Test bank managerial accounting by kieso weygandt 5e ch11

A materials quantity variance is calculated as the difference between the standard directmaterials price and the actual direct materials price multiplied by the actual quantity ofdirect

CHAPTER 11 STANDARD COSTS AND BALANCED SCORECARD

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY

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 STUDY OBJECTIVES BY QUESTION TYPEItem Type Item Type Item Type Item Type Item Type Item Type Item Type

The chapter also contains one set of ten Matching questions and four Short-Answer Essayquestions.

CHAPTER STUDY OBJECTIVES

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

They (a) facilitate management planning, (b) promote greater economy, (c) are useful insetting selling prices, (d) contribute to management control, (e) permit "management byexception," and (f) simplify the costing of inventories and reduce clerical costs

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 anallowance for waste and spoilage

The direct labor price standard should be based on current wage rates and anticipatedadjustments such as COLAs It also generally includes payroll taxes and fringe benefits.Direct labor quantity standards should be based on required production time plus anallowance 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 machinehours

formulas for the 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 varianceThe 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 = Total overhead variance

reports The reports facilitate management by exception by highlighting significantdifferences

7 Prepare an income statement for management under a standard costing system.

Under a standard costing system, an income statement prepared for management will reportcost of goods sold at standard cost and then disclose each variance separately,

scorecard incorporates financial and nonfinancial measures in an integrated system thatlinks performance measurement and a company’s strategic goals It employs fourperspectives: financial, customer, internal processes, and learning and growth Objectivesare set within each of these perspectives that link to objectives within the other perspectives

a9 Identify the features of a standard cost accounting system In a standard cost

accounting system, companies journalize and post standard costs, and they maintainseparate 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 reduceclerical 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

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 thestandard activity index

15 Standard cost cards are the subsidiary ledger for the Work in Process account in astandard 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 directmaterials price and the actual direct materials price multiplied by the actual quantity ofdirect materials used

19 An unfavorable labor quantity variance indicates that the actual number of direct laborhours worked was greater than the number of direct labor hours that should have beenworked for the output attained

20 Standard cost + price variance + quantity variance = Budgeted cost

21 There could be instances where the production department is responsible for a directmaterials price variance

22 The starting point for determining the causes of an unfavorable materials price variance isthe purchasing department.

23 An overhead variance consists of a controllable variance and a volume variance

24 Variance analysis facilitates the principle of "management by exception."

a25 A credit to a Materials Quantity Variance account indicates that the actual quantity ofdirect materials used was greater than the standard quantity of direct materials allowed

a26 A standard cost system may be used with a job order cost system but not with a processcost system

a27 Companies assign overhead to jobs by debiting Work in Process Inventory for actualhours multiplied by the standard overhead rate

a28 The overhead controllable variance relates primarily to fixed overhead costs

a29 The overhead volume variance relates only to fixed overhead costs

a30 If production exceeds normal capacity, the overhead volume variance will be favorable.Additional True-False Questions

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

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

a38 The overhead controllable variance is the difference between the actual overhead costs incurred and the budgeted costs for the standard hours allowed

Answers to True-False Statements

Item Ans Item Ans Item Ans Item Ans Item Ans Item Ans Item Ans.

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 shouldbe

b a budget expresses management's plans, while a standard reflects what actuallyhappened

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 aregenerally incorporated into the cost accounting system

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

d none of the above; a standard does not differ from a budget

47 Donkey Company expects direct materials cost of $6 per unit for 100,000 units (a total of

$600,000 of direct materials costs) Donkey’s standard direct materials cost and budgeteddirect materials cost is

d $600,000 per year $600,000 per year

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 that is less relevant than the historicalcost accounting system

d approval of the stockholders 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."

