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Chapter 10 Standard Costs and Variances Answer Key
True / False Questions
- The materials price variance is computed by multiplying the difference between the actual price and the standard price by the actual quantity of materials used in production. FALSE
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 10-01 Compute the direct materials quantity and price variances and explain their significance Level: Easy
- In general, the purchasing agent is responsible for the materials price variance. TRUE
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 10-01 Compute the direct materials quantity and price variances and explain their significance Level: Easy
- A materials price variance is favorable if the actual price exceeds the standard price. FALSE
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 10-01 Compute the direct materials quantity and price variances and explain their significance Level: Easy
- Generally speaking, it is the responsibility of the production department to see that material usage is kept in line with standards. TRUE
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 10-01 Compute the direct materials quantity and price variances and explain their significance Level: Easy
- When more hours of labor time are necessary to complete a job than the standard allows, the labor rate variance is unfavorable. FALSE
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 10-02 Compute the direct labor efficiency and rate variances and explain their significance Level: Medium
- Standard costs should generally be based on the actual costs of prior periods. FALSE
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 10-03 Compute the variable manufacturing overhead efficiency and rate variances and explain their significance Level: Easy
- The standard quantity per unit for direct materials should not include an allowance for waste. FALSE
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 10-03 Compute the variable manufacturing overhead efficiency and rate variances and explain their significance Level: Easy
- When computing standard cost variances, the difference between actual and standard price multiplied by actual quantity yields a(n): A. combined price and quantity variance. B. efficiency variance. C. price variance. D. quantity variance.
Materials price variance = AQ (AP - SP)
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 10-01 Compute the direct materials quantity and price variances and explain their significance Learning Objective: 10-02 Compute the direct labor efficiency and rate variances and explain their significance Level: Easy Source: CMA, adapted
- The general model for calculating a price variance is: A. actual quantity of inputs (actual price - standard price). B. standard price (actual quantity of inputs - standard quantity allowed for output). C. (actual quantity of inputs at actual price) - (standard quantity allowed for output at standard price). D. actual price (actual quantity of inputs - standard quantity allowed for output).
Materials price variance = AQ (AP - SP)
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 10-01 Compute the direct materials quantity and price variances and explain their significance Learning Objective: 10-02 Compute the direct labor efficiency and rate variances and explain their significance Level: Medium
- The purchasing agent of the Clampett Company ordered materials of lower quality in an effort to economize on price and in response to the demands of the production manager due to a mistake in production scheduling. The materials were shipped by airfreight at a rate higher than that ordinarily charged for shipment by truck, resulting in an unfavorable materials price variance. The lower quality material proved to be unsuitable on the production line and resulted in excessive waste. In this situation, who should be held responsible for the materials price and quantity variances?
A. Option A B. Option B C. Option C D. Option D
The materials price variance is the responsibility of the production manager because the unfavorable variance was due to the demands made by the production manager. The materials quantity variance is the responsibility of the purchasing agent because the purchasing agent was responsible for ordering the lower quality material.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 10-01 Compute the direct materials quantity and price variances and explain their significance Level: Medium
- Which department should usually be held responsible for an unfavorable materials price variance? A. Production. B. Materials Handling. C. Engineering. D. Purchasing.
The purchasing department should ordinarily be held responsible for an unfavorable materials price variance because that department ordinarily has most control over the price.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 10-01 Compute the direct materials quantity and price variances and explain their significance Level: Easy
- Tower Company planned to produce 3,000 units of its single product, Titactium, during November. The standards for one unit of Titactium specify six pounds of materials at $0. per pound. Actual production in November was 3,100 units of Titactium. There was an unfavorable materials price variance of $380 and a favorable materials quantity variance of $120. Based on these variances, one could conclude that: A. more materials were purchased than were used. B. more materials were used than were purchased. C. the actual cost per pound for materials was less than the standard cost per pound. D. the actual usage of materials was less than the standard allowed.
Materials quantity variance = (AQ - SQ) SP A favorable materials quantity variance occurs only if the actual usage of materials was less than the standard allowed, i.e., if AQ < SQ.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 10-01 Compute the direct materials quantity and price variances and explain their significance Level: Medium Source: CMA, adapted
- If the labor efficiency variance is unfavorable, then A. actual hours exceeded standard hours allowed for the actual output. B. standard hours allowed for the actual output exceeded actual hours. C. the standard rate exceeded the actual rate. D. the actual rate exceeded the standard rate.
Labor efficiency variance = (AH - SH) SR. An unfavorable variance occurs if AH > SH.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 10-02 Compute the direct labor efficiency and rate variances and explain their significance Level: Easy
- A labor efficiency variance resulting from the use of poor quality materials should be charged to: A. the production manager. B. the purchasing agent. C. manufacturing overhead. D. the industrial engineering department.
The purchasing manager is usually responsible for the acquisition of poor quality materials.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 10-02 Compute the direct labor efficiency and rate variances and explain their significance Level: Medium
- Which of the following statements concerning ideal standards is incorrect? A. Ideal standards generally do not provide the best motivation for workers. B. Ideal standards do not make allowances for waste, spoilage, and machine breakdowns. C. Ideal standards are better suited for cash budgeting than practical standards. D. Ideal standards may be better than practical standards when managers seek continual improvement.
