Question 1

Variance analysis involves computing the difference between standard and actual costs.

Accepted Answer

Variance analysis is a technique used to analyze the differences between standard and actual costs. It involves calculating the variance between the two costs and identifying the reasons for the variance. Therefore, the statement is true.

Question 2

The standard overhead cost is the sum of the estimates of variable and fixed overhead costs in the next accounting period.

Accepted Answer

The standard overhead cost is indeed calculated by adding together the estimated variable overhead costs and the estimated fixed overhead costs for a future accounting period. This provides a basis for budgeting and cost control.

Question 3

A standard unit cost can be determined after developing standard costs for direct materials,direct labor,and variable and fixed overhead.

Accepted Answer

Standard unit cost is the total of standard costs for direct materials, direct labor, and variable and fixed overhead. Once the standard costs for these components are developed, they are added together to arrive at the total standard unit cost.

Question 4

Comparing "what did happen" with "what should have happened" aids in the performance evaluation of a company.

Accepted Answer

Comparing "what did happen" with "what should have happened" helps to measure the gap between the actual performance and the desired performance, which is a crucial aspect of evaluating a company's performance. It provides insights into the areas that need improvement and helps in identifying the factors responsible for the deviations from the expected performance. Therefore, this statement is true.

Question 5

The purchasing agent is responsible for developing the direct materials quantity standard.

Accepted Answer

The purchasing agent may provide input and information for developing the direct materials quantity standard, but it is ultimately the responsibility of the production or operations manager.

Question 6

The standard fixed overhead rate is usually based on the expected number of standard labor hours.

Accepted Answer

The standard fixed overhead rate is typically based on the expected or budgeted amount of a chosen allocation base, such as machine hours, labor hours, or units produced, not specifically or exclusively on standard labor hours.

Question 7

Standard costing is typically an inexpensive component to add to a company's existing cost accounting system.

Accepted Answer

Standard costing can be complex and costly to implement and maintain, as it requires detailed analysis of production processes, materials, labor, and overhead costs to establish standard costs, and continuous monitoring and adjustment based on actual performance.

Question 8

Cost centers have well-defined links between the cost of the resources and the resulting products.

Accepted Answer

Cost centers are used to track the costs of specific activities or departments within an organization. The costs of these activities are then allocated to the products or services that are produced by the organization. This allows managers to see how much it costs to produce each product or service, and to make decisions about how to allocate resources more efficiently.

Question 9

Standard costs are realistically predetermined costs of direct materials,direct labor,and overhead that usually are expressed as a cost per unit.

Accepted Answer

This statement is true. Standard costs are predetermined costs that represent the expected costs of producing a unit of a product or providing a service, and they typically include the cost of direct materials, direct labor, and overhead. Standard costs can be useful for setting prices, analyzing variances, and making decisions based on cost information.

Question 10

Standard costing can be used only with a process costing system.

Accepted Answer

Standard costing can be used with both process and job costing systems. It involves setting predetermined standards for direct material, direct labor, and overhead costs, and then comparing actual costs to these standards to identify variances. This can be done in both process and job costing systems.

Question 11

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

Accepted Answer

A variance is the difference between what was expected to be spent (standard cost) and what was actually spent (actual cost).

Question 12

The flexible budget formula is an equation that determines budgeted costs for any level of output.

Accepted Answer

The flexible budget formula is designed to calculate budgeted costs for different levels of output. It allows organizations to adjust their expenses as per the changes in their production volumes. The formula involves calculating variable costs per unit of output and multiplying them by the projected level of activity to determine the total variable cost. Then, fixed costs are added to calculate the total budgeted cost for a particular level of production.

Question 13

If standard costing is not economically feasible for a company,predetermined overhead rates should not be used.

Accepted Answer

If standard costing is not economically feasible for a company, predetermined overhead rates may be a viable alternative. However, the company needs to carefully assess its overhead costs and its costing system to ensure that the predetermined rates accurately reflect the actual overhead expenses. Failure to do so can result in distortions in the cost of goods sold and profitability, which can lead to poor decision-making and financial performance.

Question 14

Corrective action is necessary even if a variance is insignificant.

Accepted Answer

Corrective action is typically reserved for significant variances that impact the project's objectives, budget, or timeline. Insignificant variances may be monitored but do not usually require immediate corrective action.

Question 15

Although expensive to install and maintain,a standard cost accounting system can save a company considerable amounts of money by reducing resource waste.

Accepted Answer

While the initial costs of setting up and maintaining a cost accounting system can be high, such a system can ultimately help a company identify inefficient processes and reduce waste, resulting in cost savings in the long run.

Question 16

Standard costs are based solely on actual costs incurred in past.

Accepted Answer

Standard costs are established based on expected costs for materials, labor, and overhead in the future, not solely on actual costs incurred in the past.

Question 17

Flexible budgets are also called static budgets.

Accepted Answer

Flexible budgets are not the same as static budgets. A flexible budget is adjusted based on actual activity levels, whereas a static budget is fixed and does not change regardless of actual activity levels.

Question 18

When a manufacturing company employs standard costs,all costs affecting the three inventory accounts and the Cost of Goods Sold account are stated in terms of actual costs rather than in terms of standard costs incurred.

Accepted Answer

When a manufacturing company employs standard costs, costs affecting the three inventory accounts (raw materials, work-in-progress, and finished goods) and the Cost of Goods Sold account are stated in terms of standard costs incurred, not actual costs. Actual costs may be tracked separately for comparison to the standard costs.

Question 19

Predetermined overhead costs are the same as actual costs.

Accepted Answer

Predetermined overhead costs are estimated costs that are calculated before the actual costs are incurred. These estimates may not necessarily match the actual costs incurred during a given period, making them different from actual costs.

Question 20

The final step in variance analysis is taking appropriate corrective action.

Accepted Answer

Corrective action is necessary to address variances and improve performance. It involves making changes to processes, systems, or behaviors to reduce or eliminate the causes of variances. Therefore, the final step in variance analysis is taking appropriate corrective action.

Quiz 24: Standard Costing and Variance Analysis