Chapter 10—Standard Costing: A Managerial Control Tool
TRUE/FALSE
1. Managers develop quantity standards when they decide what amount of input should be used per unit
of output.
2. Managers develop price standards when they determine what amount should be paid for the quantity of
input to be used.
3. The standard cost per unit of output for a particular input is calculated by multiplying the standard
input price by the standard input allowed per unit of output produced.
4. In setting standards, historical experience should be used with caution because it can perpetuate
operating inefficiencies.
5. Engineering studies are often too rigorous and may not be achievable by operating personnel.
6. Ideal standards can be achieved under efficient operating conditions.
7. Ideal standards can be achieved only if everything operates perfectly, meaning that they do not allow
for any machine breakdowns, slack, etc.
8. Currently attainable standards offer the most behavioral benefits because higher performance levels are
attained through challenging, yet achievable, standards.
9. Currently attainable standards can be achieved under efficient operating conditions.
10. One reason for adopting a standard cost system is to make product costing easier.
11. The benefits of operational control under a standard cost system can extend to all manufacturing
environments.
12. Standard costs are developed for direct materials, direct labor, and variable overhead only.
13. The standard quantity of materials allowed can be calculated by multiplying the unit labor standard by
the actual output.
14. To compute the standard direct labor hours allowed, multiply the unit labor standard by the actual
output.
15. The quantity of each input that should be used to produce one unit of output is documented on the
standard cost sheet.
16. The standard cost sheet provides the input standards needed to compute the total amount of inputs
allowed for the actual output, an essential component in computing efficiency variances.
17. The standard unit cost is developed before the standard costs for direct materials, direct labor, and
overhead can be set.
18. The unit standard quantity of inputs is vital to the computation of total amount of inputs allowed for
the actual output and efficiency variances.
19. The total budget variance is the difference between the actual cost of the input and its planned cost.
20. The actual quantity of input at the standard price less than the standard quantity of input at the standard
price equals the usage variance.
21. The actual quantity of input at the actual price less the actual quantity of input at the standard price is
the price variance.
22. An unfavorable usage variance would occur when the actual usage of inputs is greater than the
standard usage.
23. An unfavorable price variance occurs whenever the actual prices are greater than the standard prices.
24. An acceptable range is established in order to determine if whether variances are significant. The
acceptable range is the standard, plus or minus an allowable deviation.
25. The sum of the price and usage variances will add up to the total materials variance only if the
materials purchased is equal to the materials used.
26. The materials price variance is computed using the actual quantity of materials used, and the materials
usage variance is computed using the actual quantity of materials purchased.
27. For better control, the materials price variance is computed using actual quantity of materials
purchased.
28. The sum of the labor rate and labor efficiency variances will always add up to the total labor variance.
29. Kaizen costing provides fixed standards which reflect continuous improvement efforts.
30. A kaizen standard reflects the realized improvements for the past periods and a search for more
improvements for the future.
31. Favorable variances are credits and unfavorable variances are debits.
MATCHING
Match each item with the correct statement below.
a.
Quantity Standards
b.
Ideal Standards
c.
Price Standards
d.
Standard Cost Sheet
e.
Upper Control Limit
f.
Currently Attainable Standards
g.
Kaizen Standards
1. Standards of perfection that require absolute efficiency.
2. Standards that are rigorous but achievable and reflect reasonable efficiency.
3. These reflect the amount that should be paid for the quantity of input to be used.
4. These reflect the amount of input that should be used per unit of output.
5. A tool used to provide the production data needed to calculate the standard unit cost.
6. This is the standard plus the allowable deviation when determining whether variances are significant.
7. This reflects the planned improvement that is set, which will help reduce nonvalue-added costs.
Match the variance with its correct calculation.
a.
Actual Quantity Actual Price
b.
(Actual Hours Actual Rate) − (Standard Hours Standard Rate)
c.
(Actual Quantity Actual Price) − (Standard Quantity Standard Price)
d.
(Actual Hours − Standard Hours) Standard Rate
e.
(Actual Price − Standard Price) Actual Quantity
f.
Standard Quantity Standard Price
g.
(Actual Rate − Standard Rate) Actual Hours
h.
(Actual Quantity − Standard Quantity) Standard Price
8. Actual Costs
9. Budgeted Costs
10. Total Materials Variance
11. Materials Price Variance
12. Materials Usage Variance
13. Labor Rate Variance
14. Labor Efficiency Variance
15. Total Direct Labor Variance
COMPLETION
1. _______________ often means the difference between success and failure or between above-average
profits and lesser profits.
2. The amount of input that should be used per unit of output is known as the _______________.
3. The amount that should be paid for the quantity of the input to be used is known as the
______________.
4. ___________________ can provide an initial guideline for setting standards, but should be used with
caution because they can perpetuate existing inefficiencies.
5. Standards are set by using historical experiences, ___________________, and input from operating
personnel, marketing, and accounting.
