Chapter 09 Standard Costing and Variances Answer Key
True / False Questions
1. A standard cost system records cost at their actual amounts.
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Learning Objective: 09-01 Describe the standard-setting process and explain how standard costs relate to budgets and
variances.
Topic: Standard cost systems
2. Easily attainable standards are the best for motivating individuals to work hard.
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Difficulty: 1 Easy
Learning Objective: 09-01 Describe the standard-setting process and explain how standard costs relate to budgets and
variances.
Topic: Ideal versus attainable standards
3. An ideal standard is one that can be achieved only under perfect conditions.
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Learning Objective: 09-01 Describe the standard-setting process and explain how standard costs relate to budgets and
variances.
Topic: Ideal versus attainable standards
9-1
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4. A quantity standard is the amount of input that should go into a single unit of the product or
service.
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Learning Objective: 09-01 Describe the standard-setting process and explain how standard costs relate to budgets and
variances.
Topic: Types of standards
5. A price standard is the price that should be paid per output unit for the input.
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Learning Objective: 09-01 Describe the standard-setting process and explain how standard costs relate to budgets and
variances.
Topic: Types of standards
6. A standard cost card shows what the company spent to produce each unit of product.
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Learning Objective: 09-01 Describe the standard-setting process and explain how standard costs relate to budgets and
variances.
Topic: Standard cost card
9-2
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7. When preparing a flexible budget, fixed costs should remain the same as on the master
budget.
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Learning Objective: 09-02 Prepare a flexible budget and show how total costs change with sales volume.
Topic: Master budget versus flexible budget
8. The flexible budget can be used as a benchmark for evaluating performance after the fact, as
part of the control process.
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Learning Objective: 09-02 Prepare a flexible budget and show how total costs change with sales volume.
Topic: Master budget versus flexible budget
9. A spending variance is calculated by comparing actual costs with the static budget.
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Learning Objective: 09-02 Prepare a flexible budget and show how total costs change with sales volume.
Topic: Using the flexible budget to compute spending and volume variances
9-3
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10. The direct material quantity variance is the difference between the actual quantity and the
standard quantity of materials multiplied by the actual price.
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Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
11. The production manager is typically responsible for the direct labor rate variance.
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Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
12. The variable overhead rate variance is the difference between the actual variable overhead
rate and the standard variable overhead rate multiplied by the actual value of the cost driver.
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Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
13. Fixed overhead does not have separate price and quantity variances.
9-4
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Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead spending variance
14. The fixed overhead volume variance is the difference between actual production volume and
actual sales volume.
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Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead volume variance
15. A standard cost system initially records manufacturing costs at the standard rather than the
actual amount.
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Learning Objective: 09-S2 Prepare journal entries to record standard costs and variances.
Topic: Recording standard costs and variances in a standard cost system
Multiple Choice Questions
16. Which of the following types of standards can be achieved only under perfect conditions?
A. Easily attainable standard
C. Currently attainable standard
D. Tight but attainable standard
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Difficulty: 1 Easy
Learning Objective: 09-01 Describe the standard-setting process and explain how standard costs relate to budgets and
variances.
Topic: Ideal versus attainable standards
17. To foster continuous improvement, standards should ________________ over time.
A. remain stable
C. decrease in difficulty
D. become ideal
To foster continuous improvement, standards should increase in difficulty over time.
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Learning Objective: 09-01 Describe the standard-setting process and explain how standard costs relate to budgets and
variances.
Topic: Ideal versus attainable standards
18. Which of the following statements is correct about the way managers set standards for
employees?
A. The standards managers set for employee productivity should be based on ideal conditions
to encourage employees to push themselves.
B. Eliminating breaks, downtime, and maintenance time from set standards is an excellent
way to motivate employees.
C. High employee turnover results in higher standards over the long run because weak or
underperforming employees are replaced with high performing employees.
preventable maintenance, employee breaks, and training.
Managers should set standards that account for training, downtime, and maintenance. To do
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Learning Objective: 09-01 Describe the standard-setting process and explain how standard costs relate to budgets and
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Topic: Ideal versus attainable standards
9-6
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19. Standard cost systems depend on which two types of standards?
B. Quantity and efficiency standards
C. Rate and price standards
D. Rate and spending standards
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Learning Objective: 09-01 Describe the standard-setting process and explain how standard costs relate to budgets and
variances.
Topic: Types of standards
20. The standard costs are summarized on a:
A. static cost card.
B. flexible budget card.
C. standard cost card.
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Learning Objective: 09-01 Describe the standard-setting process and explain how standard costs relate to budgets and
variances.
Topic: Standard cost card
21. How do managers and companies set price and quantity standards?
A. Based on a manager’s previous experience at another company.
C. Based on the ideal budget created for the operating division.
D. Based on prior period variances.
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Learning Objective: 09-01 Describe the standard-setting process and explain how standard costs relate to budgets and
variances.
Topic: Standard cost card
22. A quantity standard is:
A. the total dollar amount that a company expects to spend to achieve a given level of output.
B. a form that shows what the company should spend to make a single unit of product.
C. the price that should be paid for a specific quantity of input.
D. the amount of input that should be used in each unit of product or service.
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Learning Objective: 09-01 Describe the standard-setting process and explain how standard costs relate to budgets and
variances.
Topic: Types of standards
23. The standard labor rate is:
A. the expected hourly cost of labor, excluding employee taxes and benefits.
C. the amount of time that workers should take to produce a single unit of product.
D. the amount of time that workers should take to produce a single unit of product times the
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Learning Objective: 09-01 Describe the standard-setting process and explain how standard costs relate to budgets and
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Topic: Types of standards
9-8
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24. A budget that is based on a single estimate of sales volume is called a:
B. flexible budget.
C. variable budget.
D. sunk cost budget.
A static budget is a budget that is based on a single estimate of sales volume.
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Learning Objective: 09-02 Prepare a flexible budget and show how total costs change with sales volume.
