Chapter 20—Standard Costing: A Managerial Control Tool Key
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
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.
32. Match each item with the correct statement below.
1. Standards of perfection that require absolute
2. Standards that are rigorous but achievable and reflect
Currently
3. This reflects the planned improvement that is set,
4. These reflect the amount that should be paid for the
5. These reflect the amount of input that should be used
Standard Cost
6. A tool used to provide the production data needed to
Upper Control
7. This is the standard plus the allowable deviation
33. Match the variance with its correct calculation.
1. Materials Price
2. Budgeted Costs
2
3. Actual Costs
8
(Actual Quantity ´ Actual Price) – (Standard
Variance
(Actual Price – Standard Price) ´ Actual Quantity
1
4. Materials Usage
Variance
4
5. Total Direct Labor
(Actual Quantity – Standard Quantity) ´ Standard
Variance
7
6. Labor Efficiency
7. Labor Rate Variance
(Actual Hours – Standard Hours) ´ Standard Rate
6
5
8. Total Materials
(Actual Hours ´ Actual Rate) – (Standard Hours ´
34. _______________ often means the difference between success and failure or between above-average profits
and lesser profits.
35. The amount of input that should be used per unit of output is known as the _______________.
36. The amount that should be paid for the quantity of the input to be used is known as the ______________.
37. ___________________ can provide an initial guideline for setting standards, but should be used with
caution because they can perpetuate existing inefficiencies.
38. Standards are set by using historical experiences, ___________________, and input from operating
personnel, marketing, and accounting.
3
39. ________________ demands maximum efficiency and can be achieved only if everything operates
perfectly.
40. In a ____________________, costs are assigned to products using quantity and price standards for all three
manufacturing costs: direct materials, direct labor, and overhead.
41. The __________________ provides the products data needed to calculate the standard unit cost.
42. The ______________________ can be used to compute the total amount of inputs allowed for the actual
output.
43. ___________________ is calculated by multiplying the unit labor standard by the actual output.
44. The ____________________ is the difference between the actual cost of the input and its planned cost.
45. ____________________ is the difference between the actual and standard unit price of an input multiplied
by the number of inputs used.
46. _________________ occur whenever actual prices or actual usage of inputs are greater than standard prices
or standard usage.
47. The ____________________ measures the difference between the actual costs of materials and their
budgeted costs for actual level of activity.
48. The ____________________ measures the difference between what should have been paid for raw
materials and what was actually paid.
49. The _____________________ measures the difference between the direct materials actually used and the
direct materials that should have been used for the actual output.
50. The _______________ computes the difference between what was paid to direct laborers and what should
have been paid.
51. The ___________________ measures the difference between the labor hours that were actually used and the
labor hours that should have been used.
52. ______________ focuses on the continuous reduction of the manufacturing costs of existing products and
processes.
53. A ______________ is the difference between the sales price needed to capture a predetermined market
share and the desired per-unit profit.
54. Standards based on the amount of input that should be used per unit of output are called
55. Price standards are based on
56. The sources of quantitative standards include
57. Which of the following is true regarding historical experience in standard setting?
58. Which of the following is not true regarding engineering studies?
59. In setting price standards for materials and labor,
60. Ideal standards
61. Which of the following is true regarding currently attainable standards?
62. Standard cost systems are adopted
63. Standard cost systems can enhance operational control through the use of
64. Which of the following is true regarding standard cost systems in manufacturing environments that
emphasize continuous improvement and just-in-time manufacturing and purchasing?
65. In a standard cost system, costs are assigned to all of the following, except for
66. The standard cost system differs from the actual cost system in the assignment of
67. Which of the following is not true regarding normal costing systems?
68. Which of the following is not an advantage of standard costing over normal costing and actual costing?
69. 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
70. Standard hours allowed are computed using the equation
71. The standard quantity of materials allowed is computed by the equation
72. An accountant would refer to a cost sheet to perform which of the following actions?
73. 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
Refer to Figure 10-1. Compute the standard hours allowed for a volume of 10,000 airplanes.
74. 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
Refer to Figure 10-1. Compute the standard number of sheets of aluminum allowed for a volume of 10,000 airplanes.
75. Variances indicate
76. The difference between the actual cost of the input and its planned cost is
77. Which of the following is true concerning the materials price variance?
78. The usage variance is the difference between the actual and standard quantity of inputs
79. Which of the following is true regarding variances?
80. All of the following are true regarding variance investigation except
81. Which of the following is not true concerning control limits?
82. 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,
83. Figure 10-2.
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
Refer to Figure 10-2. The upper and lower control limits are, respectively,
84. Figure 10-2.
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
Refer to Figure 10-2. The variance that is higher than the upper control limit is
