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Multiple Choice
Multiple Choice
Multiple Choice
a 3. Setting standards
a. has important behavioral implications.
b. is largely a matter of calculating rates and quantities.
c. should be done to make them as tight as possible.
d. is done only for manufacturing activities.
a 5. A major drawback to setting standards based on historical results is that such standards
a. can perpetuate inefficiencies.
b. are harder to compute than are engineered standards.
c. are usually too hard to meet because of inflation.
d. are usually not well received by workers.
b 6. Cascade Company, which has a $3 standard cost per unit and budgeted production at 1,000 units, actually
produced 1,200 units. Total standard cost for the period is
a. $3,000.
b. $3,600.
c. an amount that cannot be determined without knowing the variances for the period.
d. none of the above.
c 7. Which variance is LEAST likely to be affected by hiring workers with less skill than those already working?
a. Material use variance.
b. Labor rate variance.
c. Material price variance.
d. Variable overhead efficiency variance.
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c 8. Which variance is MOST likely to be affected by buying a more expensive material that produces less waste
and is easier to handle?
a. Labor rate variance.
b. Variable overhead spending variance.
c. Direct labor efficiency variance.
d. Fixed overhead budget variance.
Standard direct labor time is 1.5 hours per unit of product. The standard wage rate is $6 per hour. Standard
variable overhead cost for a unit of product is
a. $4.00.
b. $6.00.
c. $9.00.
d. $10.00.
d 11. If the variable overhead standard is based on direct labor hours and actual hours worked exceed standard hours
allowed, the result is
a. a favorable labor efficiency variance.
b. an unfavorable variable overhead spending variance.
c. a favorable variable overhead spending variance.
d. an unfavorable variable overhead efficiency variance.
d 14. The sum of the material price variance and material use variance always equals the difference between
a. actual and standard material purchases.
b. actual material purchases and standard material use.
c. standard material purchases and standard material use.
d. none of the above pairs of amounts.
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c 15. Which set of terms describes the same type of variance?
a. Price variance, rate variance, use variance.
b. Price variance, rate variance, efficiency variance.
c. Use variance, efficiency variance, quantity variance.
d. Use variance, efficiency variance, spending variance.
d 16. A product requires 0.60 standard labor hours, the standard labor rate is $10 per hour, and production was 300
units. Actual labor cost was $1,862 at $9.80 per hour. Which of the following is true?
a. The labor rate variance was $98 favorable.
b. The labor rate variance was $62 unfavorable.
c. The labor efficiency variance was $62 unfavorable.
d. The labor efficiency variance was $100 unfavorable.
d 17. Cascade Company bought 10,000 pounds of material and used 9,500. The material price variance was $300
unfavorable and the standard price per pound is $3. The cost of materials purchased was
a. $28,200
b. $28,800
c. $29,700
d. $30,300
c 18. The standard price of a material is $2 per pound. The company bought 2,000 pounds at $1.90 per pound and
used 1,700 pounds. Standard use was 1,800 pounds. The material price variance was
a. $170 favorable.
b. $180 favorable.
c. $200 favorable.
d. $400 favorable.
c 19. A company made 1,200 units with a $550 favorable labor use variance. There was no labor rate variance and
actual labor cost was $19,250. The actual wage rate was $11. Standard labor time per unit is
a. 0.5 hours
b. 1.0 hour
c. 1.5 hours
d. 2.0 hours
a 20. Which formula calculates a price or rate variance? (AQ = actual quantity of the factor, AP = actual price of the
factor, SQ = standard price of the factor, SQ = standard quantity of the factor)
a. (AQ x AP) - (AQ x SP).
b. (AQ x AP) - (SQ x AP).
c. (AQ x SP) - (SQ x SP)
d. (AQ x SP) - (SQ x AP).
b 21. Which formula calculates a use or efficiency variance? (AQ = actual quantity of the factor, AP = actual price
of the factor, SQ = standard price of the factor, SQ = standard quantity of the factor)
a. (AQ x AP) - (SQ x SP).
b. (AQ x SP) - (SQ x SP).
c. (AQ x AP) - (AQ x SP)
d. (SQ x SP) - (SQ x AP).