54 If a company is concerned with the potential negative effects of establishing standards, itshould

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 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

56 The most rigorous of all standards is the

a normal standard

b realistic standard

c ideal standard

d conceivable standard

57 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

58 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

59 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

60 The direct materials quantity standard would not be expressed in

a pounds

b barrels

c dollars

d board feet

61 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

62 The direct labor quantity standard is sometimes called the direct labor

a volume standard

b effectiveness standard

c efficiency standard

d quality standard

63 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

64 Allowance for spoilage is part of the direct

a materials price standard

b materials quantity standard

c labor price standard

d labor quantity standard

65 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

66 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

67 A standard which represents an efficient level of performance that is attainable underexpected operating conditions is called a(n)

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

69 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 payroll department manager

71 To determine the standard rate for direct labor, management consults

a purchasing agents

b product managers

c quality control engineers

d the payroll department

Use the following information for questions 72–75

Breakmorning Corporation produces a product that requires 2.6 pounds of materials per unit Theallowance for waste and spoilage per unit is 3 pounds and 1 pounds, respectively The purchaseprice is $4 per pound, but a 2% discount is usually taken Freight costs are $.15 per pound, andreceiving and handling costs are $.10 per pound The hourly wage rate is $9.00 per hour, but araise which will average $.25 will go into effect soon Payroll taxes are $1.00 per hour, and fringebenefits average $2.00 per hour Standard production time is 1 hour per unit, and the allowancefor rest periods and setup is 2 hours and 1 hours, respectively

72 The standard direct materials price per pound is

76 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

77 Allowances should not be made in the direct labor quantity standard for

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

79 Fleck’s standard quantities for 1 unit of product include 2 pounds of materials and 1.5labor hours The standard rates are $3 per pound and $10 per hour The standardoverhead rate is $12 per direct labor hour The total standard cost of Fleck’s product is

a $21

b $25

c $33

d $39

80 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 arenot changed

d All of the above are true

Use the following information for questions 81–83

ToolTime has a standard of 1.5 pounds of materials per unit, at $4 per pound In producing 2,000units, ToolTime used 3,100 pounds of materials at a total cost of $12,090

81 ToolTime’s total material variance is

83 ToolTime’s materials quantity variance is

a $90 F

b $310 U

c $400 U

d $700 U

Use the following information for questions 84–86

ToolTime has a standard of 2 hours of labor per unit, at $12 per hour In producing 2,000 units,ToolTime used 3,850 hours of labor at a total cost of $46,970

84 ToolTime’s total labor variance is

Use the following information for questions 89–91

Stiner Company has a materials price standard of $2.00 per pound Five thousand pounds ofmaterials were purchased at $2.20 per pound The actual quantity of materials used was 5,000pounds, although the standard quantity allowed for the output was 4,500 pounds

89 Stiner Company's materials price variance is

a $100 U

b $1,000 U

c $900 U

d $1,000 F

90 Stiner Company's materials quantity variance is

a 6,350

b 6,500

c 15,875

d 6,650

93 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

94 Labor efficiency is measured by the

a materials quantity variance

b total labor variance

c labor quantity variance

d labor rate variance

95 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

96 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

97 The investigation of a materials quantity variance usually begins in the

a production department

b purchasing department

c sales department

d controller's department

98 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

99 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

100 A company developed the following per-unit standards for its product: 2 gallons of direct

materials at $6 per gallon Last month, 3,000 gallons of direct materials were purchasedfor $17,100 The direct materials price variance for last month was

a $17,100 favorable

b $450 favorable

c $900 favorable

d $900 unfavorable

101 The per-unit standards for direct materials are 2 pounds at $4 per pound Last month,

11,200 pounds of direct materials that actually cost $42,400 were used to produce 6,000units 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

102 The per-unit standards for direct labor are 1.5 direct labor hours at $12 per hour If in

producing 2,400 units, the actual direct labor cost was $36,800 for 3,000 direct laborhours worked, the total direct labor variance is

a $1,920 unfavorable

b $6,400 favorable

c $4,000 unfavorable

d $6,400 unfavorable

103 The standard rate of pay is $10 per direct labor hour If the actual direct labor payroll was

$39,200 for 4,000 direct labor hours worked, the direct labor price (rate) variance is

a $800 unfavorable

b $800 favorable

c $1,000 unfavorable

d $1,000 favorable

104 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 paywas $15 per direct labor hour, what was the actual rate of pay for direct labor?

a $14 per direct labor hour

b $12 per direct labor hour

c $16 per direct labor hour

d $15 per direct labor hour

105 A company purchases 15,000 pounds of materials The materials price variance is $6,000

favorable What is the difference between the standard and actual price paid for thematerials?