85. Figure 10-2.
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
Refer to Figure 10-2. The variance that is lower than the lower control limit is
86. Which of the following is not true concerning direct materials variances?
87. The materials price variance is computed using the equation
88. The materials usage variance is calculated by the equation
89. Which of the following is not true regarding the use of materials variance information?
90. During the month of March, Baker’s Express purchased 10,000 pounds of flour at $1 per pound. At the end
of March, Baker’s Express found that it had an unfavorable materials price variance of $500. The standard cost
per pound must be
91. During the month of March, Baker’s Express purchased 10,000 pounds of flour at $1 per pound. At the end
of March, Baker’s Express found that it had a favorable materials price variance of $500. The standard cost per
pound must be
92. During June, Cisco Company produced 12,000 chainsaw blades. The standard quantity of material allowed
per unit was 1.5 pounds of steel per blade at a standard cost of $8 per pound. Cisco determined that it had a
favorable materials usage variance of $1,000 for June. Calculate the actual quantity of materials Cisco used.
93. During June, Cisco Company produced 12,000 chainsaw blades. The standard quantity of material allowed
per unit was 1.5 pounds of steel per blade at a standard cost of $8 per pound. The actual cost was $7 per pound.
The actual pounds of steel that Cisco purchased were 19,500 pounds. All materials purchased were used.
Calculate Cisco’s materials usage variance.
94. Perfect Builders makes all sorts of moldings. Its standard quantity of material allowed is 1 foot of wood per
1 foot of molding at a standard price of $2.00 per foot. During August, it purchased 500,000 feet of wood at a
cost of $1.90 per foot, which produced only 499,000 feet of molding. Calculate the materials price variance and
the materials usage variance, respectively.
95. Mover Company has developed the following standards for one of its products:
Direct materials:
7.5 pounds ´ $8 per pound
Direct labor:
2 hours ´ $12 per hour
The following activity occurred during March:
Materials purchased:
5,000 pounds costing $42,500
Materials used:
3,600 pounds
Units produced:
500 units
Direct labor:
1,150 hours at $11.80/hour
The company records materials price variances at the time of purchase. The variable standard cost per unit for materials and labor is
96. Roberts Company uses a standard costing system. The following information pertains to direct materials for
the July:
Standard price per lb.
$18.00
Actual purchase price per lb.
$16.50
Quantity purchased
3,100 lbs.
Quantity used
2,950 lbs.
Standard quantity allowed for actual output
3,000 lbs.
Actual output
1,000 units
Roberts Company reports its material price variances at the time of purchase. What is the material usage variance for Roberts Company?
97. During August, 10,000 units were produced. The standard quantity of material allowed per unit was 10
pounds at a standard cost of $3 per pound. If there was an unfavorable usage variance of $18,750 for August,
the actual quantity of materials used must be
98. During September, 40,000 units were produced. The standard quantity of material allowed per unit was 5
pounds at a standard cost of $2.50 per pound. If there was a favorable usage variance of $25,000 for September,
the actual quantity of materials used must have been
99. Max Company has developed the following standards for one of its products.
Direct materials:
15 pounds ´ $16 per pound
Direct labor:
4 hours ´ $24 per hour
Variable overhead:
4 hours ´ $14 per hour
The following activity occurred during the month of October:
Materials purchased:
10,000 pounds costing $170,000
Materials used:
7,200 pounds
Units produced:
500 units
Direct labor:
2,300 hours at $23.60/hour
The company records materials price variances at the time of purchase. The direct materials price variance is
100. All of the following are true except
101. Figure 10-3.
Bortello Corporation produces high-quality leather boots. The company has a standard cost system and has set
the following standards for materials and labor:
Leather (12 strips @ $20)
$240
Direct labor (10 hours @ $12)
$120
Total prime cost
$360
During the year Bortello produced 125 boots. Actual leather purchased was 1,700 strips, at $16 per strip. There were no beginning or ending
inventories of leather. Actual direct labor was 1,500 hours at $15 per hour.
Refer to Figure 10-3. Compute the materials price variance and the materials usage variance, respectively.
102. Figure 10-3.
Bortello Corporation produces high-quality leather boots. The company has a standard cost system and has set
the following standards for materials and labor:
Leather (12 strips @ $20)
$240
Direct labor (10 hours @ $12)
$120
Total prime cost
$360
During the year Bortello produced 125 boots. Actual leather purchased was 1,700 strips, at $16 per strip. There were no beginning or ending
inventories of leather. Actual direct labor was 1,500 hours at $15 per hour.
Refer to Figure 10-3. Calculate the labor rate variance and the labor efficiency variance, respectively.
103. Figure 10-3.
Bortello Corporation produces high-quality leather boots. The company has a standard cost system and has set
the following standards for materials and labor:
Leather (12 strips @ $20)
$240
Direct labor (10 hours @ $12)
$120
Total prime cost
$360
During the year Bortello produced 125 boots. Actual leather purchased was 1,700 strips, at $16 per strip. There were no beginning or ending
inventories of leather. Actual direct labor was 1,500 hours at $15 per hour.
Refer to Figure 10-3. Compute the total budget variances for materials and labor, respectively.