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FOR INSTRUCTOR USE ONLY
CHAPTER 23
STANDARD COSTS AND BALANCED SCORECARD
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY
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True-False Statements
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Multiple Choice Questions
39.
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51.
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2
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4
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a176.
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58.
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Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
FOR INSTRUCTOR USE ONLY
23 - 2
Brief Exercises
191.
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a197.
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a199.
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192 .
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a196.
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a198.
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a200.
10
AP
sg This question also appears in the Study Guide.
st This question also appears in a self-test at the student companion website.
a This question covers a topic in an appendix to the chapter.
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY
Exercises
201
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1,3
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a213.
4,5,10
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4,9
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a225.
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3
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9,10
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Completion Statements
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Matching
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Short-Answer Essay
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SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
Item
Type
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Learning Objective 1
1.
TF
4.
TF
40.
MC
43.
MC
46.
MC
201.
Ex
240.
SA
2.
TF
31.
TF
41.
MC
44.
MC
47.
MC
229.
C
244.
SA
3.
TF
39.
MC
42.
MC
45.
MC
191.
BE
239.
Ma
Learning Objective 2
5.
TF
48.
MC
50.
MC
52.
MC
54.
MC
32.
TF
49.
MC
51.
MC
53.
MC
180.
MC
Learning Objective 3
6.
TF
13.
TF
56.
MC
63.
MC
70.
MC
77.
MC
203.
Ex
7.
TF
14.
TF
57.
MC
64.
MC
71.
MC
78.
MC
230.
C
8.
TF
15.
TF
58.
MC
65.
MC
72.
MC
181.
MC
9.
TF
16.
TF
59.
MC
66.
MC
73.
MC
182.
MC
10.
TF
17.
TF
60.
MC
67.
MC
74.
MC
192.
BE
11.
TF
33.
TF
61.
MC
68.
MC
75.
MC
201.
Ex
12.
TF
55.
MC
62.
MC
69.
MC
76.
MC
202.
Ex
Standard Costs and Balanced Scorecard
FOR INSTRUCTOR USE ONLY
23 - 3
Learning Objective 4
18.
TF
83.
MC
97.
MC
111.
MC
125.
MC
194.
BE
217.
Ex
19.
TF
84.
MC
98.
MC
112.
MC
126.
MC
203.
Ex
218.
Ex
20.
TF
85.
MC
99.
MC
113.
MC
127.
MC
204.
Ex
219.
Ex
21.
TF
86.
MC
100.
MC
114.
MC
128.
MC
205.
Ex
231.
C
22.
TF
87.
MC
101.
MC
115.
MC
129.
MC
206.
Ex
232.
C
23.
TF
88.
MC
102.
MC
116.
MC
130.
MC
207.
Ex
233.
C
24.
TF
89.
MC
103.
MC
117.
MC
131.
MC
208.
Ex
241.
K
25.
TF
90.
MC
104.
MC
118.
MC
132.
MC
209.
Ex
242.
K
34.
TF
91.
MC
105.
MC
119.
MC
133.
MC
210.
Ex
245.
K
35.
TF
92.
MC
106.
MC
120.
MC
183.
MC
212.
Ex
79.
MC
93.
MC
107.
MC
121.
MC
184.
MC
213.
Ex
80.
MC
94.
MC
108.
MC
122.
MC
185.
MC
214.
Ex
81.
MC
95.
MC
109.
MC
123.
MC
186.
MC
215.
Ex
82.
MC
96.
MC
110.
MC
124.
MC
193.
BE
216.
Ex
Learning Objective 5
26.
TF
137.
MC
195.
BE
214.
Ex
222.
Ex
234.
C
134.
MC
138.
MC
211.
Ex
215.
Ex
226.
Ex
235.
C
135.
MC
139.
MC
212.
Ex
220.
Ex
227.
Ex
136.
MC
140.
MC
213.
Ex
221.
Ex
228.
Ex
Learning Objective 6
27.
TF
141.
MC
143.
MC
216.
Ex
236.
C
36.
TF
142.
MC
187.
MC
223.
Ex
Learning Objective 7
37.
TF
145.
MC
147.
MC
149.
MC
144.
MC
146.
MC
148.
MC
224.
Ex
Learning Objective 8
150.
MC
151.
MC
152.
MC
153.
MC
154.
MC
243.
K
Learning Objective 9a
28.
TF
155.
MC
158.
MC
188.
MC
216.
Ex
219.
Ex
29.
TF
156.
MC
159.
MC
198.
BE
217.
Ex
225.
Ex
30.
TF
157.
MC
160.
MC
199.
BE
218.
Ex
226.
Ex
Learning Objective 10a
38.
TF
166.
MC
172.
MC
178.
MC
200.
BE
222.
Ex
161.
MC
167.
MC
173.
MC
179.
MC
213.
Ex
226.
Ex
162.
MC
168.
MC
174.
MC
189.
MC
214.
Ex
227.
Ex
163.
MC
169.
MC
175.
MC
190.
MC
215.
Ex
228.
Ex
164.
MC
170.
MC
176.
MC
196.
BE
220.
Ex
237.
C
165.
MC
171.
MC
177.
MC
197.
BE
221.
Ex
238.
C
Note: TF = True-False BE = Brief Exercise C = Completion
MC = Multiple Choice Ex = Exercise SA = Short Answer
MA = Matching
Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
FOR INSTRUCTOR USE ONLY
23 - 4
CHAPTER LEARNING OBJECTIVES
1. Distinguish between a standard and a budget. Both standards and budgets are predeter-
mined costs. The primary difference is that a standard is a unit amount, whereas a budget is a
total amount. A standard may be regarded as the budgeted cost per unit of product.
2. Identify the advantages of standard costs. Standard costs offer a number of advantages.
They (a) facilitate management planning, (b) promote greater economy (c) are useful in
setting selling prices, (d) contribute to management control, (e) permit "management by
exception," and (f) simplify the costing of inventories and reduce clerical costs.
3. Describe how companies set standards. The direct materials price standard should be
based on the delivered cost of raw materials plus an allowance for receiving and handling.
The direct materials quantity standard should establish the required quantity plus an
allowance for waste and spoilage.
The direct labor price standard should be based on current wage rates and anticipated
adjustments such as COLAs. It also generally includes payroll taxes and fringe benefits.
Direct labor quantity standards should be based on required production time plus an
allowance for rest periods, cleanup, machine setup, and machine downtime.
For manufacturing overhead, a standard predetermined overhead rate is used. It is based on
an expected standard activity index such as standard direct labor hours or standard machine
hours.
4. State the formulas for determining direct materials and direct labor variances. The
formulas for direct materials variances are:
(Actual quantity × Actual price) – (Standard quantity × Standard price) = Total materials variance
(Actual quantity × Actual price) – (Actual quantity × Standard price) = Materials price variance
(Actual quantity × Standard price) – (Standard quantity × Standard price) = Materials quantity variance
The formulas for the direct labor variances are:
(Actual hours × Actual rate) – (Standard hours × Standard rate) = Total labor variance
(Actual hours × Actual rate) – (Actual hours × Standard rate) = Labor price variance
(Actual hours × Standard rate) – (Standard hours × Standard rate) = Labor quantity variance
5. State the formula for determining the total manufacturing overhead variance. The
formula for the total manufacturing overhead variance is:
(Actual overhead) – (Overhead applied at standard hours allowed) = Total overhead variance
6. Discuss the reporting of variances. Variances are reported to management in variance
reports. The reports facilitate management by exception by highlighting significant
differences.
7. Prepare an income statement for management under a standard costing system. Under
a standard costing system, an income statement prepared for management will report cost of
goods sold at standard cost and then disclose each variance separately,
8. Describe the balanced scorecard approach to performance evaluation. The balanced
scorecard incorporates financial and nonfinancial measures in an integrated system that links
performance measurement and a company’s strategic goals. It employs four perspectives:
financial, customer, internal processes, and learning and growth. Objectives are set within
each of these perspectives that link to objectives within the other perspectives.
Standard Costs and Balanced Scorecard
23 - 5
a9. Identify the features of a standard cost accounting system. In a standard cost accounting
system, companies journalize and post standard costs, and they maintain separate variance
accounts in the ledger.
a10.Compute overhead controllable and volume variance. The total overhead variance is
generally analyzed through a price variance and a quantity variance. The name usually given
to the price variance is the overhead controllable variance. The quantity variance is referred
to as the overhead volume variance.
TRUE-FALSE STATEMENTS
1. Inventories cannot be valued at standard cost in financial statements.
2. Standard cost is the industry average cost for a particular item.
3. A standard is a unit amount, whereas a budget is a total amount.
4. Standard costs may be incorporated into the accounts in the general ledger.
5. An advantage of standard costs is that they simplify costing of inventories and reduce
clerical costs.
6. Setting standard costs is relatively simple because it is done entirely by accountants.
7. Normal standards should be rigorous but attainable.
8. Actual costs that vary from standard costs always indicate inefficiencies.
9. Ideal standards will generally result in favorable variances for the company.
10. Normal standards incorporate normal contingencies of production into the standards.
11. Once set, normal standards should not be changed during the year.
Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
23 - 6
12. In developing a standard cost for direct materials, a price factor and a quantity factor must
be considered.
13. A direct labor price standard is frequently called the direct labor efficiency standard.
14. The standard predetermined overhead rate must be based on direct labor hours as the
standard activity index.
15. Standard cost cards are the subsidiary ledger for the Work in Process account in a
standard cost system.
16. A variance is the difference between actual costs and standard costs.
17. If actual costs are less than standard costs, the variance is favorable.
18. A materials quantity variance is calculated as the difference between the standard direct
materials price and the actual direct materials price multiplied by the actual quantity of
direct materials used.
19. An unfavorable labor quantity variance indicates that the actual number of direct labor
hours worked was greater than the number of direct labor hours that should have been
worked for the output attained.