Topic: Master budget versus flexible budget
25. A budget depends upon:
A. only the level of output.
B. only the input standards.
C. both the level of output as well as the input standards.
D. neither the level of output nor the input standards.
A budget depends on both input standards and output level.
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Difficulty: 2 Medium
Learning Objective: 09-02 Prepare a flexible budget and show how total costs change with sales volume.
Topic: Master budget versus flexible budget
9-9
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27. Delaware Corp. prepared a master budget that included $21,360 for direct materials, $33,600
for direct labor, $18,000 for variable overhead, and $46,440 for fixed overhead. Delaware
Corp. planned to sell 4,000 units during the period, but actually sold 4,300 units. What would
Delaware’s direct materials cost be if it used a flexible budget for the period based on actual
sales?
A. $19,870
B. $21,360
C. $22,962
D. $91,848
Direct materials cost ($21,360) divided by units budgeted (4,000), multiplied by actual units
sold (4,300) is $22,962. ($21,360/4,000) × 4,300 = $22,962
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Learning Objective: 09-02 Prepare a flexible budget and show how total costs change with sales volume.
Topic: Master budget versus flexible budget
9-11
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31. Delaware Corp. prepared a master budget that included $21,360 for direct materials, $33,600
for direct labor, $18,000 for variable overhead, and $46,440 for fixed overhead. Delaware
Corp. planned to sell 4,000 units during the period, but actually sold 4,300 units. What would
Delaware’s total costs be if it used a flexible budget for the period based on actual sales?
A. $111,070
B. $119,400
C. $124,872
D. $128,355
Compute the per-unit cost for the budgeted costs that change with volume (direct materials,
direct labor, and variable overhead), and then multiply that amount by the actual number of
units sold. Add the result to fixed overhead (which doesn’t change as volume changes) to
calculate the result. {[($21,360 + $33,600 + $18,000)/4,000] × 4,300} + $46,440 = $124,872
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Learning Objective: 09-02 Prepare a flexible budget and show how total costs change with sales volume.
Topic: Using the flexible budget to compute spending and volume variances
36. ________ variances are calculated by comparing the master budget to the flexible budget, and
___________ variances are calculated by comparing actual costs to the flexible budget (not
the master budget).
A. Volume, volume
B. Volume, spending
C. Spending, volume
D. Spending, spending
Volume variances are calculated by comparing the master budget to the flexible budget (to
identify changes in volume), while spending variances are calculated by comparing actual
costs to the flexible budget (not the master budget) to identify spending changes without
distorting those changes by volume differences.
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Learning Objective: 09-02 Prepare a flexible budget and show how total costs change with sales volume.
Topic: Using the flexible budget to compute spending and volume variances
9-14
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38. The formula AQ × (SP – AP) is the:
A. direct materials spending variance.
B. direct materials volume variance.
D. direct materials quantity variance.
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Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
39. The formula SP × (SQ – AQ) is the:
A. direct materials spending variance.
B. direct materials volume variance.
C. direct materials price variance.
D. direct materials quantity variance.
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Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
40. The difference between the actual price and the standard price, multiplied by the actual
quantity of materials purchased is the:
A. direct materials spending variance.
B. direct materials volume variance.
D. direct materials quantity variance.
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Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
41. The difference between the actual quantity and the standard quantity, multiplied by the
standard price is the:
A. direct materials spending variance.
B. direct materials volume variance.
C. direct materials price variance.
D. direct materials quantity variance.
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Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
42. Who would typically be responsible for the direct material quantity variance?
B. The purchasing manager
C. The human resources manager
D. The chief financial officer
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Topic: Direct materials variances
9-16
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43. Exeter has a material standard of 1 pound per unit of output. Each pound has a standard price
of $26 per pound. During July, Exeter paid $66,100 for 2,475 pounds, which it used to produce
2,350 units. What is the direct materials price variance?
B. $1,300 favorable
C. $6,300 unfavorable
D. $5,000 unfavorable
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Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
44. Exeter has a material standard of 1 pound per unit of output. Each pound has a standard price
of $26 per pound. During July, Exeter paid $66,100 for 2,475 pounds, which it used to produce
2,350 units. What is the direct materials quantity variance?
A. $1,750 unfavorable
B. $1,300 favorable
D. $4,550 unfavorable
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Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
45. Oxford Co. has a material standard of 2.1 pounds per unit of output. Each pound has a
standard price of $10 per pound. During February, Oxford Co. paid $57,220 for 4,840 pounds,
which were used to produce 2,400 units. What is the direct materials price variance?
A. $6,820 unfavorable
C. $8,820 favorable
D. $6,820 favorable
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Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
46. Oxford Co. has a material standard of 2.1 pounds per unit of output. Each pound has a
standard price of $10 per pound. During February, Oxford Co. paid $57,220 for 4,840 pounds,
which were used to produce 2,400 units. What is the direct materials quantity variance?
A. $2,000 unfavorable
C. $6,820 favorable
D. $6,820 unfavorable
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Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
47. Cooper Company has a direct material standard of 2 gallons of input at a cost of $7.50 per
gallon. During July, Cooper Company purchased and used 13,000 gallons, paying $93,200.
The direct materials quantity variance was $1,500 unfavorable. How many units were
produced?
A. 13,000 units
B. 6,600 units
C. 6,214 units
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Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
9-18
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48. Scarlett Company has a direct material standard of 3 gallons of input at a cost of $5 per gallon.
During July, Scarlett Company purchased and used 7,500 gallons. The direct materials
quantity variance was $750 unfavorable and the direct materials price variance was $3,000
favorable. How many units were produced?
B. 2,500 units
C. 7,350 units
D. 7,500 units
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Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
49. Scarlett Company has a direct material standard of 3 gallons of input at a cost of $5 per gallon.
During July, Scarlett Company purchased and used 7,500 gallons. The direct material quantity
variance was $750 unfavorable and the direct material price variance was $3,000 favorable.
