Chapter 10
United States – AK – IMA: Performance Measurement
43. 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.
44. 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.
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45. Which of the following sources of quantitative standards should be used with caution because it can perpetuate
inefficiencies?
a. Historical experience
b. Engineering studies
c. Input from operating personnel
d. Statistical methods
e. None of these
46. 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.
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47. 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.
48. Which of the following is true about ideal standards?
a. Ideal standards demand maximum efficiency and no slack is allowed.
b. Ideal standards can be achieved under efficient operating conditions.
c. Ideal standards provide allowance for normal breakdowns and interruptions.
d. All of these.
e. None of these.
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49. Which of the following is true regarding currently attainable standards?
a. They do not provide any allowance for any lack of skill.
b. They provide allowance for normal breakdowns, interruptions, etc.
c. They are can be achieved only if everything operates perfectly.
d. They demand the maximum efficiency of all the producing factors.
e. All of these.
50. 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.
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51. 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.
52. 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.
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53. 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.
54. The standard cost system differs from the actual cost system in the assignment of
a. direct materials.
b. direct labor.
c. overhead.
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d. all of the manufacturing inputs.
e. none of the manufacturing inputs.
55. Which of the following statements is true of a normal costing system?
a. It predetermines the overhead costs for product costing.
b. It assigns standard costs to direct materials and direct labor.
c. It assigns direct materials at a budgeted rate for product costing.
d. It assigns the actual costs of all three manufacturing inputs to products.
e. All of these are correct.
56. Which of the following is not an advantage of standard costing over normal costing and actual costing?
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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.
57. The _____ shows the quantity of each input that should be used to produce one unit of output.
a. standard cost sheet
b. production budget
c. time sheet
d. operator budget
e. None of these is correct.
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58. Which of the following formulas calculates the standard hours allowed for the actual output?
a. Unit Labor Standard × Actual Output
b. Total Labor Standard × Standard Output
c. Unit Labor Standard × Normal Input
d. Total Labor Standard × Real Input
e. None of these is correct.
59. Which of the following is used to compute the standard quantity of material allowed for the actual output?
a. Fixed Quantity Standard × Standard Output
b. Fixed Quantity Standard × Actual Input
c. Unit Quantity Standard × Standard Input
d. Unit Quantity Standard × Actual Output
e. None of these
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60. 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.
61. Anemone Company manufactures model airplanes. During the month, it manufactured 20,000 airplanes. Each one
used an average of 8 direct labor hours and an average of 2 sheets of aluminum. It normally manufactures 8,000 airplanes.
Materials and labor standards for making the airplanes are as follows:
Direct Materials (1 sheet of aluminum @ $12.00) $12.00
Direct Materials (other accessories @ $9) 9.00
Direct Labor (5 hours @ $5.00) 25.00
Compute the standard hours allowed for a volume of 20,000 airplanes.
a. 100,000 hours
b. 420,000 hours
c. 70,000 hours
d. 65,000 hours
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62. 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
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
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63. Which of the following is the difference between the actual cost of materials and the materials cost allowed for the
actual level of activity?
a. Total materials variance
b. Total materials regression
c. Total materials cost
d. Total materials margin
e. None of these
64. 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.
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65. 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.
66. Which of the following formulas computes usage (efficiency) variance?
a. (Actual Quantity – Average Quantity) × Standard Price per Unit
b. (Actual Quantity – Standard Quantity) × Standard Price per Unit
c. (Actual Quantity – Fixed Quantity) × Standard Price per Unit
d. (Actual Quantity – Variable Quantity) × Standard Price per Unit
e. None of these.
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67. 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.
68. 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.
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69. 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.
70. AquaMarine Company’s standard cost is $750,000. The allowable deviation is ±5%. Its actual costs for three months
are as follows:
January $600,000
February $560,000
March $620,000
The upper and lower control limits are, respectively, _____.
a. $712,500 and $643,500
b. $684,200 and $557,000
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c. $787,500 and $712,500
d. $742,000 and $670,000
71. Highland Company’s standard cost is $250,000. The allowable deviation is ±10%. Its actual costs for six months are
January $235,000
February 220,000
March 245,000
April 265,000
May 270,000
June 280,000
The upper and lower control limits are, respectively,
a. $250,000 and $225,000
b. $305,000 and $195,000
c. $275,000 and $250,000
d. $275,000 and $225,000
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72. Glascro Company’s standard cost is $500,000. The allowable deviation is ±15%. Its actual costs for six months are as
follows:
January $450,000
February 330,000
March 412,000
April 467,000
May 543,000
June 580,000
The actual cost which is higher than the upper control limit is _____.
a. $450,000
b. $575,000
c. $330,000
d. $467,000
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73. Highland Company’s standard cost is $250,000. The allowable deviation is ±10%. Its actual costs for six months are
January $235,000
February 220,000
March 245,000
April 265,000
May 270,000
June 280,000
The actual cost which is lower than the lower control limit is
a. $220,000
b. $280,000
c. $265,000
d. $235,000
74. Which of the following is not true concerning direct materials variances?
a. 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.
b. The materials price variance uses the actual quantity of materials purchased rather than the actual quantity of
materials used.
c. The materials price variance always uses the actual quantity of materials used rather than the actual quantity of
materials purchased.
d. The materials usage variance uses the actual quantity of materials used.
e. Separate materials variances can be computed for each type of material used.
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75. Which of the following formulas is used to calculate the materials price variance?
a. (Actual Price × Actual Quantity) – (Standard Price × Standard Quantity)
b. (Variable Price × Actual Quantity) – (Total Price × Actual Quantity)
c. (Fixed Price × Average Quantity) – (Standard Price × Actual Quantity)
d. (Actual Price × Actual Quantity) – (Standard Price × Actual Quantity)
e. None of these.
76. Which of the following mathematical expressions is used to compute the materials usage variance?
a. (Standard Price × Actual Quantity) – (Standard Price × Standard Quantity)
b. (Fixed Price × Standard Quantity) + (Variable Price × Actual Quantity)
c. (Average Price × Average Quantity) – (Standard Price × Standard Quantity)
d. (Actual Price × Standard Quantity) + (Actual Quantity × Standard Price)
e. None of these.
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77. Which of the following is not true regarding the use of materials variance information?
a. The purchasing agent has the responsibility for controlling the materials price variance.
b. The production manager is generally responsible for materials usage.
c. The production manager is concerned with minimizing scrap, waste, and rework.
d. The purchasing department is responsible for acquiring quality materials.
e. All of these are true.
78. During the month of March, Rexelegg purchased 25,000 pounds of flour at $2 per pound. At the end of March,
Rexelegg found that it had an unfavorable materials price variance of $750. The standard cost per pound must be:
a. $0.71.
b. $0.60.
c. $0.80.
d. $1.97.