6. ________________ demands maximum efficiency and can be achieved only if everything operates
perfectly.
7. In a ____________________, costs are assigned to products using quantity and price standards for all
three manufacturing costs: direct materials, direct labor, and overhead.
8. The __________________ provides the products data needed to calculate the standard unit cost.
9. The ______________________ can be used to compute the total amount of inputs allowed for the
actual output.
10. ___________________ is calculated by multiplying the unit labor standard by the actual output.
11. The ____________________ is the difference between the actual cost of the input and its planned
cost.
12. ____________________ is the difference between the actual and standard unit price of an input
multiplied by the number of inputs used.
13. _________________ occur whenever actual prices or actual usage of inputs are greater than standard
prices or standard usage.
14. The ____________________ measures the difference between the actual costs of materials and their
budgeted costs for actual level of activity.
15. The ____________________ measures the difference between what should have been paid for raw
materials and what was actually paid.
16. The _____________________ measures the difference between the direct materials actually used and
the direct materials that should have been used for the actual output.
17. The _______________ computes the difference between what was paid to direct laborers and what
should have been paid.
18. The ___________________ measures the difference between the labor hours that were actually used
and the labor hours that should have been used.
19. ______________ focuses on the continuous reduction of the manufacturing costs of existing products
and processes.
20. A ______________ is the difference between the sales price needed to capture a predetermined market
share and the desired per-unit profit.
MULTIPLE CHOICE
1. Standards based on the amount of input that should be used per unit of output are called
a.
quantity standards.
b.
price standards.
c.
ideal standards.
d.
currently attainable standards.
e.
kaizen standards.
2. Price standards are based on
a.
the amount of input that should be used per unit of output.
b.
the amount that should be paid for the total quantity of input to be used.
c.
the amount that should be paid per unit of output.
d.
the amount that should be paid per unit of input purchased.
e.
None of these.
3. The sources of quantitative standards include
a.
historical experience.
b.
engineering studies.
c.
input from operating personnel.
d.
historical experience, engineering studies, and input from operating personnel.
e.
None of these.
4. Which of the following is true regarding historical experience in standard setting?
a.
It provides very rigorous guidelines.
b.
Operating personnel may not be able to achieve operating standards based on historical
experience.
c.
It should be used with caution because it can perpetuate inefficiencies.
d.
Standards based on historical experience are better than standards based on engineering
studies.
e.
None of these.
5. Which of the following is not true regarding engineering studies?
a.
They can determine the most efficient way to operate.
b.
They are often achievable by operating personnel.
c.
They provide very rigorous guidelines.
d.
All of these statements are true.
e.
More than two of these statements are true.
6. In setting price standards for materials and labor,
a.
the purchasing department must consider discounts, freight, and quality.
b.
personnel must consider payroll taxes, fringe benefits, and qualifications.
c.
it is the joint responsibility of operations, purchasing, personnel, and accounting.
d.
All of these.
e.
None of these.
7. Ideal standards
a.
do not allow for machine breakdowns, slack, or lack of skill (even momentarily).
b.
demand maximum efficiency.
c.
can be achieved only if everything operates perfectly.
d.
All of these.
e.
None of these.
8. Which of the following is true regarding currently attainable standards?
a.
They can be achieved under efficient operating conditions.
b.
Allowance is made for normal breakdowns, interruptions, etc.
c.
They are challenging but achievable.
d.
They tend to achieve higher performance levels from personnel.
e.
All of these.
9. Standard cost systems are adopted
a.
to improve planning and control.
b.
to facilitate product costing.
c.
to improve planning and control, and to facilitate product costing.
d.
to enhance the operational control of firms that emphasize continuous improvement.
e.
for all of these reasons.
10. Standard cost systems can enhance operational control through the use of
a.
efficiency variances which indicate the need for corrective action.
b.
price variances which indicate the need for better spending control.
c.
standard costs which indicate the desired cost of a unit of input.
d.
actual costs which indicate the price received for units sold.
e.
All of these.
11. Which of the following is true regarding standard cost systems in manufacturing environments that
emphasize continuous improvement and just-in-time manufacturing and purchasing?
a.
The standard cost system enhances the operational control.
b.
The materials price variance may encourage the purchasing department to buy in smaller
quantities to reduce inventories.
c.
Variances can be computed and presented in reports to higher-level managers.
d.
The operational level will benefit from the detailed computation of variances.
e.
None of these.
12. In a standard cost system, costs are assigned to all of the following, except for
a.
direct materials.
b.
direct labor.
c.
variable overhead.
d.
fixed overhead.
e.
none of these.
13. The standard cost system differs from the actual cost system in the assignment of
a.
direct materials.
b.
direct labor.
c.
overhead.
d.
all of the manufacturing inputs.
e.
none of the manufacturing inputs.
14. Which of the following is not true regarding normal costing systems?
a.
A normal costing system predetermines overhead costs.
b.
A normal costing system assigns direct materials and direct labor to products using a
predetermined rate.
c.