a $2.00

b $.40

c $2.50

d $10.00

106 A company uses 40,000 gallons of materials for which it paid $9.00 a gallon The

materials price variance was $80,000 favorable What is the standard price per gallon?

a $2.00

b $7.00

c $10.00

d $11.00

107 CIB, Inc produces a product requiring 4 pounds of material costing $2.50 per pound

During December, CIB purchased 4,200 pounds of material for $10,080 and used thematerial to produce 500 products What was the materials price variance for December?

a $400 F

b $420 F

c $80 U

d $480 U

108 Debbie Co manufactures a product requiring two pounds of direct material During 2009,

Debbie purchases 24,000 pounds of material for $74,400 when the standard price perpound is $3.00 During 2009, Debbie uses 22,000 pounds to make 12,000 products Thestandard direct material cost per unit of finished product is

a $6.20

b $6.76

c $6.00

d $6.40

109 Cola Co manufactures a product with a standard direct labor cost of two hours at $24.00

per hour During July, 2,000 units were produced using 4,200 hours at $24.40 per hour.The labor quantity variance was

a $4,880 F

b $4,800 U

c $3,280 U

d $4,880 U

110 Cola Co manufactures a product with a standard direct labor cost of two hours at $24.00

per hour During July, 2,000 units were produced using 4,200 hours at $24.40 per hour.The labor price variance was

a $1,680 U

b $6,480 U

c $6,480 F

d $4,800 U

111 A company developed the following per unit materials standards for its product: 3 pounds

of direct materials at $4 per pound If 12,000 units of product were produced last monthand 37,500 pounds of direct materials were used, the direct materials quantity variancewas

a $3,600 favorable

b $6,000 unfavorable

c $3,600 unfavorable

d $6,000 favorable

112 The standard direct labor cost for producing one unit of product is 5 direct labor hours at a

standard rate of pay of $12 Last month, 15,000 units were produced and 73,500 directlabor hours were actually worked at a total cost of $810,000 The direct labor quantityvariance was

a $18,000 unfavorable

b $27,000 unfavorable

c $27,000 favorable

d $18,000 favorable

113 Blue Fin Co produces a product requiring 10 pounds of material at $1.50 per pound Blue

Fin produced 10,000 units of this product during 2009 resulting in a $30,000 unfavorablematerials quantity variance How many pounds of direct material did Blue Fin use during2009?

a 120,000 pounds

b 100,000 pounds

c 200,000 pounds

d 145,000 pounds

114 Wild West Inc produces a product requiring 3 direct labor hours at $20.00 per hour

During January, 2,000 products are produced using 6,300 direct labor hours Wild West’sactual payroll during January was $122,850 What is the labor quantity variance?

a $2,850 U

b $6,000 F

c $3,150 F

d $6,000 U

115 Raylight Products 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 2,600 units,although it had planned to make only 2,200 units Total yards used for production were2,640 How much is the total materials variance?

a $32,400 U

b $3,240 U

c $2,640 F

d $600 U

116 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 ofdirect materials

c the actual unit price of raw materials or the actual quantities of raw materials used wasgreater than the standard unit price or standard quantities of raw materials expected

d the purchasing agent or the production foreman is inefficient

117 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

118 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

119 A company developed the following per-unit standards for its product: 2 pounds of direct

materials at $4 per pound Last month, 1,000 pounds of direct materials were purchasedfor $3,800 The direct materials price variance for last month was

a $3,800 favorable

b $200 favorable

c $100 favorable

d $200 unfavorable

120 The per-unit standards for direct materials are 2 gallons at $4 per gallon Last month,

2,800 gallons of direct materials that actually cost $10,600 were used to produce 1,500units of product The direct materials quantity variance for last month was

a $800 favorable

b $600 favorable

c $800 unfavorable

d $1,400 unfavorable

121 The purchasing agent of the Skateboard Company 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

122 The per-unit standards for direct labor are 2 direct labor hours at $15 per hour If in

producing 1,200 units, the actual direct labor cost was $32,000 for 2,000 direct laborhours worked, the total direct labor variance is

a $1,200 unfavorable

b $4,000 favorable

c $2,500 unfavorable

d $4,000 unfavorable

123 The standard rate of pay is $15 per direct labor hour If the actual direct labor payroll was

$88,200 for 6,000 direct labor hours worked, the direct labor price (rate) variance is

a $1,800 unfavorable

b $1,800 favorable

c $2,250 unfavorable

d $2,250 favorable

124 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 Ifthe 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