What price per gallon was paid for the purchases?
A. $5.00
B. $5.40
D. $2.50
The price variance is favorable so standard price is greater than actual price. $3,000 = 7,500 ×
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Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
9-19
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50. Which of the following statements is true about variances?
A. Positive variances (i.e., those with a positive sign) are always favorable.
B. Positive variances (i.e., those with a positive sign) are always unfavorable.
C. Negative variances (i.e., those with a negative sign) are always favorable.
and whether the variance is positive or negative.
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Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
51. The price variance for direct labor is called the:
B. direct labor price variance.
C. indirect labor variance.
D. direct labor quantity variance.
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Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
52. The formula AH × (SR – AR) is the:
A. direct labor spending variance.
B. direct labor volume variance.
D. direct labor efficiency variance.
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Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
53. The formula SR × (SH – AH) is the:
A. direct labor spending variance.
B. direct labor volume variance.
C. direct labor rate variance.
D. direct labor efficiency variance.
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Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
54. The difference between the actual labor rate and the standard labor rate, multiplied by the
actual labor hours is the:
A. direct labor spending variance.
B. direct labor volume variance.
D. direct labor efficiency variance.
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Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
9-21
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55. The difference between the actual labor hours and the standard labor hours, multiplied by the
standard labor rate is the:
A. direct labor spending variance.
B. direct labor volume variance.
C. direct labor rate variance.
D. direct labor efficiency variance.
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Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
56. Whitman has a direct labor standard of 2 hours per unit of output. Each employee has a
standard wage rate of $22.50 per hour. During July, Whitman paid $94,750 to employees for
4,445 hours worked. 2,350 units were produced during July. What is the flexible budget
amount for direct labor?
B. $189,500
C. $200,025
D. $211,500
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Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
9-22
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57. Madrid Co. has a direct labor standard of 4 hours per unit of output. Each employee has a
standard wage rate of $11 per hour. During February, Madrid Co. paid $99,500 to employees
for 9,150 hours worked. 2,400 units were produced during February. What is the flexible
budget amount for direct labor?
A. $26,400
B. $99,500
C. $100,650
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Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
58. Whitman has a direct labor standard of 2 hours per unit of output. Each employee has a
standard wage rate of $22.50 per hour. During July, Whitman paid $94,750 to employees for
4,445 hours worked. 2,350 units were produced during July. What is the direct labor rate
variance?
A. $11,000.00 favorable
B. $5,737.50 favorable
D. $10,525.00 unfavorable
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Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
9-23
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59. Whitman has a direct labor standard of 2 hours per unit of output. Each employee has a
standard wage rate of $22.50 per hour. During July, Whitman paid $94,750 to employees for
4,445 hours worked. 2,350 units were produced during July. What is the direct labor efficiency
variance?
A. $11,000.00 favorable
C. $5,262.50 favorable
D. $5,262.50 unfavorable
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Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
60. Madrid Co. has a direct labor standard of 4 hours per unit of output. Each employee has a
standard wage rate of $11 per hour. During February, Madrid Co. paid $99,500 to employees
for 9,150 hours worked. 2,400 units were produced during February. What is the direct labor
rate variance?
B. $4,950 favorable
C. $6,100 favorable
D. $302 favorable
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Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
9-24
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61. Madrid Co. has a direct labor standard of 4 hours per unit of output. Each employee has a
standard wage rate of $11 per hour. During February, Madrid Co. paid $99,500 to employees
for 9,150 hours worked. 2,400 units were produced during February. What is the direct labor
efficiency variance?
A. $1,150 favorable
C. $6,100 favorable
D. $302 favorable
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Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
62. Swan Company has a direct labor standard of 15 hours per unit of output. Each employee has
a standard wage rate of $14 per hour. During March, employees worked 13,100 hours. The
direct labor rate variance was $9,170 favorable, the direct labor efficiency variance was
$15,400 unfavorable. How many units were produced?
A. 873 units
B. 655 units
C. 1,100 units
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Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
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63. Swan Company has a direct labor standard of 15 hours per unit of output. Each employee has
a standard wage rate of $14 per hour. During March, employees worked 13,100 hours. The
direct labor rate variance was $9,170 favorable, the direct labor efficiency variance was
$15,400 unfavorable. What was the actual payroll?
A. $183,400
B. $168,000
D. $192,570
The rate variance is favorable, so standard rate is greater than actual rate. $9,170 = ($14 ×
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Difficulty: 3 Hard
Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
64. In a standard cost system, overhead is applied per unit by multiplying the ___________
overhead rate times the ____________ quantity of the cost driver.
A. actual, actual
B. actual, standard
D. standard, actual
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Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
9-26
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65. The overall difference between the actual and applied manufacturing overhead is the:
B. overhead rate variance.
C. overhead efficiency variance.
D. overhead volume variance.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
66. The difference between the actual variable overhead rate and the standard variable overhead
rate, multiplied by the actual amount of the cost driver, is the:
B. variable overhead efficiency variance.
C. variable overhead volume variance.
D. over- or underapplied variance.
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
67. The difference between the actual cost driver amount and the standard cost driver amount,
multiplied by the standard variable overhead rate is the:
A. variable overhead rate variance.
C. variable overhead volume variance.
D. over- or underapplied variance.
AICPA: FN Measurement
9-27
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
68. Raven applies overhead based on direct labor hours. The variable overhead standard is 2
hours at $11 per hour. During July, Raven spent $116,700 for variable overhead. 8,890 labor
hours were used to produce 4,700 units. How much is variable overhead on the flexible
budget?
A. $56,400
B. $97,790
D. $116,700
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
69. Jupiter Co. applies overhead based on direct labor hours. The variable overhead standard is 4
hours at $12 per hour. During February, Jupiter Co. spent $113,400 for variable overhead.
9,150 labor hours were used to produce 2,400 units. How much is variable overhead on the
flexible budget?