Practical standards provide better forecasts of cash flows for cash budgeting than practical standards.
AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 10-03 Compute the variable manufacturing overhead efficiency and rate variances and explain their significance Level: Medium Source: CMA, adapted
- The Porter Company has a standard cost system. In July the company purchased and used 22,500 pounds of direct material at an actual cost of $53,000; the materials quantity variance was $1,875 Unfavorable; and the standard quantity of materials allowed for July production was 21,750 pounds. The materials price variance for July was: A. $2,725 F B. $2,725 U C. $3,250 F D. $3,250 U
Materials price variance = (AQ AP) - (AQ SP) = $53,000 - (22,500 pounds $2.50 per pound) = $53,000 - $56,250 = $3,250 F
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 10-01 Compute the direct materials quantity and price variances and explain their significance Level: Hard
- Last month 75,000 pounds of direct material were purchased and 71,000 pounds were used. If the actual purchase price per pound was $0.50 more than the standard purchase price per pound, then the materials price variance was: A. $2,000 F B. $37,500 F C. $37,500 U D. $35,500 U
Materials price variance = (AQ AP) - (AQ SP) = AQ (AP - SP) = 75,000 pounds $0.50 per pound = $37,500 U
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 10-01 Compute the direct materials quantity and price variances and explain their significance Level: Easy
- The following materials standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
What is the materials quantity variance for the month? A. $19,460 F B. $9,730 U C. $10,115 U D. $20,230 F
SQ = 7.3 pounds per unit 1,000 units = 7,300 pounds Materials quantity variance = (AQ - SQ) SP = (5,900 pounds - 7,300 pounds) $14.45 per pound = (-1,400 pounds) $14.45 per pound = $20,230 F
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 10-01 Compute the direct materials quantity and price variances and explain their significance Level: Easy
- The Wright Company has a standard costing system. The following data are available for September:
The actual price per pound of direct materials purchased in September is: A. $1. B. $2. C. $2. D. $2.
Materials price variance = AQ (AP - SP) 25,000 pounds (AP - $2 per pound) = $2,500 U 25,000 pounds AP - $50,000 = $2,500 U 25,000 pounds AP - $50,000 = $2, 25,000 pounds AP = $52, AP = $52,500 25,000 pounds AP = $2.10 per pound
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 10-01 Compute the direct materials quantity and price variances and explain their significance Level: Hard
- The Cox Company uses standard costing. The following data are available for April:
The standard quantity of material allowed for April production is: A. 14,200 gallons B. 12,700 gallons C. 11,700 gallons D. 10,200 gallons
Materials quantity variance = (AQ - SQ) SP (12,200 gallons - SQ) $4 per gallon = $2,000 U ($48,800 - SQ) $4 per gallon= $2,000 U SQ $4 per gallon = $46, SQ = $46,800 $4 per gallon SQ = 11,700 gallons
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 10-01 Compute the direct materials quantity and price variances and explain their significance Level: Hard
- The following labor standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
What is the labor efficiency variance for the month? A. $13,805 U B. $13,530 U C. $15,305 U D. $15,305 F
SH = 1,500 units 4 hours per unit = 6,000 hours Labor efficiency variance = (AH - SH) SR = (7,100 hours - 6,000 hours) $12.30 per hour = (1,100 hours) $12.30 per hour = $13,530 U
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 10-02 Compute the direct labor efficiency and rate variances and explain their significance Level: Easy
- The following labor standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:
What is the labor rate variance for the month? A. $1,325 U B. $1,780 F C. $430 F D. $430 U
AH AR = $94,
Labor rate variance = AH (AR - SR) = AH AR - AH SR = $94,340 - (5,300 hours $17.55 per hour) = $1,325 U
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 10-02 Compute the direct labor efficiency and rate variances and explain their significance Level: Easy
- The Reedy Company uses a standard costing system. The following data are available for November:
The actual direct labor rate for November is: A. $8. B. $8. C. $9. D. $9.
Labor rate variance = AH(AR - SR) 5,800 hours (AR - $9 per hour) = -$1, 5,800 hours AR - $52,200 = -$1, 5,800 hours AR = $51, AR = $51,040 5,800 hours AR = $8.80 per hour
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 10-02 Compute the direct labor efficiency and rate variances and explain their significance Level: Hard
- Borden Enterprises uses standard costing. For the month of April, the company reported the following data: Standard direct labor rate: $10 per hour Standard hours allowed for actual production: 8,000 hours Actual direct labor rate: $9.50 per hour Labor efficiency variance: $4,800 Favorable The labor rate variance for April is: A. $3,760 U B. $3,760 F C. $2,850 F D. $2,850 U
Labor efficiency variance = (AH - SH) SR = (AH - 8,000 hours) $10 per hour = -$4, AH $10 per hour - $80,000 = -$4, AH $10 per hour = $75, AH = $75,200 $10 per hour AH = 7, Labor rate variance = AH(AR - SR) = 7,520 hours ($9.50 per hour - $10.00 per hour) = 7,520 hours (-$0.50 per hour) = $3,760 F
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 10-02 Compute the direct labor efficiency and rate variances and explain their significance Level: Hard