20. Standard cost + price variance + quantity variance = Budgeted cost.
21. The overhead controllable variance relates primarily to fixed overhead costs.
22. The overhead volume variance relates only to fixed overhead costs.
23. If production exceeds normal capacity, the overhead volume variance will be favorable.
Standard Costs and Balanced Scorecard
23 - 7
24. There could be instances where the production department is responsible for a direct
materials price variance.
25. The starting point for determining the causes of an unfavorable materials price variance is
the purchasing department.
26. The total overhead variance is the difference between actual overhead costs and
overhead costs applied to work done.
27. Variance analysis facilitates the principle of "management by exception."
28. A credit to a Materials Quantity Variance account indicates that the actual quantity of
direct materials used was greater than the standard quantity of direct materials allowed.
29. A standard cost system may be used with a job order cost system but not with a process
cost system.
30. A debit to the Overhead Volume Variance account indicates that the standard hours
allowed for the output produced was greater than the standard hours at normal capacity.
31. In concept, standards and budgets are essentially the same.
32. Standards may be useful in setting selling prices for finished goods.
33. The materials price standard is based on the purchasing department's best estimate of
the cost of raw materials.
34. The materials price variance is normally caused by the production department.
35. The use of an inexperienced worker instead of an experienced employee can result in a
favorable labor price variance but probably an unfavorable quantity variance.
Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
23 - 8
36. In using variance reports, top management normally looks carefully at every variance.
37. The use of standard costs in inventory costing is prohibited in financial statements.
Reporting
a38. The overhead controllable variance is the difference between the actual overhead costs
incurred and the budgeted costs for the standard hours allowed.
IMA: Cost Management
Answers to True-False Statements
MULTIPLE CHOICE QUESTIONS
39. What is a standard cost?
a. The total number of units times the budgeted amount expected
b. Any amount that appears on a budget
c. The total amount that appears on the budget for product costs
d. The amount management thinks should be incurred to produce a good or service
40. A standard cost is
a. a cost which is paid for a group of similar products.
b. the average cost in an industry.
c. a predetermined cost.
d. the historical cost of producing a product last year.
41. The difference between a budget and a standard is that
a. a budget expresses what costs were, while a standard expresses what costs should
be.
b. a budget expresses management's plans, while a standard reflects what actually
happened.
c. a budget expresses a total amount, while a standard expresses a unit amount.
d. standards are excluded from the cost accounting system, whereas budgets are
generally incorporated into the cost accounting system.
Standard Costs and Balanced Scorecard
23 - 9
42. Standard costs may be used by
a. universities.
b. governmental agencies.
c. charitable organizations.
d. all of these.
43. Which of the following statements is false?
a. A standard cost is more accurate than a budgeted cost.
b. A standard is a unit amount.
c. In concept, standards and budgets are essentially the same.
d. The standard cost of a product is equivalent to the budgeted cost per unit of product.
44. Budget data are not journalized in cost accounting systems with the exception of
a. the application of manufacturing overhead.
b. direct labor budgets.
c. direct materials budgets.
d. cash budget data.
45. It is possible that a company's financial statements may report inventories at
a. budgeted costs.
b. standard costs.
c. both budgeted and standard costs.
d. none of these.
46. A standard differs from a budget because a standard
a. is a predetermined cost.
b. contributes to management planning and control.
c. is a unit amount.
d. none of the above; a standard does not differ from a budget.
47. Marburg Co. expects direct materials cost of $6 per unit for 100,000 units (a total of
$600,000 of direct materials costs). Marburg’s standard direct materials cost and
budgeted direct materials cost is
Standard Budgeted
a. $6 per unit $600,000 per year
b. $6 per unit $6 per unit
c. $600,000 per year $6 per unit
d. $600,000 per year $600,000 per year
Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
23 - 10
48. Using standard costs
a. makes employees less “cost-conscious.”
b. provides a basis for evaluating cost control.
c. makes management by exception more difficult.
d. increases clerical costs.
49. Using standard costs
a. can make management planning more difficult.
b. promotes greater economy.
c. does not help in setting prices.
d. weakens management control.
50. If standard costs are incorporated into the accounting system,
a. it may simplify the costing of inventories and reduce clerical costs.
b. it can eliminate the need for the budgeting process.
c. the accounting system will produce information which is less relevant than the
historical cost accounting system.
d. approval of the shareholders is required.
51. Standard costs
a. may show past cost experience.
b. help establish expected future costs.
c. are the budgeted cost per unit in the present.
d. all of these.
52. Which of the following statements about standard costs is false?
a. Properly set standards should promote efficiency.
b. Standard costs facilitate management planning.
c. Standards should not be used in "management by exception."
d. Standard costs can simplify the costing of inventories.
53. Which of the following is not considered an advantage of using standard costs?
a. Standard costs can reduce clerical costs.
b. Standard costs can be useful in setting prices for finished goods.
c. Standard costs can be used as a means of finding fault with performance.
d. Standard costs can make employees "cost-conscious."
Standard Costs and Balanced Scorecard
23 - 11
54. If a company is concerned with the potential negative effects of establishing standards, it
should
a. set loose standards that are easy to fulfill.
b. offer wage incentives to those meeting standards.
c. not employ any standards.
d. set tight standards in order to motivate people.
55. A standard which represents an efficient level of performance that is attainable under
expected operating conditions is called a(n)
a. ideal standard.
b. loose standard.
c. tight standard.
d. normal standard.
56. Ideal standards
a. are rigorous but attainable.
b. are the standards generally used in a master budget.
c. reflect optimal performance under perfect operating conditions.
d. will always motivate employees to achieve the maximum output.
57. The final decision as to what standard costs should be is the responsibility of
a. the quality control engineer.
b. the managerial accountants.
c. the purchasing agent.
d. management.
58. The labor time requirements for standards may be determined by the
a. sales manager.
b. product manager.
c. industrial engineers.
d. payroll department manager.
59. The two levels that standards may be set at are
a. normal and fully efficient.
b. normal and ideal.
c. ideal and less efficient.
d. fully efficient and fully effective.
Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
23 - 12
60. The most rigorous of all standards is the
a. normal standard.
b. realistic standard.
c. ideal standard.
d. conceivable standard.
61. Most companies that use standards set them at
a. the normal level.
b. a conceivable level.
c. the ideal level.
d. last year's level.
62. A managerial accountant
1. does not participate in the standard setting process.
2. provides knowledge of cost behaviors in the standard setting process.
3. provides input of historical costs to the standard setting process.
a. 1
b. 2
c. 3
d. 2 and 3
63. The cost of freight-in
a. is to be included in the standard cost of direct materials.
b. is considered a selling expense.
c. should have a separate standard apart from direct materials.
d. should not be included in a standard cost system.
64. The direct materials quantity standard would not be expressed in
a. pounds.
b. barrels.
c. dollars.
d. board feet.
65. The direct materials quantity standard should
a. exclude unavoidable waste.
b. exclude quality considerations.
c. allow for normal spoilage.
d. always be expressed as an ideal standard.
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66. The direct labor quantity standard is sometimes called the direct labor
a. volume standard.
b. effectiveness standard.
c. efficiency standard.
d. quality standard.
67. A manufacturing company would include setup and downtime in their direct
a. materials price standard.
b. materials quantity standard.
c. labor price standard.
d. labor quantity standard.
68. Allowance for spoilage is part of the direct
a. materials price standard.
b. materials quantity standard.
c. labor price standard.
d. labor quantity standard.
69. The total standard cost to produce one unit of product is shown
a. at the bottom of the income statement.
b. at the bottom of the balance sheet.
c. on the standard cost card.
d. in the Work in Process Inventory account.
70. An unfavorable materials quantity variance would occur if
a. more materials were purchased than were used.
b. actual pounds of materials used were less than the standard pounds allowed.
c. actual labor hours used were greater than the standard labor hours allowed.
d. actual pounds of materials used were greater than the standard pounds allowed.
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71. Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The
allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase
price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and
receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a
raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and fringe
benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance
for rest periods and setup is .2 hours and .1 hours, respectively.
The standard direct materials price per pound is
a. $1.96.
b. $2.00.
c. $2.13
d. $2.17
72. Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The
allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase
price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and
receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a
raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and fringe
benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance
for rest periods and setup is .2 hours and .1 hours, respectively.
The standard direct materials quantity per unit is
a. 2.6 pounds.
b. 2.7 pounds.
c. 2.9 pounds.
d. 3.0 pounds.
73. Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The
allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase
price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and
receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a
raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and fringe
benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance
for rest periods and setup is .2 hours and .1 hours, respectively.
The standard direct labor rate per hour is
a. $ 12.00.
b. $ 12.30.
c. $15.60.
d. $15.90.
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74. Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The
allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase
price is $2 per pound, but a 2% discount is usually taken. Freight costs are $.10 per pound, and
receiving and handling costs are $.07 per pound. The hourly wage rate is $12.00 per hour, but a
raise which will average $.30 will go into effect soon. Payroll taxes are $1.20 per hour, and fringe
benefits average $2.40 per hour. Standard production time is 1 hour per unit, and the allowance
for rest periods and setup is .2 hours and .1 hours, respectively.
The standard direct labor hours per unit is
a. 1 hour.
b. 1.1 hours.
c. 1.2 hours.
d. 1.3 hours.
75. The standard direct materials quantity does not include allowances for
a. unavoidable waste.
b. normal spoilage.
c. unexpected spoilage.
d. all of the above are included.
76. Allowances should not be made in the direct labor quantity standard for
a. wasted time.
b. rest periods.
c. cleanup.
d. machine downtime.
77. The standard predetermined overhead rate used in setting the standard overhead cost is
determined by dividing
a. budgeted overhead costs by an expected standard activity index.
b. actual overhead costs by an expected standard activity index.
c. budgeted overhead costs by actual activity.
d. actual overhead costs by actual activity.