A. $28,800
B. $109,800
C. $113,400
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
9-28
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70. Raven applies overhead based on direct labor hours. The variable overhead standard is 2
hours at $11 per hour. During July, Raven spent $116,700 for variable overhead. 8,890 labor
hours were used to produce 4,700 units. What is the variable overhead rate variance?
A. $13,300 unfavorable
B. $6,650 unfavorable
D. $13,300 favorable
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
71. Raven applies overhead based on direct labor hours. The variable overhead standard is 2
hours at $11 per hour. During July, Raven spent $116,700 for variable overhead. 8,890 labor
hours were used to produce 4,700 units. What is the variable overhead efficiency variance?
B. $46,090 favorable
C. $18,910 favorable
D. $18,910 unfavorable
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
72. Jupiter Co. applies overhead based on direct labor hours. The variable overhead standard is 4
hours at $12 per hour. During February, Jupiter Co. spent $113,400 for variable overhead.
9,150 labor hours were used to produce 2,400 units. What is the variable overhead rate
variance?
B. $3,600 favorable
C. $5,400 favorable
D. $1,800 favorable
9-29
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AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
73. Jupiter Co. applies overhead based on direct labor hours. The variable overhead standard is 4
hours at $12 per hour. During February, Jupiter Co. spent $113,400 for variable overhead.
9,150 labor hours were used to produce 2,400 units. What is the variable overhead efficiency
variance?
A. $3,600 unfavorable
B. $3,600 favorable
D. $1,800 favorable
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
74. Jupiter Co. applies overhead based on direct labor hours. The variable overhead standard is 4
hours at $12 per hour. During February, Jupiter Co. spent $113,400 for variable overhead.
9,150 labor hours were used to produce 2,400 units. What is the over- or underapplied
variable overhead?
A. $3,600 underapplied
B. $3,600 overapplied
C. $5,400 overapplied
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
9-30
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75. Venus Company applies overhead based on direct labor hours. The variable overhead
standard is 10 hours at $3.50 per hour. During October, Venus Company spent $157,600 for
variable overhead. 47,440 labor hours were used to produce 4,800 units. What is the over- or
underapplied variable overhead?
B. $8,440 overapplied
C. $8,440 underapplied
D. $1,960 overapplied
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
76. Venus Company applies overhead based on direct labor hours. The variable overhead
standard is 10 hours at $3.50 per hour. During October, Venus Company spent $157,600 for
variable overhead. 47,440 labor hours were used to produce 4,800 units. What is the variable
overhead rate variance?
B. $1,960 favorable
C. $10,400 favorable
D. $1,960 unfavorable
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
9-31
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77. Venus Company applies overhead based on direct labor hours. The variable overhead
standard is 10 hours at $3.50 per hour. During October, Venus Company spent $157,600 for
variable overhead. 47,440 labor hours were used to produce 4,800 units. What is the variable
overhead efficiency variance?
A. $8,440 favorable
C. $10,400 favorable
D. $1,960 unfavorable
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
78. Bonnie Company has a direct labor standard of 15 hours per unit of output. Each employee
has a standard wage rate of $14 per hour. The standard variable overhead rate is $10 per
hour. During March, employees worked 13,100 hours. The direct labor rate variance was
$9,170 favorable, the variable overhead rate variance was $13,100 unfavorable, and the direct
labor efficiency variance was $15,400 unfavorable. What is the variable overhead efficiency
variance?
A. $13,100 unfavorable
C. $24,100 unfavorable
D. $11,000 favorable
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
9-32
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79. Bonnie Company has a direct labor standard of 15 hours per unit of output. Each employee
has a standard wage rate of $14 per hour. The standard variable overhead rate is $10 per
hour. During March, employees worked 13,100 hours. The direct labor rate variance was
$9,170 favorable, the variable overhead rate variance was $13,100 unfavorable, and the direct
labor efficiency variance was $15,400 unfavorable. What is the actual variable overhead?
A. $117,900
B. $131,000
D. $183,400
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
80. The difference between the actual fixed manufacturing overhead cost and the budgeted fixed
manufacturing overhead cost is the:
B. fixed overhead volume variance.
C. fixed overhead rate variance.
D. fixed overhead efficiency variance.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead spending variance
9-33
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81. Fletcher has budgeted fixed overhead of $135,000 based on budgeted production of 9,000
units. During July, 9,400 units were produced and $142,800 was spent on fixed overhead.
What is the fixed overhead spending variance?
B. $1,800 unfavorable
C. $1,800 favorable
D. $6,000 favorable
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead spending variance
82. Tucker Co. has budgeted fixed overhead of $225,000 based on budgeted production of 7,500
units. During February, 7,200 units were produced and $233,400 was spent on fixed overhead.
What is the fixed overhead spending variance?
B. $9,000 unfavorable
C. $17,400 unfavorable
D. $600 favorable
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead spending variance
83. Warner Company has budgeted fixed overhead of $225,000 based on budgeted production of
7,500 units. During October, 7,200 units were produced and $236,400 was spent on fixed
overhead. What is the fixed overhead spending variance?
B. $9,000 unfavorable
C. $20,400 unfavorable
D. $20,400 favorable
AICPA: FN Measurement
9-34
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Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead spending variance
84. Dill has a fixed overhead spending variance of $3,900 unfavorable. During July, Dill budgeted
production of 4,500 units, it actually produced 4,700 units, and it actually spent $71,400 on
fixed overhead. How much was budgeted fixed overhead?
B. $68,362
C. $71,400
D. $75,300
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead spending variance
85. Avon Co. has a favorable fixed overhead spending variance of $2,800. During February, Avon
budgeted to produce 2,500 units, it actually produced 2,400 units, and it budgeted $75,000 for
fixed overhead. How much was actually spent on fixed overhead?