125 Which one of the following statements is true?

a If the materials price variance is unfavorable, then the materials quantity variancemust also be unfavorable

b If the materials price variance is unfavorable, then the materials quantity variancemust be favorable

c Price and quantity variances move in the same direction If one is favorable, the otherswill be as well

d There is no correlation of favorable or unfavorable for price and quantity variances

126 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

127 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

128 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

129 The total overhead variance is equal to the

a sum of the total materials variance and the total labor variance

b difference between the total materials variance and the total labor variance

c sum of the controllable variance and the volume variance

d total variance minus the controllable variance and the volume variance

130 The total variance is $25,000 The total materials variance is $10,000 The total labor

variance is twice the total overhead variance What is the total overhead variance?

a $2,500

b $5,000

c $7,500

d $10,000

131 The formula for the materials price variance is

133 A company uses 8,400 pounds of materials and exceeds the standard by 400 pounds

The quantity variance is $1,800 unfavorable What is the standard price?

a $1.50

b $3.00

c $4.50

d Cannot be determined from the data provided

134 A company purchases 20,000 pounds of materials The materials price variance is $3,000

favorable What is the difference between the standard and actual price paid for thematerials?

a $.75

b $.15

c $3.75

d Cannot be determined from the data provided

135 A company uses 20,000 pounds of materials for which it paid $6.00 a pound The

materials price variance was $30,000 unfavorable What is the standard price per pound?

a $1.50

b $4.50

c $6.00

d $7.50

136 If the materials price variance is $2,400 F and the materials quantity and labor variances

are each $1,800 U, what is the total materials variance?

a Purchasing department Purchasing Department

b Purchasing department Production Department

c Production department Production Department

d Production Department Purchasing Department

138 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 onstandard hours allowed

d the actual overhead costs and the standard direct labor costs

139 The predetermined overhead rate for Weed-B-Gone is $8, comprised of a variable

overhead rate of $5 and a fixed rate of $3 The amount of budgeted overhead costs atnormal capacity of $240,000 was divided by normal capacity of 30,000 direct labor hours,

to arrive at the predetermined overhead rate of $8 Actual overhead for June was $15,800variable and $9,100 fixed, and standard hours allowed for the product produced in Junewas 3,000 hours The total overhead variance is

a $4,900 F

b $900 F

c $900 U

d $4,900 U

140 The predetermined overhead rate for Weed-B-Gone is $8, comprised of a variable

overhead rate of $5 and a fixed rate of $3 The amount of budgeted overhead costs atnormal capacity of $240,000 was divided by normal capacity of 30,000 direct labor hours,

to arrive at the predetermined overhead rate of $8 Actual overhead for June was $14,800variable and $8,100 fixed, and 1,500 units were produced The direct labor standard is 2hours per unit produced The total overhead variance is

a $2,900 F

b $1,100 F

c $1,100 U

d $2,900 U

141 Which of the following is true?

a The form, content, and frequency of variance reports vary considerably amongcompanies

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 thefrequency is always weekly

d The form and content of variance reports are consistent among companies, but thefrequency varies

142 Sonic Corporation’s variance report for the purchasing department reports 500 units of

material A purchased and 1,200 units of material B purchased It also reports standardprices of $2 for Material A and $3 for Material B Actual prices reported are $2.10 forMaterial A and $2.80 for Material B Sonic should report a total price variance of

a $190 F

b $20 F

c $20 U

d $190 U

143 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

144 Variance reports are

a external financial reports

b SEC financial reports

c internal reports for management

d all of these

145 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

146 Magliano 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 reportedseparately

b Cost of goods sold would be combined with the variances, and the net amountreported at standard cost

c Cost of goods sold would be at standard costs, and variances would be reportedseparately

d Cost of goods sold would be combined with the variances, and the net amountreported at actual cost