78. Hofburg’s standard quantities for 1 unit of product include 2 pounds of materials and 1.5
labor hours. The standard rates are $2 per pound and $7 per hour. The standard
overhead rate is $8 per direct labor hour. The total standard cost of Hofburg’s product is
a. $14.50.
b. $17.00.
c. $22.50.
d. $26.50.
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79. Which of the following statements is true?
a. Variances are the differences between total actual costs and total standard costs.
b. When actual costs exceed standard costs, the variance is favorable.
c. An unfavorable variance results when actual costs are decreasing but standards are
not changed.
d. All of the above are true.
80. Unfavorable materials price and quantity variances are generally the responsibility of the
Price Quantity
a. Purchasing department Purchasing Department
b. Purchasing department Production Department
c. Production department Production Department
d. Production Department Purchasing Department
81. Scorpion Production Company planned to use 1 yard of plastic per unit budgeted at $81 a
yard. However, the plastic actually cost $80 per yard. The company actually made 3,900
units, although it had planned to make only 3,300 units. Total yards used for production
were 3,960. How much is the total materials variance?
a. $48,600 U
b. $4,860 U
c. $3,960 F
d. $900 U
82. If actual direct materials costs are greater than standard direct materials costs, it means
that
a. actual costs were calculated incorrectly.
b. the actual unit price of direct materials was greater than the standard unit price of
direct materials.
c. the actual unit price of raw materials or the actual quantities of raw materials used was
greater than the standard unit price or standard quantities of raw materials expected.
d. the purchasing agent or the production foreman is inefficient.
83. If actual costs are greater than standard costs, there is a(n)
a. normal variance.
b. unfavorable variance.
c. favorable variance.
d. error in the accounting system.
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84. A total materials variance is analyzed in terms of
a. price and quantity variances.
b. buy and sell variances.
c. quantity and quality variances.
d. tight and loose variances.
85. A company developed the following per-unit standards for its product: 2 pounds of direct
materials at $4 per pound. Last month, 1,500 pounds of direct materials were purchased
for $5,700. The direct materials price variance for last month was
a. $5,700 favorable.
b. $300 favorable.
c. $150 favorable.
d. $300 unfavorable.
86. The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month,
11,200 gallons of direct materials that actually cost $42,400 were used to produce 6,000
units of product. The direct materials quantity variance for last month was
a. $3,200 favorable.
b. $2,400 favorable.
c. $3,200 unfavorable.
d. $5,600 unfavorable.
87. The purchasing agent of the Poplin, Inc. ordered materials of lower quality in an effort to
economize on price. What variance will most likely result?
a. Favorable materials quantity variance
b. Favorable total materials variance
c. Unfavorable materials price variance
d. Unfavorable labor quantity variance
88. The per-unit standards for direct labor are 2 direct labor hours at $15 per hour. If in
producing 1,800 units, the actual direct labor cost was $48,000 for 3,000 direct labor
hours worked, the total direct labor variance is
a. $1,800 unfavorable.
b. $6,000 favorable.
c. $3,750 unfavorable.
d. $6,000 unfavorable.
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89. The standard rate of pay is $20 per direct labor hour. If the actual direct labor payroll was
$117,600 for 6,000 direct labor hours worked, the direct labor price (rate) variance is
a. $2,400 unfavorable.
b. $2,400 favorable.
c. $3,000 unfavorable.
d. $3,000 favorable.
90. The standard number of hours that should have been worked for the output attained is
6,000 direct labor hours and the actual number of direct labor hours worked was 6,300. If
the direct labor price variance was $3,150 unfavorable, and the standard rate of pay was
$9 per direct labor hour, what was the actual rate of pay for direct labor?
a. $8.50 per direct labor hour
b. $7.50 per direct labor hour
c. $9.50 per direct labor hour
d. $9.00 per direct labor hour
91. Which one of the following statements is true?
a. If the materials price variance is unfavorable, then the materials quantity variance
must also be unfavorable.
b. If the materials price variance is unfavorable, then the materials quantity variance
must be favorable.
c. Price and quantity variances move in the same direction. If one is favorable, the others
will be as well.
d. There is no correlation of favorable or unfavorable for price and quantity variances.
92. Variances from standards are
a. expressed in total dollars.
b. expressed on a per-unit basis.
c. expressed on a percentage basis.
d. all of these.
93. A favorable variance
a. is an indication that the company is not operating in an optimal manner.
b. implies a positive result if quality control standards are met.
c. implies a positive result if standards are flexible.
d. means that standards are too loosely specified.
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94. The total materials variance is equal to the
a. materials price variance.
b. difference between the materials price variance and materials quantity variance.
c. product of the materials price variance and the materials quantity variance.
d. sum of the materials price variance and the materials quantity variance.
95. Information on Jayhawk's direct labor costs for the month of August is as follows:
Actual rate $10
Standard hours 11,000
Actual hours 10,000
Direct labor price variance—unfavorable $4,000
What was the standard rate for August?
a. $9.96 c. $10.40
b. $9.60 d. $10.04
96. The total variance is $35,000. The total materials variance is $14,000. The total labor
variance is twice the total overhead variance. What is the total overhead variance?
a. $3,500
b. $7,000
c. $10,500
d. $14,000
97. The formula for the materials price variance is
a. (AQ × SP) – (SQ × SP).
b. (AQ × AP) – (AQ × SP).
c. (AQ × AP) – (SQ × SP).
d. (AQ × SP) – (SQ × AP).
98. The formula for the materials quantity variance is
a. (SQ × AP) – (SQ × SP).
b. (AQ × AP) – (AQ × SP).
c. (AQ × SP) – (SQ × SP).
d. (AQ × AP) – (SQ × SP).
99. A company uses 8,400 pounds of materials and exceeds the standard by 300 pounds.
The quantity variance is $1,800 unfavorable. What is the standard price?
a. $2
b. $4
c. $6
d. Cannot be determined from the data provided.
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100. A company purchases 20,000 pounds of materials. The materials price variance is $4,000
favorable. What is the difference between the standard and actual price paid for the
materials?
a. $1.00
b. $0.20
c. $5.00
d. Cannot be determined from the data provided.
101. A company uses 20,000 pounds of materials for which it paid $6.00 a pound. The
materials price variance was $15,000 unfavorable. What is the standard price per pound?
a. $0.75
b. $5.25
c. $6.00
d. $6.75
102. If the materials price variance is $3,600 F and the materials quantity and labor variances
are each $2,700 U, what is the total materials variance?
a. $3,600 F
b. $2,700 U
c. $900 F
d. $4,050 U
103. Edgar, Inc. has a materials price standard of $2.00 per pound. Six thousand pounds of
materials were purchased at $2.20 a pound. The actual quantity of materials used was
6,000 pounds, although the standard quantity allowed for the output was 5,400 pounds.
Edgar, Inc.'s materials price variance is
a. $120 U.
b. $1,200 U.
c. $1,080 U.
d. $1,200 F.
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104. Edgar, Inc. has a materials price standard of $2.00 per pound. Six thousand pounds of
materials were purchased at $2.20 a pound. The actual quantity of materials used was
6,000 pounds, although the standard quantity allowed for the output was 5,400 pounds.
Edgar, Inc.'s materials quantity variance is
a. $1,200 U.
b. $1,200 F.
c. $1,320 F.
d. $1,320 U.
105. Edgar, Inc. has a materials price standard of $2.00 per pound. Six thousand pounds of
materials were purchased at $2.20 a pound. The actual quantity of materials used was
6,000 pounds, although the standard quantity allowed for the output was 5,400 pounds.
Edgar, Inc.'s total materials variance is
a. $2,400 U.
b. $2,400 F.
c. $2,520 U.
d. $2,520 F.
106. The standard quantity allowed for the units produced was 4,500 pounds, the standard
price was $2.50 per pound, and the materials quantity variance was $375 favorable. Each
unit uses 1 pound of materials. How many units were actually produced?
a. 4,350
b. 4,500
c. 11,625
d. 4,650
107. The matrix approach to variance analysis
a. will yield slightly different variances than the formula approach.
b. is more accurate than the formula approach.
c. does not separate the price and quantity variance calculations.
d. provides a convenient structure for determining each variance.
108. Labor efficiency is measured by the
a. materials quantity variance.
b. total labor variance.
c. labor quantity variance.
d. labor rate variance.
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109. An unfavorable labor quantity variance may be caused by
a. paying workers higher wages than expected.
b. misallocation of workers.
c. worker fatigue or carelessness.
d. higher pay rates mandated by union contracts.
110. The investigation of materials price variance usually begins in the
a. first production department.
b. purchasing department.
c. controller's office.
d. accounts payable department.
111. The investigation of a materials quantity variance usually begins in the
a. production department.
b. purchasing department.
c. sales department.
d. controller's department.
112. If the labor quantity variance is unfavorable and the cause is inefficient use of direct labor,
the responsibility rests with the
a. sales department.
b. production department.
c. budget office.
d. controller's department.
113. Monster Company produces a product requiring 3 direct labor hours at $16.00 per hour.
During January, 2,000 products are produced using 6,300 direct labor hours. Monster’s
actual payroll during January was $98,280. What is the labor quantity variance?
a. $2,280 U
b. $4,800 F
c. $2,520 F
d. $4,800 U
114. A company developed the following per-unit standards for its product: 2 gallons of direct
materials at $8 per gallon. Last month, 3,000 gallons of direct materials were purchased
for $22,800. The direct materials price variance for last month was
a. $22,800 favorable.
b. $600 favorable.
c. $1,200 favorable.
d. $1,200 unfavorable.
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115. The per-unit standards for direct materials are 2 pounds at $5 per pound. Last month,
11,200 pounds of direct materials that actually cost $53,000 were used to produce 6,000
units of product. The direct materials quantity variance for last month was
a. $4,000 favorable.
b. $3,000 favorable.
c. $4,000 unfavorable.
d. $7,000 unfavorable.