A. $72,000
C. $75,000
D. $77,800
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead spending variance
9-35
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86. The fixed overhead volume variance is the difference between:
A. Actual fixed overhead and budgeted fixed overhead.
B. Actual fixed overhead and applied fixed overhead.
C. Applied fixed overhead and budgeted fixed overhead.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead volume variance
87. The difference between the actual volume and the budgeted volume, multiplied by the fixed
overhead rate based on budgeted volume, is the:
A. fixed overhead spending variance.
B. fixed overhead price variance.
C. fixed overhead efficiency variance.
D. fixed overhead volume variance.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead volume variance
88. A fixed overhead rate based on _______________ highlights for management attention the
cost of unutilized capacity.
A. budgeted production
C. utilized capacity
D. actual production
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
9-36
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Difficulty: 1 Easy
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead volume variance
89. The difference between budgeted volume and practical capacity, multiplied by the fixed
overhead rate, is the:
B. unexpected (unplanned) capacity variance.
C. total capacity variance.
D. volume variance.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead volume variance
90. The difference between actual volume and budgeted production, multiplied by the fixed
overhead rate based on practical capacity, is the:
A. expected (planned) capacity variance.
C. total capacity variance.
D. volume variance.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead volume variance
9-37
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91. The difference between budgeted volume and practical capacity, multiplied by the fixed
overhead rate, is the:
A. expected (planned) capacity variance.
B. unexpected (unplanned) capacity variance.
D. volume variance.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead volume variance
92. Beech has budgeted fixed overhead of $202,500 based on budgeted production of 13,500
units. During July, 14,100 units were produced and $214,200 was spent on fixed overhead.
What is the budgeted fixed overhead rate?
A. $14.36
C. $15.19
D. $15.89
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead volume variance
93. Beech has budgeted fixed overhead of $202,500 based on budgeted production of 13,500
units. During July, 14,100 units were produced and $214,200 was spent on fixed overhead.
What is the fixed overhead volume variance?
A. $11,700 unfavorable
B. $1,800 unfavorable
C. $1,800 favorable
AICPA: FN Measurement
9-38
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Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead volume variance
94. Warner Co. has budgeted fixed overhead of $150,000. Practical capacity is 6,000 units, and
budgeted production is 5,000 units. During February, 4,800 units were produced and $155,600
was spent on fixed overhead. What is the budgeted fixed overhead rate based on practical
capacity?
A. $31.12
B. $31.25
C. $30.00
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead volume variance
95. Warner Co. has budgeted fixed overhead of $150,000. Practical capacity is 6,000 units, and
budgeted production is 5,000 units. During February, 4,800 units were produced and $155,600
was spent on fixed overhead. What is the expected (planned) capacity variance?
A. $5,600 unfavorable
C. $30,000 unfavorable
D. $35,600 unfavorable
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead volume variance
9-39
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96. Warner Co. has budgeted fixed overhead of $150,000. Practical capacity is 6,000 units, and
budgeted production is 5,000 units. During February, 4,800 units were produced and $155,600
was spent on fixed overhead. What is the unexpected (unplanned) capacity variance?
B. $5,600 unfavorable
C. $25,000 unfavorable
D. $30,000 unfavorable
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead volume variance
97. Warner Co. has budgeted fixed overhead of $150,000. Practical capacity is 6,000 units, and
budgeted production is 5,000 units. During February, 4,800 units were produced and $155,600
was spent on fixed overhead. What is the total fixed overhead capacity variance?
A. $5,000 unfavorable
B. $5,600 unfavorable
C. $25,000 unfavorable
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead volume variance
98. In a standard cost system, an unfavorable variance will appear as:
A. a credit entry.
C. either a debit or a credit entry.
D. variances do not affect journal entries.
AICPA: FN Measurement
9-40
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McGraw-Hill Education.
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 09-S2 Prepare journal entries to record standard costs and variances.
Topic: Recording standard costs and variances in a standard cost system
99. In a standard cost system, a favorable variance will appear as:
B. a debit entry.
C. either a debit or a credit entry.
D. variances do not affect journal entries.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 09-S2 Prepare journal entries to record standard costs and variances.
Topic: Recording standard costs and variances in a standard cost system
100. In a standard cost system, the initial debit to an inventory account is based on:
B. actual cost rather than standard cost.
C. actual cost less the standard cost.
D. standard cost less the actual cost.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-S2 Prepare journal entries to record standard costs and variances.
Topic: Recording standard costs and variances in a standard cost system
101. At the end of the accounting period, all variances are closed to the _____________ account.
A. Work in Process
B. Finished Goods
C. Cost of Goods Manufactured
AICPA: FN Measurement
Accessibility: Keyboard Navigation
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-S2 Prepare journal entries to record standard costs and variances.
Topic: Recording standard costs and variances in a standard cost system
102. Melrose Inc. uses standard costing. Last period, it spent $145,000 for labor. The direct labor
rate variance was $5,000 favorable, and the direct labor efficiency variance was $6,000
unfavorable. In the journal entry to record the use of direct labor, the amount debited to cost of
goods sold would be:
B. $145,000.
C. $150,000.
D. $151,000.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 09-S2 Prepare journal entries to record standard costs and variances.
Topic: Recording standard costs and variances in a standard cost system
103. Melrose Inc. uses standard costing. Last period, its flexible budget for labor was $144,000.
The direct labor rate variance was $5,000 favorable, and the direct labor efficiency variance
was $6,000 unfavorable. In the journal entry to record the use of direct labor, the amount
credited to wages payable would be:
A. $144,000.
C. $150,000.
D. $151,000.
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-S2 Prepare journal entries to record standard costs and variances.
Topic: Recording standard costs and variances in a standard cost system
9-42
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104. Tulip Inc. uses standard costing, and its manufacturing standards are as follows: 2 pounds of
materials at $13 per pound, and 3 hours of labor at $10 per hour. Budgeted production last
period was 5,000 units, and actual production was 4,800 units. Last period, Tulip purchased
and used 9,800 pounds of materials for $135,000, and used 15,000 labor hours, costing
$145,000. What is the journal entry to record the purchase of materials?
inventory $127,400
Direct materials
price variance $7,600
Accounts
payable $135,000
B. Raw materials
inventory $135,000
Direct materials
price variance $7,600
Accounts
payable $127,400
C. Raw materials
inventory $135,000
Accounts
payable $135,000
D. Raw materials
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 09-S2 Prepare journal entries to record standard costs and variances.