In a normal costing system overhead is assigned using a budgeted rate and actual activity.
d.
A normal costing system has less capacity for control than a standard costing system.
e.
All of these statements are true.
15. Which of the following is not an advantage of standard costing over normal costing and actual
costing?
a.
A greater capacity for control.
b.
Ability to easily distinguish the FIFO and weighted average methods of accounting for
beginning inventory costs.
c.
Computing a unit cost for each equivalent unit cost category is not necessary.
d.
Providing for readily available unit cost information.
e.
All of these are advantages of standard costing.
16. The production data needed to calculate the standard unit cost as well as the underlying details for the
standard cost per unit are provided in
a.
the standard cost sheet.
b.
the standard production budget.
c.
the balance sheet.
d.
the standard work-in-process account.
e.
None of these.
17. Standard hours allowed are computed using the equation
a.
unit labor standard actual output.
b.
unit labor standard standard output.
c.
unit labor standard actual input.
d.
unit labor standard standard input.
e.
not shown here.
18. The standard quantity of materials allowed is computed by the equation
a.
unit quantity standard standard output.
b.
unit quantity standard actual input.
c.
unit quantity standard standard input.
d.
unit quantity standard actual output.
e.
not shown here.
19. An accountant would refer to a cost sheet to perform which of the following actions?
a.
Calculate standard cost per unit.
b.
Calculate efficiency variances.
c.
Calculate the total amount of inputs allowed for the actual output.
d.
All of these.
Figure 10-1.
Flying High Company manufactures model airplanes. During the month, it manufactured 10,000
airplanes. Each one used an average of 6.5 direct labor hours and an average of 1.5 sheets of
aluminum. It normally manufactures 7,500 airplanes. Materials and labor standards for making the
airplanes are:
Direct Materials (1 sheet of aluminum @ $10.00)
$10.00
Direct Materials (other accessories @ $8.75)
8.75
Direct Labor (6 hours @ $7.00)
42.00
20. Refer to Figure 10-1. Compute the standard hours allowed for a volume of 10,000 airplanes.
a.
60,000 hours
b.
420,000 hours
c.
70,000 hours
d.
65,000 hours
21. Refer to Figure 10-1. Compute the standard number of sheets of aluminum allowed for a volume of
10,000 airplanes.
a.
15,000 sheets
b.
10,000 sheets
c.
7,500 sheets
d.
11,250 sheets
22. Variances indicate
a.
that actual performance is not going according to plan.
b.
the cause of the variance.
c.
who is responsible for the variance.
d.
when the variance should be investigated.
e.
none of these.
23. The difference between the actual cost of the input and its planned cost is
a.
the total budget variance.
b.
the usage variance.
c.
the price variance.
d.
the efficiency variance.
e.
the budget variance.
24. Which of the following is true concerning the materials price variance?
a.
It is the difference between the actual and standard unit price of an input multiplied by the
number of inputs used.
b.
It is the difference between the actual and standard unit price of an output multiplied by
the number of inputs used.
c.
It is the difference between the actual and standard unit price of an input multiplied by the
number of inputs purchased.
d.
It is the difference between the actual and standard unit price of an output multiplied by
the number of inputs purchased.
e.
None of these.
25. The usage variance is the difference between the actual and standard quantity of inputs
a.
multiplied by the standard unit price of the input.
b.
budgeted multiplied by the standard unit price of the input.
c.
multiplied by the actual unit price of the input.
d.
purchased multiplied by the actual unit price of the input.
e.
None of these.
26. Which of the following is true regarding variances?
a.
Unfavorable variances occur whenever actual prices or actual usage of inputs are greater
than standard prices or standard usage.
b.
Favorable variances occur whenever actual prices or actual usage of inputs are greater than
standard prices or standard usage.
c.
Unfavorable variances are always credits.
d.
Favorable variances are always debits.
e.
None of these.
27. All of the following are true regarding variance investigation except
a.
the investigation should be undertaken only if the anticipated benefits are greater than the
expected costs.
b.
managers must consider whether a variance will recur.
c.
it is difficult to assess the costs and benefits of variance analysis on a case–by–case basis.
d.
variances are not investigated unless they are large enough to be of a concern.
e.
every variance is investigated.
28. Which of the following is not true concerning control limits?
a.
Control limits are the top and bottom measures of the allowable range.
b.
The upper control limit is the standard plus the allowable deviation.
c.
The lower control limit is the standard minus the allowable deviation.
d.
In current practice, control limits are set objectively using standard formulas.
e.
Variances that fall outside the control limits are investigated.
29. Acme Company’s standard cost is $500,000. The allowable deviation is 10%. Its actual costs for three
months are
January
$520,000
February
$550,000
March
$575,000
The upper and lower control limits are, respectively,
a.
$550,000 and $450,000
b.
$500,000 and $450,000
c.
$550,000 and $500,000
d.
$575,000 and $520,000