CHAPTER 22(7): PERFORMANCE EVALUATION USING VARIANCES FROM
STANDARD COSTS
1.
A variable cost system is an accounting system where standards are set for each manufacturing cost element.
a.
True
b.
False
2.
One reason not to depend solely on historical records to set standards is that there may be inefficiencies contained
in
past costs.
a.
True
b.
False
3.
Standard costs serve as a device for measuring efficiency.
a.
True
b.
False
4.
The standard cost is how much a product should cost to manufacture.
a.
True
b.
False
5.
Accounting systems that use standards for product costs are called standard cost systems.
a.
True
b.
False
6.
Accounting systems that use standards for product costs are called budgeted cost systems.
a.
True
b.
False
7.
Normally, standard costs should be revised when labor rates change to incorporate new union contracts.
a.
True
b.
False
8.
Standard costs should always be revised when they differ from actual costs.
a.
True
b.
False
9.
Financial reporting systems that are guided by the principle of exceptions concept focus attention on variances from
standard costs.
a.
True
b.
False
10.
In most businesses, cost standards are established principally by accountants.
a.
True
b.
False
11.
It is correct to rely exclusively on past cost data when establishing standards.
a.
True
b.
False
12.
Ideal standards are developed under conditions that assume no idle time, no machine breakdowns, and no materials
spoilage.
a.
True
b.
False
13.
Currently attainable standards do not allow for reasonable production difficulties.
a.
True
b.
False
14.
If employees are given bonuses for exceeding normal standards, the standards may be very effective in motivating
employees.
a.
True
b.
False
15.
The fact that workers are unable to meet a properly determined direct labor standard is sufficient cause to change
the
standard.
a.
True
b.
False
16.
Changes in technology, machinery, or production methods may make past cost data irrelevant when setting
standards.
a.
True
b.
False
17.
The difference between the standard cost of a product and its actual cost is called a variance.
a.
True
b.
False
18.
Standards are performance goals used to evaluate and control operations.
a.
True
b.
False
19.
Standards are set for only direct labor and direct materials.
a.
True
b.
False
20.
The principle of exceptions allows managers to focus on correcting variances between standard costs and actual
costs.
a.
True
b.
False
21.
Because accountants have financial expertise, they are the only ones that are able to set standard costs for the
production area.
a.
True
b.
False
22.
While setting standards, managers should never allow for spoilage or machine breakdowns in their calculations.
a.
True
b.
False
23.
A budget performance report compares actual results with the budgeted amounts and reports differences for
possible
investigation.
a.
True
b.
False
24.
A favorable cost variance occurs when actual cost is less than budgeted cost at actual volumes.
a.
True
b.
False
25.
An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds actual cost.
a.
True
b.
False
26.
Standards are designed to evaluate price and quantity variances separately.
a.
True
b.
False
27.
If the standard to produce a given amount of product is 2,000 units of direct materials at $12 and the actual was
1,600
units at $13, the direct materials quantity variance was $5,200 favorable.
a.
True
b.
False
28.
If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800
units at $12, the direct materials quantity variance was $2,200 unfavorable.
a.
True
b.
False
29.
If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800
units at $12, the direct materials price variance was $800 unfavorable.
a.
True
b.
False
30.
If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800
units at $12, the direct materials price variance was $800 favorable.
a.
True
b.
False
31.
If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800
units at $12, the direct materials quantity variance was $1,000 unfavorable.
a.
True
b.
False
32.
If the standard to produce a given amount of product is 600 direct labor hours at $17 and the actual was 500 hours
at
$15, the time variance was $1,500 unfavorable.
a.
True
b.
False
33.
If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 500 hours
at
$17, the time variance was $1,700 unfavorable.
a.
True
b.
False
34.
If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 600 hours
at
$17, the rate variance was $1,200 unfavorable.
a.
True
b.
False
35.