147 Dell Widgets 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

148 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 differencesexist between actual and standard costs

d in accordance with generally accepted accounting principles if significant differences

do not exist between actual and standard costs

149 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

150 In Sonic Corporation’s income statement, they report gross profit of $50,000 at standard

and the following variances:

Materials price $ 420 FMaterials quantity 600 F

151 In Sonic Corporation’s income statement, they report actual gross profit of $52,500 and

the following variances:

Materials price $ 420 FMaterials quantity 600 F

152 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 neasures

153 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

154 The balanced scorecard approach

a uses only financial measures to evaluate performance

b uses rather vague, open statements when setting objectives in order to allowmanagers and employees flexibility

c normally sets the financial objectives first, and then sets the objectives in the otherperspectives to accomplish the financial objectives

d evaluates performance using about 10 different perspectives in order to effectivelyincorporate all areas of the organization

155 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 how well the company is performing from the viewpoint of those people whobuy its products and services

156 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

a157 If 10,000 pounds of direct materials are purchased for $7,200 on account and the

standard cost is $.70 per pound, the journal entry to record the purchase is

a Raw Materials Inventory 7,200

Accounts Payable 7,200

b Work In Process Inventory 7,200

Accounts Payable 7,000Materials Quantity Variance 200

c Raw Materials Inventory 7,200

Accounts Payable 7,000Materials Price Variance 200

d Raw Materials Inventory 7,000

Materials Price Variance 200

Accounts Payable 7,200

a158 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

a159 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

a160 If a company purchases raw materials on account for $13,220 when the standard cost is

$12,600, it will

a debit Materials Price Variance for $620

b credit Materials Price Variance for $620

c debit Materials Quantity Variance for $620

d credit Material Quantity Variance for $620

a161 If a company issues raw materials to production at a cost of $12,600 when the standard

cost is $12,200, it will

a debit Materials Price Variance for $400

b credit Materials Price Variance for $400

c debit Materials Quantity Variance for $400

d credit Material Quantity Variance for $400

a162 If a company incurs direct labor cost of $41,000 when the standard cost is $42,000, it will

a debit Labor Price Variance for $1,000

b credit Labor Price Variance for $1,000

c debit Labor Quantity Variance for $1,000

d credit Labor Quantity Variance for $1,000

a163 If a company assigns factory labor to production at a cost of $42,000 when standard cost

is $40,000, 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

a164 The overhead variances measure whether overhead costs

Are Effectively Managed Were Used Effectively

c Controllable and Volume Controllable

a165 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 andstandard hours allowed

Use the following information for questions 166–169

The following information was taken from the annual manufacturing overhead cost budget ofCoen Company

Variable manufacturing overhead costs $46,200Fixed manufacturing overhead costs $27,720Normal production level in labor hours 23,100

During the year, 5,600 units were produced, 18,340 hours were worked, and the actualmanufacturing overhead was $75,600 Actual fixed manufacturing overhead costs equaledbudgeted fixed manufacturing overhead costs Overhead is applied on the basis of direct laborhours

a166 Coen’s total overhead rate is

a170 Which of the following statements is false?

a The overhead volume variance indicates whether plant facilities were used efficientlyduring 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 aregreater than the standard hours at normal capacity

a171 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

a172 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

a173 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

a174 What does the controllable variance measure?

a Whether a company incurred more or less fixed overhead costs compared to theamount 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

a175 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

a176 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

a177 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

Use the following information for questions 178 and 179

Budgeted overhead for Harrington Company at normal capacity of 30,000 direct labor hours is

$4.50 per hour variable and $3 per hour fixed In May, $232,500 of overhead was incurred inworking 31,500 hours when 32,000 standard hours were allowed

a178 The overhead controllable variance is

a180 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

Additional Multiple Choice Questions

181 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

182 Standards based on the optimum level of performance under perfect operating conditions

d normal spoilage costs

184 The standard unit cost is used in the calculation of which of the following variances?

Materials Price Variance Materials Quantity Variance

185 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

186 Which department is usually responsible for a labor price variance attributable to

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

a188 A standard cost system may be used in

Job Order Costing Process Costing

Answers to Multiple Choice Questions

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