116. The per-unit standards for direct labor are 1.5 direct labor hours at $15 per hour. If in
producing 2,400 units, the actual direct labor cost was $46,000 for 3,000 direct labor
hours worked, the total direct labor variance is
a. $2,400 unfavorable.
b. $8,000 favorable.
c. $5,000 unfavorable.
d. $8,000 unfavorable.
117. The standard rate of pay is $12 per direct labor hour. If the actual direct labor payroll was
$47,040 for 4,000 direct labor hours worked, the direct labor price (rate) variance is
a. $960 unfavorable.
b. $960 favorable.
c. $1,200 unfavorable.
d. $1,200 favorable.
118. The standard number of hours that should have been worked for the output attained is
10,000 direct labor hours and the actual number of direct labor hours worked was 10,500.
If the direct labor price variance was $10,500 unfavorable, and the standard rate of pay
was $12 per direct labor hour, what was the actual rate of pay for direct labor?
a. $11 per direct labor hour
b. $9 per direct labor hour
c. $13 per direct labor hour
d. $12 per direct labor hour
119. A company purchases 12,000 pounds of materials. The materials price variance is $6,000
favorable. What is the difference between the standard and actual price paid for the
materials?
a. $1.00
b. $.50
c. $2.00
d. $6.00
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120. A company uses 40,000 gallons of materials for which they paid $7.00 a gallon. The
materials price variance was $80,000 favorable. What is the standard price per gallon?
a. $2
b. $5
c. $7
d. $9
121. All Urban Company produces a product requiring 4 pounds of material costing $3.50 per
pound. During December, All Urban purchased 4,200 pounds of material for $14,112 and
used the material to produce 500 products. What was the materials price variance for
December?
a. $560 F
b. $588 F
c. $112 U
d. $672 U
122. Shipp, Inc. manufactures a product requiring two pounds of direct material. During 2013,
Shipp purchases 24,000 pounds of material for $99,200 when the standard price per
pound is $4. During 2013, Shipp uses 22,000 pounds to make 12,000 products. The
standard direct material cost per unit of finished product is
a. $8.27.
b. $9.01.
c. $8.00.
d. $8.53.
123. Clark Company manufactures a product with a standard direct labor cost of two hours at
$18.00 per hour. During July, 2,000 units were produced using 4,200 hours at $18.30 per
hour. The labor quantity variance was
a. $3,660 F.
b. $3,600 U.
c. $2,460 U.
d. $3,660 U.
124. Clark Company manufactures a product with a standard direct labor cost of two hours at
$18.00 per hour. During July, 2,000 units were produced using 4,200 hours at $18.30 per
hour. The labor price variance was
a. $1,260 U.
b. $4,860 U.
c. $4,860 F.
d. $3,600 U.
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125. A company developed the following per unit materials standards for its product: 3 pounds
of direct materials at $5 per pound. If 12,000 units of product were produced last month
and 37,500 pounds of direct materials were used, the direct materials quantity variance
was
a. $4,500 favorable.
b. $7,500 unfavorable.
c. $4,500 unfavorable.
d. $7,500 favorable.
126. The standard direct labor cost for producing one unit of product is 5 direct labor hours at a
standard rate of pay of $20. Last month, 15,000 units were produced and 73,500 direct
labor hours were actually worked at a total cost of $1,350,000. The direct labor quantity
variance was
a. $30,000 unfavorable.
b. $45,000 unfavorable.
c. $45,000 favorable.
d. $30,000 favorable.
127. Atkins, Inc. produces a product requiring 8 pounds of material at $1.50 per pound. Atkins
produced 10,000 units of this product during 2013 resulting in a $30,000 unfavorable
materials quantity variance. How many pounds of direct material did Atkins use during
2013?
a. 100,000 pounds
b. 80,000 pounds
c. 160,000 pounds
d. 125,000 pounds
128. Dillon has a standard of 1.5 pounds of materials per unit, at $6 per pound. In producing
2,000 units, Dillon used 3,100 pounds of materials at a total cost of $18,135. Dillon's total
variance is
a. $450 F.
b. $135 U.
c. $465 U.
d. $600 U.
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129. Dillon has a standard of 1.5 pounds of materials per unit, at $6 per pound. In producing
2,000 units, Dillon used 3,100 pounds of materials at a total cost of $18,135. Dillon's
materials price variance is
a. $135 U.
b. $465 F.
c. $600 F.
d. $1,050 F.
130. Dillon has a standard of 1.5 pounds of materials per unit, at $6 per pound. In producing
2,000 units, Dillon used 3,100 pounds of materials at a total cost of $18,135. Dillon's
materials quantity variance is
a. $135 F.
b. $465 U.
c. $600 U.
d. $1,050 U.
131. Dillon has a standard of 2 hours of labor per unit, at $12 per hour. In producing 2,000
units, Dillon used 3,850 hours of labor at a total cost of $46,970. Dillon's total labor
variance is
a. $1,030 U.
b. $800 U.
c. $1,030 F.
d. $1,930 F.
132. Dillon has a standard of 2 hours of labor per unit, at $12 per hour. In producing 2,000
units, Dillon used 3,850 hours of labor at a total cost of $46,970. Dillon's labor price
variance is
a. $770 U.
b. $800 U.
c. $1,030 F.
d. $1,930 F.
133. Dillon has a standard of 2 hours of labor per unit, at $12 per hour. In producing 2,000
units, Dillon used 3,850 hours of labor at a total cost of $46,970. Dillon's labor quantity
variance is
a. $770 U.
b. $770 F.
c. $1,800 F.
d. $1,930 F.
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134. Which one of the following describes the total overhead variance?
a. The difference between what was actually incurred and the flexible budget amount
b. The difference between what was actually incurred and overhead applied
c. The difference between the overhead applied and the flexible budget amount
d. The difference between what was actually incurred and the total production budget
135. Manufacturing overhead costs are applied to work in process on the basis of
a. actual hours worked.
b. standard hours allowed.
c. ratio of actual variable to fixed costs.
d. actual overhead costs incurred.
136. The total overhead variance is the difference between the
a. actual overhead costs and overhead costs applied based on standard hours allowed.
b. actual overhead costs and overhead costs applied based on actual hours.
c. overhead costs applied based on actual hours and overhead costs applied based on
standard hours allowed.
d. the actual overhead costs and the standard direct labor costs.
137. The predetermined overhead rate for Zane Company is $5, comprised of a variable
overhead rate of $3 and a fixed rate of $2. The amount of budgeted overhead costs at
normal capacity of $150,000 was divided by normal capacity of 30,000 direct labor hours,
to arrive at the predetermined overhead rate of $5. Actual overhead for June was $9,500
variable and $6,050 fixed, and standard hours allowed for the product produced in June
was 3,000 hours. The total overhead variance is
a. $3,050 F.
b. $550 F.
c. $550 U.
d. $3,050 U.
138. The predetermined overhead rate for Zane Company is $5, comprised of a variable
overhead rate of $3 and a fixed rate of $2. The amount of budgeted overhead costs at
normal capacity of $150,000 was divided by normal capacity of 30,000 direct labor hours,
to arrive at the predetermined overhead rate of $5. Actual overhead for June was $8,900
variable and $5,400 fixed, and 1,500 units were produced. The direct labor standard is 2
hours per unit produced. The total overhead variance is
a. $1,800 F.
b. $700 F.
c. $700 U.
d. $1,800 U.
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139. Which of the following is true?
a. The form, content, and frequency of variance reports vary considerably among
companies.
b. The form, content, and frequency of variance reports do not vary among companies.
c. The form and content of variance reports vary considerably among companies, but the
frequency is always weekly.
d. The form and content of variance reports are consistent among companies, but the
frequency varies.
140. Denmark Corporation’s variance report for the purchasing department reports 1,000 units
of material A purchased and 2,400 units of material B purchased. It also reports standard
prices of $2 for Material A and $3 for Material B. Actual prices reported are $2.10 for
Material A and $2.80 for Material B. Denmark should report a total price variance of
a. $380 F.
b. $340 F.
c. $340 U.
d. $380 U.
141. When is a variance considered to be 'material'?
a. When it is large compared to the actual cost
b. When it is infrequent
c. When it is unfavorable
d. When it could have been controlled more effectively
142. Variance reports are
a. external financial reports.
b. SEC financial reports.
c. internal reports for management.
d. all of these.
143. In using variance reports, management looks for
a. total assets invested.
b. significant variances.
c. competitors’ costs in comparison to the company's costs.
d. more efficient ways of valuing inventories.
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144. Parnell Company prepared its income statement for internal use. How would amounts for
cost of goods sold and variances appear?
a. Cost of goods sold would be at actual costs, and variances would be reported
separately.
b. Cost of goods sold would be combined with the variances, and the net amount
reported at standard cost.
c. Cost of goods sold would be at standard costs, and variances would be reported
separately.
d. Cost of goods sold would be combined with the variances, and the net amount
reported at actual cost.
145. Alex Co. prepared its income statement for management using a standard cost
accounting system. Which of the following appears at the “standard” amount?
a. Sales
b. Selling expenses
c. Gross profit
d. Cost of goods sold
146. The costing of inventories at standard cost for external financial statement reporting
purposes is
a. not permitted.
b. preferable to reporting at actual costs.
c. in accordance with generally accepted accounting principles if significant differences
exist between actual and standard costs.
d. in accordance with generally accepted accounting principles if significant differences
do not exist between actual and standard costs.
147. Income statements prepared internally for management often show cost of goods sold at
standard cost and variances are
a. separately disclosed.
b. deducted as other expenses and revenues.
c. added to cost of goods sold.
d. closed directly to retained earnings.
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148. In Zero Company’s income statement, they report gross profit of $55,000 at standard and
the following variances:
Materials price $ 420 F
Materials quantity 600 F
Labor price 420 U
Labor quantity 1,000 F
Overhead 900 F
Zero would report actual gross profit of
a. $51,660.
b. $52,500.
c. $57,500.
d. $58,340.