If the standard to produce a given amount of product is 500 direct labor hours at $15 and the actual was 600 hours
at
$17, the rate variance was $1,200 favorable.
a.
True
b.
False
36.
Standard costs are determined by multiplying expected price by expected quantity.
a.
True
b.
False
37.
Standards are more widely used for nonmanufacturing activities than for manufacturing activities.
a.
True
b.
False
38.
The direct labor time variance measures the efficiency of the direct labor force.
a.
True
b.
False
39.
The variance from standard for factory overhead cost resulting from operating at a level above or below 100% of
normal capacity is termed volume variance.
a.
True
b.
False
40.
The variance from standard for factory overhead resulting from incurring a total amount of factory overhead cost
that
is greater or less than the amount budgeted for the level of operations achieved is termed controllable variance.
a.
True
b.
False
41.
The most effective means of presenting standard factory overhead cost variance data is through a factory
overhead
cost variance report.
a.
True
b.
False
42.
Since the controllable variance measures the efficiency of using variable overhead resources, if budgeted variable
overhead exceeds actual results, the variance is favorable.
a.
True
b.
False
43.
An unfavorable fixed factory overhead volume variance may be due to a failure of supervisors to maintain an even
flow of work.
a.
True
b.
False
44.
Favorable fixed factory overhead volume variances are never harmful, since achieving them encourages managers
to
run the factory above normal capacity.
a.
True
b.
False
45.
Volume variance measures the use of fixed factory overhead resources.
a.
True
b.
False
46.
Though favorable fixed factory overhead volume variances are usually good news, if inventory levels are too high,
additional production could be harmful.
a.
True
b.
False
47.
Standard costs are a useful management tool that can be used solely as a statistical device apart from the ledger or
they can be incorporated in the accounts.
a.
True
b.
False
48.
At the end of the fiscal year, the variances from standard are usually transferred to the finished goods account.
a.
True
b.
False
49.
Standard cost variances are usually not reported in reports to stockholders.
a.
True
b.
False
50.
Non-financial measures are often linked to the inputs or outputs of an activity or process.
a.
True
b.
False
51.
A company must choose either a standard system or nonfinancial performance measures to evaluate the
performance
of a company.
a.
True
b.
False
52.
Nonfinancial performance output measures are used to improve the input measures.
a.
True
b.
False
53.
An example of a nonfinancial measure is the number of customer complaints.
a.
True
b.
False
54.
A company should only use nonfinancial performance measures when financial measures cannot be calculated.
a.
True
b.
False
55.
Which of the following conditions normally would not indicate that standard costs should be revised?
a.
The engineering department has revised product specifications in responding to customer suggestions.
b.
The company has signed a new union contract that increases the factory wages on average by $3.50 an
hour.
c.
Actual costs differed from standard costs for the preceding week.
d.
The average price of raw materials increased from $4.68 per pound to $4.82 per pound.
56.
Standards that represent levels of operation that can be attained with reasonable effort are called
a.
theoretical standards
b.
ideal standards
c.
variable standards
d.
normal standards
57.
Standard costs are used in companies for a variety of reasons. Which of the following is not one of the benefits for
using standard costs?
a.
used to indicate where changes in technology and machinery need to be made
b.
used to estimate cost of inventory
c.
used to plan direct materials, direct labor, and variable factory overhead
d.
used to control costs
58.
The principle of exceptions allows managers to focus on correcting variances between
a.
standard costs and actual costs
b.
variable costs and actual costs
c.
competitor’s costs and actual costs
d.
competitor’s costs and standard costs
59.
Periodic comparisons between planned objectives and actual performance are reported in:
a.
zero-base reports
b.
budget performance reports
c.
master budgets
d.
budgets
60.
The standard price and quantity of direct materials are separated because
a.
GAAP and IFRS reporting requires separation
b.
direct materials prices are controlled by the purchasing department and quantity used is controlled by the
production department
c.
standard prices are more difficult to estimate than standard quantities
d.
standard quantities change more frequently than standard prices