Topic: Recording standard costs and variances in a standard cost system
9-43
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105. Tulip Inc. uses standard costing, and its manufacturing standards are as follows: 2 pounds of
materials at $13 per pound, and 3 hours of labor at $10 per hour. Budgeted production last
period was 5,000 units, and actual production was 4,800 units. Last period, Tulip purchased
and used 9,800 pounds of materials for $135,000, and used 15,000 labor hours, costing
$145,000. What is the journal entry to record the use of materials?
A. Cost of goods sold $135,000
Raw Materials
Inventory $135,000
Direct materials
quantity variance 2,600
Raw Materials
Inventory $127,400
C. Cost of goods sold $127,400
Direct materials
quantity variance $2,600
Raw Materials
Inventory $124,800
D. Cost of goods sold $124,800
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 09-S2 Prepare journal entries to record standard costs and variances.
Topic: Recording standard costs and variances in a standard cost system
9-44
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106. Tulip Inc. uses standard costing, and its manufacturing standards are as follows: 2 pounds of
materials at $13 per pound, and 3 hours of labor at $10 per hour. Budgeted production last
period was 5,000 units, and actual production was 4,800 units. Last period, Tulip purchased
and used 9,800 pounds of materials for $135,000, and used 15,000 labor hours, costing
$145,000. What is the journal entry to record direct labor costs?
A. Cost of goods sold $144,000
Direct labor rate
variance $6,000
Direct labor
efficiency variance $5,000
Wages payable $145,000
B. Cost of goods sold $144,000
Wages payable $144,000
Direct labor efficiency
variance $6,000
Direct labor rate
variance $5,000
Wages payable $145,000
D. Cost of goods sold $145,000
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 09-S2 Prepare journal entries to record standard costs and variances.
Topic: Recording standard costs and variances in a standard cost system
Essay Questions
9-45
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107. Blossom, Inc. prepared the following master budget items for July:
Production and sales 24,000 units
Variable manufacturing costs:
Direct materials $36,000
Direct labor $48,000
Variable manufacturing
overhead $60,000
Fixed manufacturing costs $100,000
Total manufacturing costs $244,000
During July, Blossom actually sold 36,000 units. Prepare a flexible budget for Blossom based
on actual sales.
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-02 Prepare a flexible budget and show how total costs change with sales volume.
Topic: Master budget versus flexible budget
9-46
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108.
Regent Corp. uses a standard cost system to account for the costs of its one product.
Materials standards are 3 pounds of material at $14 per pound, and labor standards are 4
hours of labor at a standard wage rate of $11. During July Regent Corp. produced 3,300 units.
Materials purchased and used totaled 10,100 pounds at a total cost of $142,650. Payroll
totaled $146,780 for 13,150 hours worked. Calculate the:
a. direct materials price variance.
b. direct materials quantity variance.
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
109. Lakewood Inc. uses a standard cost system. Materials standards are 7 components per widget
at $12 per component. During August, Lakewood Inc. purchased 64,500 components for
$768,750, using the components to produce 8,600 widgets. Calculate the:
a. direct materials price variance.
b. direct materials quantity variance.
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Topic: Direct materials variances
9-47
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110. Delmar Inc. uses a standard cost system. Labor standards are 2 hours per widget at $13.30
per hour. During August, Delmar Inc. paid its workers $226,338 for 16,800 hours. Delmar Inc.
produced 8,600 widgets during August. Calculate the:
a. direct labor rate variance.
b. direct labor efficiency variance.
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
111. Sage Corp. uses a standard cost system to account for the costs of its one product. Standards
are 3 pounds of materials at $14 per pound and 4 hours of labor at a standard wage rate of
$12. During July, Sage Corp. produced 3,300 units. Materials purchased and used totaled
10,100 pounds at a total cost of $142,650. Payroll totaled $146,780 for 13,150 hours worked.
Calculate the:
a. direct labor rate variance.
b. direct labor efficiency variance.
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
9-48
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112. Basil Tooling uses a standard cost system to account for the costs of its one product.
Standards are 4 sheets of ½ inch steel at $110 per sheet and 14 hours of labor at a standard
wage rate of $13. During July, Basil Tooling produced 600 units. Materials purchased and used
totaled 2,540 sheets at a total cost of $268,850. Payroll totaled $112,930 for 8,770 hours
worked. Calculate the:
a. direct materials price variance.
b. direct materials quantity variance.
c. direct labor rate variance.
d. direct labor efficiency variance.
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
Topic: Direct materials variances
113. Ferry Chemical uses a standard cost system to account for the costs of its production of
Chemical X. Standards are 1.4 gallons of materials at $105 per gallon and 10 hours of labor at
a standard wage rate of $12. During September, Ferry Chemical produced 2,600 gallons of
Chemical X. Ferry Chemical purchased and used totaled 3,560 gallons at a total cost of
$381,180. Payroll totaled $302,730 for 25,430 hours worked. Calculate the:
a. direct materials price variance.
b. direct materials quantity variance.
c. direct labor rate variance.
d. direct labor efficiency variance.
AICPA: FN Measurement
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
Topic: Direct materials variances
114. Wilson Manufacturing has provided you with the following variances for the month of March:
Direct materials price $2,250 Favorable
Direct materials quantity $4,000 Unfavorable
Direct labor rate $3,200 Unfavorable
Direct labor efficiency $8,800 Unfavorable
Wilson Manufacturing produced 6,200 units during the month of March; 6,000 units were
budgeted. Raw materials inventory did not change over the period. You have also been
provided the following partial information:
Standards: Per unit
Direct materials 4 lb @ $5/lb 20.00
Direct labor 2 hours @ $11/hour 22.00
Calculate the:
a. pounds of direct materials (purchased = used).
b. actual direct labor hours.
c. actual labor cost in dollars.
d. actual spending for materials.