149. In Zero Company’s income statement, they report actual gross profit of $52,500 and the
following variances:
Materials price $ 420 F
Materials quantity 600 F
Labor price 420 U
Labor quantity 1,000 F
Overhead 900 F
Zero would report gross profit at standard of
a. $46,660.
b. $47,500.
c. $55,000.
d. $53,340.
150. The balanced scorecard
a. incorporates financial and nonfinancial measures in an integrated system.
b. is based on financial measures.
c. is based on nonfinancial measures.
d. does not use financial or nonfinancial measures.
151. Which is not one of the four most commonly used perspectives on a balanced scorecard?
a. The financial perspective
b. The customer perspective
c. The external process perspective
d. The learning and growth perspective
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152. The balanced scorecard approach
a. uses only financial measures to evaluate performance.
b. uses rather vague, open statements when setting objectives in order to allow
managers and employees flexibility.
c. normally sets the financial objectives first, and then sets the objectives in the other
perspectives to accomplish the financial objectives.
d. evaluates performance using about 10 different perspectives in order to effectively
incorporate all areas of the organization.
153. The customer perspective of the balanced scorecard approach
a. is the most traditional view of the company.
b. evaluates the internal operating processes critical to the success of the organization.
c. evaluates how well the company develops and retains its employees.
d. evaluates the company from the viewpoint of those people who buy its products or
services.
154. The perspectives included in the balanced scorecard approach include all of the following
except the
a. internal process perspective.
b. capacity utilization perspective.
c. learning and growth perspective.
d. customer perspective.
a155. If 10,000 pounds of direct materials are purchased for $9,300 on account and the
standard cost is $.90 per pound, the journal entry to record the purchase is
a. Raw Materials Inventory ..................................................... 9,300
Accounts Payable ...................................................... 9,300
b. Work In Process Inventory .................................................. 9,300
Accounts Payable ...................................................... 9,000
Materials Quantity Variance ....................................... 300
c. Raw Materials Inventory ..................................................... 9,300
Accounts Payable ...................................................... 9,000
Materials Price Variance ............................................ 300
d. Raw Materials Inventory ..................................................... 9,000
Materials Price Variance ..................................................... 300
Accounts Payable ...................................................... 9,300
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a156. Debit balances in variance accounts represent
a. unfavorable variances.
b. favorable variances.
c. favorable for price variances; unfavorable for quantity variances.
d. favorable for quantity variances; unfavorable for price variances.
a157. If a company purchases raw materials on account for $19,830 when the standard cost is
$18,900, it will
a. debit Materials Price Variance for $930.
b. credit Materials Price Variance for $930.
c. debit Materials Quantity Variance for $930.
d. credit Material Quantity Variance for $930.
a158. If a company issues raw materials to production at a cost of $18,900 when the standard
cost is $18,300, it will
a. debit Materials Price Variance for $600.
b. credit Materials Price Variance for $600.
c. debit Materials Quantity Variance for $600.
d. credit Material Quantity Variance for $600.
a159. If a company incurs direct labor cost of $82,000 when the standard cost is $84,000, it will
a. debit Labor Price Variance for $2,000.
b. credit Labor Price Variance for $2,000.
c. debit Labor Quantity Variance for $2,000.
d. credit Labor Quantity Variance for $2,000.
Solution: $82,000 - $84,000 = $2,000 CR Labor Price Variance.
a160. If a company assigns factory labor to production at a cost of $84,000 when standard cost
is $80,000, it will
a. debit Labor Price Variance for $4,000.
b. credit Labor Price Variance for $4,000.
c. debit Labor Quantity Variance for $4,000.
d. credit Labor Quantity Variance for $4,000.
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a161. The overhead variances measure whether overhead costs
Are Effectively Managed Were Used Effectively
a. Controllable Controllable and Volume
b. Controllable Volume
c. Controllable and Volume Controllable
d. Volume Controllable
a162. The overhead volume variance is
a. actual overhead less overhead budgeted for actual hours.
b. actual overhead less overhead budgeted for standard hours allowed.
c. overhead budgeted for actual hours less applied overhead.
d. the fixed overhead rate times the difference between normal capacity hours and
standard hours allowed.
a163. Budgeted overhead for Cinnabar Industries at normal capacity of 30,000 direct labor
hours is $6 per hour variable and $4 per hour fixed. In May, $310,000 of overhead was
incurred in working 31,500 hours when 32,000 standard hours were allowed.
The overhead controllable variance is
a. $5,000 favorable.
b. $2,000 favorable.
c. $10,000 favorable.
d. $10,000 unfavorable.
a164. Budgeted overhead for Cinnabar Industries at normal capacity of 30,000 direct labor hours
is $6 per hour variable and $4 per hour fixed. In May, $310,000 of overhead was incurred in
working 31,500 hours when 32,000 standard hours were allowed.
The overhead volume variance is
a. $8,000 favorable.
b. $11,000 favorable.
c. $5,000 favorable.
d. $10,000 favorable.
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a165. Budgeted overhead for Haft, Inc. at normal capacity of 60,000 direct labor hours is $3 per
hour variable and $2 per hour fixed. In May, $310,000 of overhead was incurred in
working 63,000 hours when 64,000 standard hours were allowed. The overhead
controllable variance is
a. $5,000 favorable.
b. $2,000 favorable.
c. $10,000 favorable.
d. $10,000 unfavorable.
a166. Budgeted overhead for Haft, Inc. at normal capacity of 60,000 direct labor hours is $3 per
hour variable and $2 per hour fixed. In May, $310,000 of overhead was incurred in
working 63,000 hours when 64,000 standard hours were allowed. The overhead volume
variance is
a. $8,000 favorable.
b. $11,000 favorable.
c. $5,000 favorable.
d. $10,000 favorable.
a167. An overhead volume variance is calculated as the difference between normal capacity
hours and standard hours allowed
a. times the total predetermined overhead rate.
b. times the predetermined variable overhead rate.
c. times the predetermined fixed overhead rate.
d. divided by actual number of hours worked.
a168. Which of the following statements is false?
a. The overhead volume variance indicates whether plant facilities were used efficiently
during the period.
b. The costs that cause the overhead volume variance are usually controllable costs.
c. The overhead volume variance relates solely to fixed costs.
d. The overhead volume variance is favorable if standard hours allowed for output are
greater than the standard hours at normal capacity.
a169. If the standard hours allowed are less than the standard hours at normal capacity,
a. the overhead volume variance will be unfavorable.
b. variable overhead costs will be underapplied.
c. the overhead controllable variance will be favorable.
d. variable overhead costs will be overapplied.
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a170. Which of the following statements about overhead variances is false?
a. Standard hours allowed are used in calculating the controllable variance.
b. Standard hours allowed are used in calculating the volume variance.
c. The controllable variance pertains solely to fixed costs.
d. The total overhead variance pertains to both variable and fixed costs.
a171. The overhead volume variance relates only to
a. variable overhead costs.
b. fixed overhead costs.
c. both variable and fixed overhead costs.
d. all manufacturing costs.
a172. What does the controllable variance measure?
a. Whether a company incurred more or less fixed overhead costs compared to the
amount of overhead applied
b. Whether a company incurred more or less overhead costs than allowed
c. The efficiency of using variable overhead resources
d. Whether the production manager is able to control the production facility
a173. The overhead controllable variance is calculated as the difference between actual
overhead costs incurred and the budgeted
a. overhead costs for the standard hours allowed.
b. overhead costs applied to the product.
c. overhead costs at the normal level of activity.
d. fixed overhead costs.
a174. If the standard hours allowed are less than the standard hours at normal capacity, the
volume variance
a. cannot be calculated.
b. will be favorable.
c. will be unfavorable.
d. will be greater than the controllable variance.
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a175. The budgeted overhead costs for standard hours allowed and the overhead costs applied
to the product are the same amount
a. for both variable and fixed overhead costs.
b. only when standard hours allowed are less than normal capacity.
c. for variable overhead costs.
d. for fixed overhead costs.
a176. The following information was taken from the annual manufacturing overhead cost budget
of Fergie Manufacturing.
Variable manufacturing overhead costs $92,400
Fixed manufacturing overhead costs $55,440
Normal production level in labor hours 30,800
Normal production level in units 5,775
Standard labor hours per unit 4
During the year, 5,600 units were produced, 18,340 hours were worked, and the actual
manufacturing overhead was $151,200. Actual fixed manufacturing overhead costs
equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis
of direct labor hours. Fergie's total overhead rate is
a. $2.40.
b. $4.00.
c. $6.40.
d. $6.53.
a177. The following information was taken from the annual manufacturing overhead cost budget
of Fergie Manufacturing.
Variable manufacturing overhead costs $92,400
Fixed manufacturing overhead costs $55,440
Normal production level in labor hours 30,800
Normal production level in units 5,775
Standard labor hours per unit 4
During the year, 5,600 units were produced, 18,340 hours were worked, and the actual
manufacturing overhead was $151,200. Actual fixed manufacturing overhead costs
equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis
of direct labor hours. Fergie's total overhead variance is
a. $1,680 U.
b. $6,160 U.
c. $7,840 U.
d. $22,400 U.
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a178. The following information was taken from the annual manufacturing overhead cost budget
of Fergie Manufacturing.
Variable manufacturing overhead costs $92,400
Fixed manufacturing overhead costs $55,440
Normal production level in labor hours 30,800
Normal production level in units 5,775
Standard labor hours per unit 4
During the year, 5,600 units were produced, 18,340 hours were worked, and the actual
manufacturing overhead was $151,200. Actual fixed manufacturing overhead costs
equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis
of direct labor hours. Fergie's controllable overhead variance is
a. $1,680 U.
b. $6,160 U.
c. $7,840 U.
d. $22,400 U.
a179. The following information was taken from the annual manufacturing overhead cost budget
of Fergie Manufacturing.
