cost for a particular item.

Accepted Answer

Standard cost is a predetermined cost calculated based on the company's own set of expectations and assumptions, and may differ from the industry average.

Question 11

An advantage of standard costs is that they simplify costing of inventories and reduce clerical costs.

Accepted Answer

Standard costs provide a predetermined cost for each product or service, making it easier to calculate inventory costs and reducing the need for extensive record-keeping and clerical work to determine individual costs.

Question 12

Normal standards incorporate normal contingencies of production into the standards.

Accepted Answer

Normal standards take into account the normal or expected contingencies and inefficiencies that occur during the production process. This helps to set realistic and achievable targets for the workers and management.

Question 13

Standard cost + price variance + quantity variance = Budgeted cost.

Accepted Answer

Standard cost + (price variance x actual quantity) + (quantity variance x standard price) = Actual cost. Budgeted cost is the estimated cost for a specific period or project, not the actual cost.

Question 14

The standard predetermined overhead rate must be based on direct labor hours as the standard activity index.

Accepted Answer

The standard predetermined overhead rate can be based on various activity indices such as machine hours, direct labor hours, direct labor cost, or any other measure that correlates with overhead costs, not just direct labor hours.

Question 15

Setting standard costs is relatively simple because it is done entirely by accountants.

Accepted Answer

Setting standard costs involves not only accountants, but also production managers, engineers, and other professionals who have a deep understanding of the manufacturing process and the cost drivers involved. It is a collaborative process involving multiple stakeholders.

Question 16

A standard is a unit amount, whereas a budget is a total amount.

Accepted Answer

The answer of A standard is a unit amount, whereas...

Question 17

Ideal standards will generally result in favorable variances for the company.

Accepted Answer

Ideal standards are set at levels that assume perfect efficiency and conditions, which are rarely met in practice, often leading to unfavorable variances when actual performance is compared to these high benchmarks.

Question 18

Normal standards should be rigorous but attainable.

Accepted Answer

Normal standards should be challenging enough to maintain quality and performance standards, but also realistic enough to be achievable by the people or organizations expected to meet them.

Question 19

A direct labor price standard is frequently called the direct labor efficiency standard.

Accepted Answer

A direct labor price standard is used to set the standard cost per unit of direct labor, while a direct labor efficiency standard is used to set the standard quantity of direct labor required to produce one unit of output.

Question 20

If actual costs are less than standard costs, the variance is favorable.

Accepted Answer

When actual costs are less than standard costs, it means that less money was spent than was anticipated, which is a favorable outcome. Therefore, the variance is considered favorable.

Quiz 25: Budgetary Control and Responsibility Accounting