AICPA: FN Measurement
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
Topic: Direct materials variances
9-50
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115. Branch Corp. uses a standard cost system to account for the costs of its one product. Variable
overhead is applied using direct labor hours. Standards allowed for each unit are 3 hours of
labor at a variable overhead rate of $10. During November, Branch Corp. produced 2,300
units. Payroll totaled $97,780 for 7,140 hours worked. Variable overhead incurred totaled
$73,230. Calculate the:
a. variable overhead rate variance.
b. variable overhead efficiency variance.
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
116. Wisteria Co. produces snowboards and uses a standard cost system. Variable overhead is
applied using direct labor hours. Standards allowed for each unit are 5.2 hours of labor at a
standard variable overhead rate of $6.60. During December, Wisteria Co. produced 3,100
snowboards. Materials purchases totaled 20,800 pounds at a total cost of $224,780. Materials
usage totaled 20,970 pounds. Payroll totaled $183,660 for 17,140 hours worked. Variable
overhead incurred totaled $109,140. Calculate the:
a. variable overhead rate variance.
b. variable overhead efficiency variance.
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Topic: Variable manufacturing overhead variances
9-51
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117. Interpreting the variances is a key part of managerial accounting. For each scenario described
below, indicate whether the result would be favorable or unfavorable.
Scenario Favorable Unfavorable
a. The production
manager finds a new
supplier of direct
materials. Its prices are
30% less than the current
supplier. Is the effect on
the direct materials price
variance favorable or
unfavorable?
b. The standard direct
materials quantity per
product is 2 units. In
training new personnel,
additional material is
often wasted. For his first
two-week period, a new
employee used 3 units
per product. Is the direct
materials quantity
variance favorable or
unfavorable?
c. A new collective
bargaining agreement
between union
employees guarantees a
wage increase of 5%.
What would the effect on
the direct labor rate
variance be?
d. A new hiring manager
prioritizes experience
over cost when hiring
employees. As a result,
the experienced hires
produce goods more
efficiently than
inexperienced
counterparts. What effect
does this have on the
direct labor efficiency
variance?
e. Consider the same
facts as above. What
effect do you think this
would have on the direct
labor rate variance?
Now consider each scenario with sustainability metrics in mind. How might the answers
change?
Scenario Favorable Unfavorable
f. The production
manager finds a new
supplier of direct
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materials. Its prices are
30% less than the current
supplier, but those price
decreases come with
40% additional
environmental cost (in
shipping from abroad)
and an indirect labor cost
of 40% (because workers
abroad are not
compensated at what the
company deems a fair
wage). Is the effect on the
direct materials price
variance—with
sustainability in mind—
likely favorable or
unfavorable?
g. The standard direct
materials quantity per
product is 2 units. In
training new personnel,
additional material is
often wasted. For his first
two-week period, a new
employee used 3 units
per product. Such
learning is encouraged by
the managerial
accountant because it
results in long-term
efficiency. Is the direct
materials quantity
variance favorable or
unfavorable from a
sustainability
perspective?
h. A new collective
bargaining agreement
between union
employees guarantees a
wage increase of 5%. The
company’s goal is to pay
what it deems “livable
wages” to 100% of its
employees by 20×0, and
this change moves it
closer to that goal. What
would the effect on the
direct labor rate variance
be with sustainability
metrics in mind?
i. A new hiring manager
prioritizes experience
over cost when hiring
employees. As a result,
the experienced hires
produce goods more
efficiently than
inexperienced
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counterparts and produce
less waste. What effect
does this have on the
direct labor efficiency
variance from a
sustainability
perspective?
j. Consider the same facts
as above. What effect do
you think this would have
on the direct labor rate
variance? (Assume this
company’s goal is to pay
100% of its employees a
“livable wage” by 20×0,
and this change moves it
closer to the goal.)
AICPA: BB Critical Thinking
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Topic: Direct labor variances
Topic: Direct materials variances
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118. Willow Inc. has provided the following information:
Standards: Per unit
Direct materials 10 lb @ $2.60/lb 26.00
Direct labor 2 hours @
$22.50/hour 45.00
Variable overhead 2 hours @ $18/hour 36.00
Fixed overhead 25.00
Total 132.00
Budgeted production = 7,000 units
Actual results
Materials 74,950 lbs $192,200
Direct labor 15,530 actual hours $339,500
Variable overhead $286,600
Fixed overhead $171,400
Units produced 7,400 units
Calculate the:
a. direct materials price variance.
b. direct materials quantity variance.
c. direct labor rate variance.
d. direct labor efficiency variance.
e. variable overhead rate variance.
f. variable overhead efficiency variance.
g. fixed overhead spending variance.
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Direct labor variances
9-59
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Topic: Direct materials variances
Topic: Fixed manufacturing overhead variances
Topic: Variable manufacturing overhead variances
119. Cascade Inc. has provided the following information:
Standards: Per unit
Direct materials 5 lb @ $3.50/lb $17.50
Direct labor 2 hours @ $12/hour 24.00
Variable overhead 2 hours @ $10/hour 20.00
Fixed overhead 15.00
Total $76.50
Budgeted production = 5,000 units
Actual results
Direct materials 30,100 lbs $107,470
Direct labor 11,120 actual hours $139,600
Variable overhead $108,210
Fixed overhead $76,300
Units produced 5,400 units
Calculate the:
a. direct materials price variance.
b. direct materials quantity variance.
c. direct labor rate variance.
d. direct labor efficiency variance.
e. variable overhead rate variance.
f. variable overhead efficiency variance.
g. fixed overhead spending variance.
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 09-03 Calculate and interpret the direct materials price and quantity variances.