Variable manufacturing overhead costs $92,400
Fixed manufacturing overhead costs $55,440
Normal production level in labor hours 30,800
Normal production level in units 5,775
Standard labor hours per unit 4
During the year, 5,600 units were produced, 18,340 hours were worked, and the actual
manufacturing overhead was $151,200. Actual fixed manufacturing overhead costs
equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis
of direct labor hours. Fergie's volume overhead variance is
a. $1,680 U.
b. $6,160 U.
c. $7,840 U.
d. $22,400 U.
180. All of the following are advantages of standard costs except they
a. facilitate management planning.
b. are useful in setting selling prices.
c. simplify costing in inventories.
d. increase net income.
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181. Standards based on the optimum level of performance under perfect operating conditions
are
a. attainable standards.
b. ideal standards.
c. normal standards.
d. practical standards.
182. The direct materials price standard should include an amount for all of the following
except
a. receiving costs.
b. storing costs.
c. handling costs.
d. normal spoilage costs.
183. The standard unit cost is used in the calculation of which of the following variances?
Materials Price Variance Materials Quantity Variance
a. No No
b. No Yes
c. Yes No
d. Yes Yes
184. The difference between the actual labor rate multiplied by the actual labor hours worked
and the standard labor rate multiplied by the standard labor hours is the
a. total labor variance.
b. labor price variance.
c. labor quantity variance.
d. labor efficiency variance.
185. The formula for the labor price variance is
a. (AH) x (SR) less (SH) x (SR).
b. (AH) x (AR) less (AH) x (SR).
c. (AH) x (AR) less (SH) x (SR).
d. (AH) x (SR) less (AH) x (SR).
186. Which department is usually responsible for a labor price variance attributable to
misallocation of workers?
a. Quality control
b. Purchasing
c. Engineering
d. Production
FOR INSTRUCTOR USE ONLY
187. In reporting variances,
a. promptness is relatively unimportant.
b. management normally investigates all variances.
c. the reports should facilitate management by exception.
d. the reports are not departmentalized.
IMA: Cost Management
a188. A standard cost system may be used in
Job Order Costing Process Costing
a. No No
b. Yes No
c. No Yes
d. Yes Yes
a189. The formula for computing the overhead volume variance is
a. fixed overhead rate times (actual hours less standard hours allowed).
b. variable overhead rate times (actual hours less standard hours allowed).
c. fixed overhead rate times (normal capacity hours less standard hours allowed).
d. variable overhead rate times (normal capacity hours less standard hours allowed).
a190. The overhead controllable variance is the difference between the
a. budgeted overhead based on standard hours allowed and the overhead applied to
production.
b. budgeted overhead based on standard hours allowed and budgeted overhead based
on actual hours worked.
c. actual overhead and the overhead applied to production.
d. actual overhead and budgeted overhead based on standard hours allowed.
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Answers to Multiple Choice Questions
BRIEF EXERCISES
BE 191
Seven Manufacturing Corporation uses both standards and budgets. The company estimates that
production for the year will be 100,000 units of Product Fast. To produce these units of Product
Fast, the company expects to spend $600,000 for materials and $800,000 for labor.
Instructions
Compute the estimates for (a) a standard cost and (b) a budgeted cost.
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BE 192
Labor data for making one pound of finished product in Curling Co. are as follows: (1) Price—
hourly wage rate $11.00, payroll taxes $1.80, and fringe benefits $1.20. (2) Quantity—actual
production time 1.1 hours, rest periods and clean up 0.25 hours, and setup and downtime 0.15
hours.
Instructions
Compute the following.
(a) Standard direct labor rate per hour.
(b) Standard direct labor hours per pound.
(c) Standard cost per pound.
BE 193
During March, Patt, Inc. purchases and uses 8,800 pounds of materials costing $35,640 to make
4,000 tiles. Patt’s standard material cost per tile is $8 (2 pounds of material × $4.00).
Instructions
Materials quantity variance = $3,200 U, (8,800 × $4.00) – (8,000 × $4.00).
BE 194
During January, Ajax Co. incurs 1,850 hours of direct labor at an hourly cost of $11.80 in
producing 1,000 units of its finished product. Ajax standard labor cost per unit of output is $22
(2 hours x $11.00).
Instructions
Compute the total, price, and quantity labor variances for Ajax Co. for January.
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BE 195
In October, Glazier Inc. reports 42,000 actual direct labor hours, and it incurs $194,000 of
manufacturing overhead costs. Standard hours allowed for the work done is 40,000 hours.
Glazier’s predetermined overhead rate is $5.00 per direct labor hour.
Instructions
Compute the total manufacturing overhead variance.
aBE 196
Overhead data for Glazier Inc. are given in BE 195. In addition, the flexible manufacturing
overhead budget shows that budgeted costs are $3.80 variable per direct labor hour and $60,000
fixed.
Instructions
Compute the manufacturing overhead controllable variance.
aBE 197
Using the data in BE 195 and BE 196, compute the manufacturing overhead volume variance.
Normal capacity was 50,000 direct labor hours.
aBE 198
Jet Industries purchased 6,000 units of raw material on account for $17,600, when the standard
cost was $18,000. Later in the month, Jet Industries issued 5,600 units of raw materials for
production, when the standard units were 5,800.
Instructions
Journalize the transactions for Jet Industries to account for this activity.
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aBE 199
Pedra, Inc. incurred direct labor costs of $54,000 for 6,000 hours. The standard labor cost was
$55,200. During the month, Pedra assigned 6,000 direct labor hours costing $54,000 to
production. The standard hours were 6,200.
Instructions
Journalize the transactions for Pedra, Inc. to account for this activity.
aBE 200
Manufacturing overhead data for the production of Product B by North Bank, Inc. are as follows.
Overhead incurred for 69,000 actual direct labor hours worked $206,000
Overhead rate (variable $2.00; fixed $1.00) at normal capacity of
72,000 direct labor hours $3.00
Standard hours allowed for work done 69,000
Instructions
Compute the controllable and volume overhead variances.
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EXERCISES
Ex 201
Sonic, Inc. is planning to produce 2,500 units of product in 2013. Each unit requires
3 pounds of materials at $6 per pound and a half hour of labor at $16 per hour. The overhead rate
is 75% of direct labor.
Instructions
(a) Compute the budgeted amounts for 2013 for direct materials to be used, direct labor, and
applied overhead.
(b) Compute the standard cost of one unit of product.
Ex. 202
Pane Corp. manufactures and sells a nutrition drink for children. It wants to develop a standard
cost per gallon. The following are required for production of a 100 gallon batch:
1,960 ounces of lime Kool-Drink at $.12 per ounce
40 pounds of granulated sugar at $.60 per pound
63 kiwi fruit at $.50 each
100 protein tablets at $.90 each
4,000 ounces of water at $.003 per ounce
Pane estimates that 2% of the lime Kool-Drink is wasted, 20% of the sugar is lost, and 10% of the
kiwis cannot be used.
Instructions
Compute the standard cost of the ingredients for one gallon of the nutrition drink.
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Ex. 203
Engines Done Right Co. is trying to establish the standard labor cost of a typical engine tune-up.
The following data have been collected from time and motion studies conducted over the past
month.
Actual time spent on the tune-up 1.0 hour
Hourly wage rate $16
Payroll taxes 10% of wage rate
Setup and downtime 10% of actual labor time
Cleanup and rest periods 20% of actual labor time
Fringe benefits 25% of wage rate
Instructions
(a) Determine the standard direct labor hours per tune-up
(b) Determine the standard direct labor hourly rate.
(c) Determine the standard direct labor cost per tune-up.
(d) If a tune-up took 1.5 hours at the standard hourly rate, what was the direct labor quantity
variance?
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Ex. 204
Riggins, Inc. manufactures one product called tybos. The company uses a standard cost system
and sells each tybo for $8. At the start of monthly production, Riggins estimated 9,500 tybos
would be produced in March. Riggins has established the following material and labor standards
to produce one tybo:
Standard Quantity Standard Price
Direct materials 2.5 pounds $3 per pound
Direct labor 0.6 hours $10 per hour
During March 2013, the following activity was recorded by the company relating to the production
of tybos:
1. The company produced 9,000 units during the month.
2. A total of 24,000 pounds of materials were purchased at a cost of $66,000.
3. A total of 24,000 pounds of materials were used in production.
4. 5,000 hours of labor were incurred during the month at a total wage cost of $55,000.
Instructions
Calculate the following variances for March for Riggins, Inc.
(a) Materials price variance
(b) Materials quantity variance
(c) Labor price variance
(d) Labor quantity variance
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Ex. 205
The following direct labor data pertain to the operations of Pearce Corp. for the month of
November:
Actual labor rate $12.25 per hr.
Actual hours used 18,000
Standard labor rate $12.00 per hr.
Standard hours allowed 17,100
Instructions
Prepare a matrix and calculate the labor variances.
Price Variance Quantity Variance
Total
Labor Variance
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Ex. 206
The following direct materials data pertain to the operations of Wright Co. for the month of
December.
Standard materials price $5.00 per pound
Actual quantity of materials purchased and used 16,500 pounds
The standard cost card shows that a finished product contains 4 pounds of materials. The 16,500
pounds were purchased in December at a discount of 4% from the standard price. In December,
4,000 units of finished product were manufactured.
Instructions
Prepare a matrix for materials and calculate the materials variances.
Price Variance Quantity Variance
Total
Materials Variance
FOR INSTRUCTOR USE ONLY
Ex. 207
Seacoast Company provided the following information about its standard costing system for
2013:
Standard Data Actual Data
Materials 10 lbs. @ $4 per lbs. Produced 4,000 units
Labor 3 hrs. @ $21 per hr. Materials purchased 50,000 lbs. for $215,000
Budgeted production 3,500 units Materials used 41,000 lbs.
Labor worked 11,000 hrs. costing $220,000
Instructions
Calculate the labor price variance and the labor quantity variance.
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Ex. 208
Lumberman Manufacturing provided the following information about its standard costing system
for 2013:
Standard Data Actual Data
Materials 10 lbs. @ $4 per lbs. Produced 4,000 units
Labor 3 hrs. @ $21 per hr. Materials purchased 50,000 lbs. for $215,000
Budgeted production 3,500 units Materials used 41,000 lbs.
