Question 1

If variable manufacturing overhead is applied based on direct labor-hours,it is impossible to have a favorable labor rate variance and unfavorable variable overhead rate variance for the same period.

Accepted Answer

It is possible to have a favorable labor rate variance and an unfavorable variable overhead rate variance for the same period if the actual variable overhead incurred is more than the applied variable overhead based on direct labor-hours. This can happen if there are inefficiencies in the production process which result in more hours being worked than planned, leading to a higher actual variable overhead cost.

Question 2

Waste on the production line will result in an unfavorable materials price variance.

Accepted Answer

Materials price variance is calculated based on the difference between the actual price paid for materials and the standard (expected) price, not the amount of waste on the production line. Waste affects the materials quantity or usage variance, not the price variance.

Question 3

In general,the production manager is responsible for the materials price variance.

Accepted Answer

The materials price variance is typically the responsibility of the purchasing department, as it relates to the costs negotiated and paid for raw materials, not the production process managed by the production manager.

Question 4

If skilled workers with high hourly rates of pay are given duties that require little skill and call for lower hourly rates of pay,this will result in a favorable labor rate variance.

Accepted Answer

If skilled workers are given duties that require little skill, it is not utilizing their full potential and can result in inefficiencies and higher costs in the long run. This will lead to an unfavorable labor rate variance.

Question 5

The standard price per unit for direct materials should reflect the final,delivered cost of the materials.

Accepted Answer

The standard price per unit for direct materials should reflect the final, delivered cost of the materials in order to accurately reflect the true cost of production.

Question 6

The materials price variance is computed based on the amount of materials purchased during the period.

Accepted Answer

The materials price variance is calculated by comparing the actual price paid for materials to the standard price that was set for the materials. It does not take into account the quantity of materials purchased. The materials quantity variance is used to calculate the impact that the amount of materials purchased has on the cost of production.

Question 7

The labor efficiency variance is labeled favorable (F)if the actual hours used is less than the standard hours allowed for the actual output.

Accepted Answer

This is the definition of a favorable labor efficiency variance.

Question 8

An unfavorable materials quantity variance occurs when the actual quantity used in production is less than the standard quantity allowed for the actual output of the period.

Accepted Answer

An unfavorable materials quantity variance occurs when the actual quantity used in production is more than the standard quantity allowed for the actual output of the period.

Question 9

The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output,multiplied by the fixed part of the predetermined overhead rate.

Accepted Answer

The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output, multiplied by the variable part of the predetermined overhead rate, not the fixed part.

Question 10

The variable overhead efficiency variance does not actually measure how efficiently variable manufacturing overhead resources were used.

Accepted Answer

The variable overhead efficiency variance measures how efficiently the actual level of the variable manufacturing overhead resources used compares to the standard level that should have been used given the actual level of output. It does not take into account the efficiency with which those resources were used.

Question 11

When more hours of labor time are necessary to complete a job than the standard allows,the labor efficiency variance is unfavorable.

Accepted Answer

When more hours of labor time are required than the standard, the actual hours of work exceed the expected hours, resulting in an unfavorable labor efficiency variance.

Question 12

The standard labor rate per hour should not include any employment taxes.

Accepted Answer

The standard labor rate per hour typically includes employment taxes along with other costs, as it represents the total cost of employing a worker per hour, not just their base wage.

Question 13

If demand is insufficient to keep everyone busy and workers are not laid off,an unfavorable (U)variable overhead efficiency variance often will be a result unless managers build excessive inventories.

Accepted Answer

If demand is insufficient, but workers are not laid off, there will be less work to do and they may work less efficiently, resulting in an unfavorable variable overhead efficiency variance. To avoid this, managers may choose to build up excessive inventories, which can be costly and may not be sustainable in the long term.

Question 14

The labor rate variance measures the difference between the actual hourly rate and the standard hourly rate,multiplied by the standard hours allowed for the actual output.

Accepted Answer

The labor rate variance measures the difference between the actual hourly rate and the standard hourly rate, multiplied by the actual hours worked, not the standard hours allowed for the actual output.

Question 15

A quantity standard indicates how much of an input should be used to make a unit of product or provide a unit of service.

Accepted Answer

A quantity standard sets a specific amount of input that should be used to produce a unit of output or deliver a unit of service. It helps organizations determine the most efficient and effective way to use resources in their production processes.

Question 16

The variable overhead efficiency variance measures the difference between the actual level of activity and the standard activity allowed for the actual output,multiplied by the variable part of the predetermined overhead rate.

Accepted Answer

This statement accurately describes the variable overhead efficiency variance.

Question 17

When the materials price variance is recorded at the time of purchase,raw materials are recorded as inventory at standard cost.

Accepted Answer

This is because the materials price variance is calculated based on the difference between actual cost and standard cost, and is recorded at the time of purchase. Therefore, raw materials are recorded as inventory at standard cost, until the variance is calculated and adjusted accordingly.

Question 18

Material price variances are often isolated at the time materials are purchased,rather than when they are placed into production,to facilitate earlier recognition of variances.

Accepted Answer

Material price variances are typically identified when materials are purchased to allow for faster recognition of any deviations from the expected cost. This can help companies identify and address the root cause of any price variances more quickly.

Question 19

If the actual hourly rate is greater than the standard hourly rate,the labor rate variance is labeled unfavorable (U).

Accepted Answer

This statement is true. If the actual hourly rate is greater than the standard hourly rate, it means the company is paying more for labor than it had budgeted for, resulting in a negative variance which is labeled unfavorable (U).

Question 20

If demand is insufficient to keep everyone busy and workers are not laid off,a favorable (F)labor efficiency variance often will be a result.

Accepted Answer

A favorable labor efficiency variance occurs when the actual hours worked are less than the standard hours allowed for the output achieved. If demand is insufficient and workers are not laid off, they may work more hours than necessary for the reduced output, leading to an unfavorable labor efficiency variance, not a favorable one.

Quiz 10: Standard Costs and Variances