Learning Objective: 09-04 Calculate and interpret the direct labor rate and efficiency variances.
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Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Direct labor variances
Topic: Direct materials variances
Topic: Fixed manufacturing overhead spending variance
Topic: Variable manufacturing overhead variances
120. Benjamin Inc. uses a standard cost system and has the following information regarding the
labor and overhead used in the production of widgets. Standard labor input is 2 hours per unit.
The variable overhead rate is $8 per hour; fixed overhead is budgeted to be $100,000 on
budgeted production of 8,000 widgets. During August, Benjamin Inc. paid its workers $161,670
for 16,800 hours. Actual variable overhead incurred totaled $133,560, actual fixed overhead
totaled $98,956. Benjamin Inc. produced 8,600 widgets during August. Calculate the:
a. variable overhead rate variance.
b. variable overhead efficiency variance.
c. fixed overhead spending variance.
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed manufacturing overhead spending variance
Topic: Variable manufacturing overhead variances
121. Wharton Tooling uses a standard cost system to account for the costs of its one product.
Variable overhead standards are 14 hours of labor at a standard rate of $9. Fixed overhead is
applied at a rate of $150 per unit, based on budgeted production of 650 units. During July,
Wharton Tooling produced 600 units. Payroll totaled $112,930 for 8,770 hours worked.
Overhead incurred was $77,490 variable and $98,750 fixed. Calculate the:
a. variable overhead rate variance.
b. variable overhead efficiency variance.
c. fixed overhead spending variance.
AICPA: FN Measurement
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-05 Calculate and interpret the variable overhead rate and efficiency variances.
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed manufacturing overhead spending variance
Topic: Variable manufacturing overhead variances
122. Patton Corp. uses a standard cost system to account for the costs of its one products.
Budgeted fixed overhead is $75,000, budgeted production is 2,500 per month, and practical
capacity is 3,000 units. During November, Patton produced 2,400 units. Fixed overhead
incurred totaled $70,310.
Assume Patton calculates its fixed overhead rate based on budgeted production.
a. What is the fixed overhead rate?
b. What is the fixed overhead volume variance?
c. By how much was fixed overhead over- or underapplied?
Now assume Patton calculates its fixed overhead rate based on practical capacity.
d. What is the fixed overhead rate?
e. What is the expected (planned) capacity variance?
f. What is the unexpected (unplanned) capacity variance?
g. By how much was fixed overhead over- or under-applied?
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed overhead volume variance
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123. Pearl Co. produces pearl necklaces and uses a standard cost system. Fixed overhead is
applied to production at a rate of $34 per unit, based on budgeted production of 3,000 per
month. During December, Pearl produced 3,100 pearl necklaces. Fixed overhead incurred
totaled $114,940. Calculate the:
a. fixed overhead spending variance.
b. fixed overhead volume variance.
c. over- or under-applied fixed overhead.
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed manufacturing overhead spending variance
Topic: Fixed overhead volume variance
124. Regency Corp. uses a standard cost system to account for the costs of its one product. Fixed
overhead is applied to production at a rate of $27.50 per unit, based on budgeted production is
2,500 per month. During November, Regency produced 2,300 units. Fixed overhead incurred
totaled $70,310. Calculate the:
a. fixed overhead spending variance.
b. fixed overhead volume variance.
c. over- or under-applied fixed overhead.
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 09-S1 Calculate and interpret the fixed overhead spending and volume variances.
Topic: Fixed manufacturing overhead variances
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125. Wallace Inc. uses a standard cost system and has provided the following information:
Standards: Per unit
Direct materials 10 lb @ $2.50/lb 25.00
Direct labor 2 hours @ $22/hour 44.00
Variable overhead 2 hours @ $16/hour 32.00
Fixed overhead 30.00
Total 131.00
Budgeted production = 6,000 units
Actual results
Material purchased 64,950 lbs $160,200
Material used 59,600 lbs
Direct labor 11,530 actual
hours $259,500
Variable overhead $186,600
Fixed overhead $181,400
Units produced and
sold 5,900 units
Prepare the journal entries to record the following transactions. Assume Wallace Inc. does not
maintain inventories other than direct materials.
a. Purchase of direct materials on account
b. Issuance of direct materials to production
c. Incurrence of direct labor
d. Incurrence and application of variable overhead.
e. Incurrence and application of fixed overhead
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 09-S2 Prepare journal entries to record standard costs and variances.
Topic: Recording standard costs and variances in a standard cost system
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126. Viking Corp. uses a standard cost system to account for the costs of its product. (It only has
one product.) Material standards are 13 pounds of material at $1.40 per pound and 3 hours of
labor at a standard wage rate of $14. During November, Viking Corp. produced and sold 2,300
units. Material purchases totaled 30,100 pounds at a total cost of $42,650. Material usage
totaled 29,970 pounds. Payroll totaled $97,780 for 7,140 hours worked. Viking Corp. does not
maintain inventories other than direct materials. Prepare journal entries to record the following
transactions.
a. Direct materials purchase
b. Direct materials usage
c. Direct labor incurred
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 09-S2 Prepare journal entries to record standard costs and variances.
Topic: Recording standard costs and variances in a standard cost system
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127. Patrick Co. produces computer desks and uses a standard cost system. Material standards
are 6.75 pounds of material at $10.40 per pound and 5.2 hours of labor at a standard wage
rate of $10.50. During December, Patrick Co. produced and sold 3,100 desks. Material
purchases totaled 20,800 pounds at a total cost of $224,780. Material usage totaled 20,970
pounds. Payroll totaled $183,660 for 17,140 hours worked. Patrick Co. does not maintain
inventories other than direct materials. Prepare journal entries to record the following
transactions.
a. Direct materials purchase
b. Direct materials usage
c. Direct labor incurred
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 09-S2 Prepare journal entries to record standard costs and variances.
Topic: Recording standard costs and variances in a standard cost system
9-68
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