Labor worked 11,000 hrs. costing $220,000
Instructions
Determine the amount of the materials price variance. By how much will the materials price
variances differ if the price variance is determined at the time of production?
Ex. 209
Shep Corporation estimated it would produce 6,200 buckets, though actual production was 6,000
during August. The standard labor cost is 2 buckets per hour at $18.00 per hour. Actual cost per
hour was $18.40 with a total labor cost of $53,360.
Instructions
Determine the amounts of the labor price and the labor quantity variances for August.
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Ex. 210
Purvis Manufacturing, which produces a single product, has prepared the following standard cost
sheet for one unit of the product.
Direct materials (6 pounds at $2 per pound) $12
Direct labor (2 hours at $12 per hour) $24
During the month of April, the company manufactures 300 units and incurs the following actual
costs.
Direct materials purchased and used (1,850 pounds) $4,070
Direct labor (620 hours) $7,130
Instructions
Compute the total, price, and quantity variances for materials and labor.
Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
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Ex. 211
Platt Company produces one product, a putter called PAR-putter. Platt uses a standard cost
system and determines that it should take one hour of direct labor to produce one PAR-putter.
The normal production capacity for this putter is 100,000 units per year. The total budgeted
overhead at normal capacity is $500,000 comprised of $200,000 of variable costs and $300,000
of fixed costs. Platt applies overhead on the basis of direct labor hours.
During the current year, Platt produced 85,000 putters, worked 89,000 direct labor hours, and
incurred variable overhead costs of $160,000 and fixed overhead costs of $300,000.
Instructions
(a) Compute the predetermined variable overhead rate and the predetermined fixed overhead
rate.
(b) Compute the applied overhead for Platt for the year.
(c) Compute the total overhead variance.
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Ex. 212
Hector Company has developed the following standard costs for its product for 2012:
HECTOR COMPANY
Standard Cost Card
Product A
Cost Element Standard Quantity × Standard Price = Standard Cost
Direct materials 4 pounds $3 $12
Direct labor 3 hours 8 24
Manufacturing overhead 3 hours 4 12
$48
The company expected to produce 30,000 units of Product A in 2013 and work 90,000 direct
labor hours.
Actual results for 2013 are as follows:
• 31,000 units of Product A were produced.
• Actual direct labor costs were $746,200 for 91,000 direct labor hours worked.
• Actual direct materials purchased and used during the year cost $346,500 for 126,000 pounds.
• Actual variable overhead incurred was $155,000 and actual fixed overhead incurred was
$205,000.
Instructions
Compute the following variances showing all computations to support your answers. Indicate
whether the variances are favorable or unfavorable.
(a) Materials quantity variance.
(b) Total direct labor variance.
(c) Direct labor quantity variance.
(d) Direct materials price variance.
(e) Total overhead variance.
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Ex. 213
Dart Company developed the following standard costs for its product for 2013:
DART COMPANY
Standard Cost Card
Cost Elements Standard Quantity × Standard Price = Standard Cost
Direct materials 4 pounds $ 5 $20
Direct labor 2 hours 10 20
Variable overhead 2 hours 4 8
Fixed overhead 2 hours 2 4
$52
The company expected to work at the 120,000 direct labor hours level of activity and produce
60,000 units of product.
Actual results for 2013 were as follows:
• 56,800 units of product were actually produced.
• Direct labor costs were $1,092,000 for 112,000 direct labor hours actually worked.
• Actual direct materials purchased and used during the year cost $1,108,800 for 231,000
pounds.
• Total actual manufacturing overhead costs were $680,000.
Instructions
Compute the following variances for Dart Company for 2013 and indicate whether the variance is
favorable or unfavorable.
1. Direct materials price variance.
2. Direct materials quantity variance.
3. Direct labor price variance.
4. Direct labor quantity variance.
a5. Overhead controllable variance.
a6. Overhead volume variance.
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Ex. 214
Flagstaff, Inc. uses standard costing for its one product, baseball bats. The standards call for 3
board-feet of wood at $1.40 per board-foot, and 45 minutes of work at $12 per hour per bat. Total
manufacturing overhead costs were estimated at $9,450, of which the variable portion was $0.50
per bat and the fixed portion was $1.00 per bat with an estimate of 6,300 bats to be produced.
Flagstaff identifies price variances at the earliest possible point in time.
During March, the company had the following results:
Direct labor used = 4,800 hours at a cost of $56,400
Actual manufacturing overhead fixed costs = $6,000
Actual manufacturing overhead variable costs = $3,100
Bats produced = 6,000
Instructions
Compute the following variances for March.
1. Labor quantity variance
2. Total labor variance
a3. Overhead controllable variance
a4. Overhead volume variance
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Solution 214 (12 min.)
Ex. 215
Prescott Manufacturing manufactures widgets for distribution. The standard costs for the
manufacture of widgets follow:
Standard Costs Actual Costs
Direct materials 3 lbs. per widget at 31,000 lbs. at $34
$35 per pound per pound
Direct labor 2.5 hours per widget 22,500 hours at
at $11 per hour $11.80 per hour
Factory overhead Variable cost, $24/widget $241,500 variable cost
Fixed cost, $40/widget $381,250 fixed cost
Budgeted factory overhead was $640,000. Overhead applied is based on widgets produced. The
company estimated that 10,000 widgets would be produced; however, only 9,600 were produced.
Instructions
Calculate the following amounts.
1. Rate at which total factory overhead is applied
2. Materials price variance
3. Total materials variance
a4. Overhead volume variance
a5. Overhead controllable variance
Standard Costs and Balanced Scorecard
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Solution 215 (12 min.)
Ex. 216
More Hits Company manufactures aluminum baseball bats that it sells to university athletic
departments. It has developed the following per unit standard costs for 2013 for each baseball
bat:
Manufacturing
Direct Materials Direct Labor Overhead
Standard Quantity 2 Pounds (Aluminum) 1/2 hour 1/2 hour
Standard Price $4.00 $10.00 $6.00
Unit Standard Cost $8.00 $5.00 $3.00
In 2013, the company planned to produce 120,000 baseball bats at a level of 60,000 hours of
direct labor.
Actual results for 2013 are presented below:
1. Direct materials purchases were 246,000 pounds of aluminum which cost $1,020,900.
2. Direct materials used were 220,000 pounds of aluminum.
3. Direct labor costs were $575,260 for 58,700 direct labor hours actually worked.
4. Total manufacturing overhead was $352,000.
5. Actual production was 114,000 baseball bats.
Instructions
(a) Compute the following variances:
1. Direct materials price.
2. Direct materials quantity.
3. Direct labor price.
4. Direct labor quantity.
5. Total overhead variance.
a(b) Prepare the journal entries to record the transactions and events in 2013.
Test Bank for Accounting, Tools for Business Decision Making Fifth Edition
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Solution 216 (40–45 min.)
Standard Costs and Balanced Scorecard
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Ex. 217
The standard cost of Product 245 manufactured by Albert Industries includes 2 pounds of direct
materials at $4.00 per pound. During September, 40,000 pounds of direct materials are
purchased at a cost of $3.85 per pound, and all of the direct materials are used to produce
19,000 units of Product 245.
Instructions
(a) Compute the materials price and quantity variances.
a(b) Journalize the purchase of the materials and the issuance of the materials, assuming a
standard cost system is used.
Ex. 218
Aztec, Inc.'s standard labor cost of producing one unit of product is 2 hours at the rate of $14.00
per hour. During February, 52,000 hours of labor are incurred at a cost of $13.80 per hour to
produce 25,000 units of product.
Instructions
(a) Compute the labor price and labor quantity variances.
a(b) Journalize the incurrence of the labor costs and the assignment of direct labor to production,
assuming a standard cost system is used.
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Ex. 219
The following direct labor data pertain to the operations of Murray Industries for the month of
November:
Standard labor rate $15.00 per hr.
Actual hours incurred 9,000
The standard cost card shows that 2.5 hours are required to complete one unit of product. The
actual labor rate incurred exceeded the standard rate by 10%. Four thousand units were
manufactured in November.
Instructions
(a) Calculate the price, quantity, and total labor variances.
a(b) Journalize the entries to record the labor variances.
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aEx. 220
North Coast Manufacturing provided the following information about its standard costing system
for 2013:
Standard Data Actual Data
Labor 2 hrs. @ $21 per hr. Produced 9,000 units
Budgeted fixed overhead $100,000 Labor worked 17,000 hrs. costing $340,000
Budgeted variable overhead $30 per unit Actual overhead $375,000
Budgeted production 10,000 units
North Coast applies fixed overhead at $10 per unit produced.
Instructions
Determine the amounts of the overhead variances.
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Ex. 221
Caroline, Inc. planned to produce 20,000 units of product and work 100,000 direct labor hours in
2013. Manufacturing overhead at the 100,000 direct labor hours level of activity was estimated to
be:
Variable manufacturing overhead $ 700,000
Fixed manufacturing overhead 300,000
Total manufacturing overhead $1,000,000
At the end of 2013, 19,000 units of product were actually produced and 98,000 actual direct labor
hours were worked. Total actual overhead costs for 2013 were $935,000.
Instructions
(a) Compute the total overhead variance.
a(b) Compute the overhead controllable variance.
a(c) Compute the overhead volume variance.
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aEx. 222
Jackson Manufacturing planned to produce 20,000 units of product and work at the 60,000 direct
labor hours level of activity for 2013. Manufacturing overhead at this level of activity and the
predetermined overhead rate are as follows:
Predetermined
Overhead Rate per
Direct Labor Hour
Variable manufacturing overhead $300,000 $5
Fixed manufacturing overhead 120,000 2
Total manufacturing overhead $420,000 $7
At the end of 2013, 21,000 units were actually produced and 61,500 direct labor hours were
actually worked. Total actual manufacturing overhead costs were $430,000.
Instructions
Using a two-variance analysis of manufacturing overhead, calculate the following variances and
indicate whether they are favorable or unfavorable:
(a) Overhead controllable variance.
(b) Overhead volume variance.
Ex. 223
Adam Corporation prepared the following variance report.
ADAM CORPORATION
Variance Report—Purchasing Department
for Week Ended January 9, 2013
Type of Quantity Actual Standard Price
Materials Purchased Price Price Variance Explanation
Brown ? lbs. $5.25 $5.00 $6,000 ? Price increase
Green 8,000 oz. ? 3.25 1,600 U Rush order
White 22,000 units $0.45 ? 660 F Bought larger quantity
Instructions
Fill in the appropriate amounts or letters for the question marks in the report.
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Solution 223 (15 min.)
Ex. 224
Pepper Industries uses a standard cost accounting system. During March, 2013, the company
reported the following manufacturing variances:
Materials price variance $1,600 F
Materials quantity variance 2,400 U
Labor price variance 600 U
Labor quantity variance 2,200 U
Overhead controllable 500 F
Overhead volume 3,000 U
In addition, 15,000 units of product were sold at $18 per unit. Each unit sold had a standard cost
of $14. Selling and administrative expenses for the month were $15,000.
Instructions
Prepare an income statement for management for the month ending March 31, 2013.
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Solution 224 (15–20 min.)
aEx. 225
Howard, Inc. developed the following standards for 2013:
Howard, Inc.
Standard Cost Card
Cost Elements Standard Quantity × Standard Price = Standard Cost
Direct materials 5 pounds $ 5 $25
Direct labor 1 hour $18 18
Manufacturing overhead 1 hour $10 10
$53
The company planned to produce 120,000 units of product and work at the 120,000 direct labor
level of activity in 2013. The company uses a standard cost accounting system which records
standard costs in the accounts and recognizes variances in the accounts at the earliest
opportunity. During 2013, 116,000 actual units of product were produced.
Instructions
Prepare the journal entries to record the following transactions for Howard, Inc. during 2013.
(a) Purchased 588,000 pounds of raw materials for $4.90 per pound on account.
(b) Actual direct labor payroll amounted to $2,108,000 for 114,000 actual direct labor hours
worked. Factory labor cost is to be recorded and distributed to production.
(c) Direct materials issued for production amounted to 588,000 pounds which actually cost
$4.90 per pound.
(d) Actual manufacturing overhead costs incurred were $1,152,000 in 2013.
(e) Manufacturing overhead was applied when the 116,000 units were completed.
(f) Transferred the 116,000 completed units to finished goods.
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aSolution 225 (20–25 min.)
aEx. 226
Presented below is a flexible manufacturing budget for Ganem Manufacturing, which
manufactures fine timepieces:
Activity Index:
Standard direct labor hours 2,800 3,200 3,600 4,000
Variable costs
Indirect materials $ 5,600 $ 6,400 $ 7,200 $ 8,000
Indirect labor 3,220 3,680 4,140 4,600
Utilities 7,280 8,320 9,360 10,400
Total variable 16,100 18,400 20,700 23,000
Fixed costs
Supervisory salaries 1,000 1,000 1,000 1,000
Rent 3,000 3,000 3,000 3,000
Total fixed 4,000 4,000 4,000 4,000
Total costs $20,100 $22,400 $24,700 $27,000
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aEx. 226 (Cont.)
The company applies the overhead on the basis of direct labor hours at $7.00 per direct labor
hour and the standard hours per timepiece is 1/2 hour each. The company's actual production
was 5,400 timepieces with 2,700 actual hours of direct labor. Normal capacity is 3,200 hours.
Actual overhead was $20,200.
Instructions
(a) Compute the controllable and volume overhead variances.
a(b) Prepare the entries for manufacturing overhead during the period and the entry to recognize
the overhead variances at the end of the period.
Ex. 227
The following information was taken from the annual manufacturing overhead cost budget of
Cinnamon Manufacturing:
Variable manufacturing overhead costs $186,000
Fixed manufacturing overhead costs $124,000
Normal production level in direct labor hours 62,000
Normal production level in units 31,000
During the year, 30,000 units were produced, 64,000 hours were worked, and the actual
manufacturing overhead costs were $322,000. The actual fixed manufacturing overhead costs did
not deviate from the budgeted fixed manufacturing overhead costs. Overhead is applied on the
basis of direct labor hours.
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Ex. 227 (Cont.)
Instructions
(a) Compute the total, fixed, and variable predetermined manufacturing overhead rates.
a(b) Compute the total, controllable, and volume overhead variances.
Ex. 228
Monte Industries has a standard costing system. The following data are available for July:
a. Actual manufacturing overhead cost incurred: $22,000
b. Actual machine hours worked: 1,600
c. Overhead volume variance: $3,600 Unfavorable
d. Total overhead variance: $2,000 Unfavorable
e. Overhead is assigned to production on the basis of machine hours
Instructions
Determine the amount of (1) the controllable overhead variance and (2) the overhead applied.
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COMPLETION STATEMENTS
229. A ________________ is expressed as a unit amount, whereas a _________________ is
expressed as a total amount.
230. Standards which represent optimum performance under perfect operating conditions are
called _______________ standards, but most companies use _________________
standards which are rigorous but attainable.
231. In developing a standard cost for direct materials used in making a product, consideration
should be given to two factors: (1) __________________ per unit of direct materials and
(2) the __________________ of direct materials to produce one unit of product.
232. The difference between actual hours times the actual pay rate and actual hours times the
standard pay rate is the labor _________________ variance.
233. The standard number of hours allowed times the predetermined overhead rate is the
amount of ________________ to the products produced.
234. The difference between actual quantity of materials times the standard price and standard
quantity times the standard price is the materials ________________ variance.
235. If the actual direct labor hours worked is greater than the standard hours, the labor
quantity variance will be ___________________, and the labor rate variance will be
____________________ if the standard rate of pay is greater than the actual rate of pay.
236. In using variance reports, top management normally looks for _________________
variances.
a237. A two-variance approach to analyzing overhead variances requires the calculation of the
overhead _________________ variance and the overhead ________________ variance.
a238. The overhead ______________ variance is the difference between normal capacity hours
and standard hours allowed times the fixed overhead rate.
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Answers to Completion Statements
MATCHING
239. Match the items in the two columns below by entering the appropriate code letter in the
space provided.
A. Variances F. Materials price variance
B. Standard costs G. Labor quantity variance
C. Standard cost accounting system aH. Overhead controllable variance
D. Normal standards aI. Overhead volume variance
E. Ideal standards J. Standard hours allowed
____ 1. The difference between actual overhead incurred and overhead budgeted for the
standard hours allowed.
____ 2. The hours that should have been worked for the units produced.
____ 3. The difference between the actual quantity times the actual price and the actual
quantity times the standard price.
____ 4. The difference between total actual costs and total standard costs.
____ 5. The difference between actual hours times the standard rate and standard hours times
the standard rate.
____ 6. Predetermined unit costs that are measures of performance.
____ 7. The difference between normal capacity hours and standard hours allowed times the
fixed overhead rate.
____ 8. Standards based on an efficient level of performance that are attainable under
expected operating conditions.
____ 9. Standards based on the optimum level of performance under perfect operating
conditions.
____ 10. A double-entry system of accounting in which standard costs are used in making
entries and variances are recognized in the accounts.
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Answers to Matching
SHORT-ANSWER ESSAY QUESTIONS
S-A E 240
(a) Explain the similarities and differences between standards and budgets.
(b) Contrast the accounting for standard and budgets.
S-A E 241
Star Industries computes variances as a basis for evaluating the performance of managers
responsible for controlling costs. For several months, the labor quantity variance has been
unfavorable. Briefly explain what could be causing the unfavorable labor quantity variance and
indicate what type of corrective action, if any, might be taken.
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S-A E 242
In reviewing the activities of the Mixing Department for the month of June, the manager of the
department notices that there was an unfavorable materials price variance for the month and
there was an unfavorable materials quantity variance. Under what circumstances, if any, can the
responsibility for each variance be placed on (a) the purchasing department and (b) the
production department?
S-A E 243
What are the four perspectives used in the balanced scorecard? Discuss the nature of each, and
how the perspectives are linked.
S-A E 244 (Ethics)
Fulmar Manufacturing Co. is the manufacturer of miniature models, especially of automobiles with
historical interest. The company is developing new standard costs. Patrick Webb suggests that
the new standards for materials should not include any waste for liquid plastics that spill out of the
molds. "After all," he says, "we're trying to be a world class company. When we build in waste, we
tell the workers it's okay to waste some." Sharon Berry, another manager, disagrees. "If we don't
allow for some normal human error," she says, "we'll have a mighty unhappy work force. Also, I
think that these kinds of perfection standards exploit the workers. I certainly wouldn't want to be
held up to perfection every day—what could I do but fail?"
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S-A E 244 (Cont.)
The argument continued. Finally, the standards were prepared. All standards were prepared
according to normal expected performance, except that for materials, an ideal standard was
used. Sharon, still maintaining the unfairness of the system, refused to hold her workers
accountable for materials quantity variances.
Required:
1. Are ideal standards unethical? Explain briefly.
2. Is it unethical for Sharon to refuse to support the standards? Explain.
S-A E 245 (Communication)
Vincent Bassani has come to the accounting department for help in interpreting his variance
report. He says that he understands that last month was not a very good one for output, but he
really thought everyone put forth good effort, so he is confused about the existence of an
unfavorable labor efficiency variance. He cites as an example of the workers' effort their
willingness to work extra hours to get full output, even when a whole week's worth of production
had to be scrapped. He knew that his materials costs would be higher, and that overtime would
make his rate variance unfavorable, but he certainly didn't think his workers had been inefficient.
Required:
Write a short note to Vincent explaining the probable cause of the unfavorable labor efficiency
variance.
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Solution 245