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b 22. Using variances to evaluate performance
a. is especially useful to JIT companies.
b. can be misleading because of interdependence among variances.
c. cannot be used with activity-based overhead standards.
d. all of the above.
c 24. A purchasing manager bought cheaper-than-normal materials that are difficult to handle. Which combination
of variances is LEAST likely to be affected by this decision?
a. Material use and direct labor use.
b. Material use, direct labor use, and variable overhead efficiency.
c. Direct labor rate and variable overhead budget.
d. Direct labor use and variable overhead efficiency.
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d 30. An 80% learning curve means that
a. the incremental time for each unit is 80% of the time of the unit before it.
b. the cumulative average time is 80% of the cumulative average time at the previous unit.
c. as production doubles, the incremental time for a unit is 80% of the time at the previous doubling point.
d. as production doubles, the cumulative average time is 80% of the time at the previous doubling point.
a 32. Which of the following is NOT a reason why some JIT operations do not use standards?
a. Standards are often set too tight for JIT operations.
b. Using standards can stifle continuous improvement.
c. Standards focus on cost centers, not on the entire manufacturing operation.
d. All of the above are reasons.
b 36. For a company whose variable overhead relates to direct labor, the variable overhead efficiency variance
a. results from efficient or inefficient use of variable overhead elements.
b. results from efficient or inefficient use of direct labor.
c. is always the same as the direct labor efficiency variance.
d. is more like a budget variance than a use variance.
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b 37. Acme Company produced 500 units with a $50 unfavorable labor rate variance. The labor use variance was
$180 favorable. Actual labor cost was $17,870. The standard wage rate was $9. Actual hours were
a. 1,520
b. 1,980
c. 2,000
d. 2,020
a 38. Crunch Company expects a 90% learning curve. The first batch of a new product required 1,000 hours. The
total time for the first four batches should be
a. 3,240 hours.
b. 3,600 hours.
c. 4,000 hours.
d. some other number of hours.
c 39. Crunch Company expects a 90% learning curve. The first batch of a new product required 10 hours. The first
four batches should take an average of
a. 10 hours.
b. 9 hours.
c. 8.1 hours.
d. some other number of hours.
c 40. Acme has a standard of 15 parts of component X costing $1.50 each. Acme purchased 14,910 units of X for
$21,950. Acme generated a $415 favorable price variance and a $3,735 favorable quantity variance. If there
were no changes in the component inventory, how many units of finished product were produced?
a. 994 units
b. 1,000 units
c. 1,160 units
d. some other number
b 41. Acme has a standard price of $6 per pound for materials. July's results showed an unfavorable material price
variance of $44 and a favorable quantity variance of $228. If 1,066 pounds were used in production, what
was the standard quantity allowed for materials?
a. 1,066
b. 1,104
c. 1,294
d. some other number
c 42. Genco paid $78,800 to direct labor for the production of 1,500 units. Standards allow 2 labor hours per unit at
a rate of $25.00 per hour. Actual hours totaled 2,900. The direct labor rate variance was
a. $2,050 favorable
b. $3,800 favorable
c. $6,300 unfavorable
d. some other number
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a 43. Genco paid $78,800 to direct labor for the production of 1,500 units. Standards allow 2 labor hours per unit at
a rate of $25.00 per hour. Actual hours totaled 2,900. The direct labor efficiency variance was
a. $2,500 favorable
b. $3,800 favorable
c. $6,300 unfavorable
d. some other number
c 44. Danner had a $550 favorable direct labor rate variance and a $720 unfavorable efficiency variance. Danner
paid $6,650 for 800 hours of labor. What was the standard direct labor wage rate?
a. $8.10
b. $8.31
c. $9.00
d. some other number
c 45. Jeter's Company had a $510 unfavorable direct labor rate variance and a $1,000 favorable efficiency variance.
Jeter's standard payroll was $11,200 at a standard wage of $10 per hour. What was the actual direct labor
wage rate?
a. $9.56
b. $10.00
c. $10.50
d. some other number
a 46. Chippewa paid $32,225 to direct labor for the production of 1,700 units. Standards allow 3 labor hours per unit
at a rate of $6.50 per hour. Actual hours totaled 5,150. The direct labor rate variance was
a. $1,250 favorable
b. $925 favorable
c. $325 favorable
d. $325 unfavorable
d 47. Chippewa paid $32,225 to direct labor for the production of 1,700 units. Standards allow 3 labor hours per unit
at a rate of $6.50 per hour. Actual hours totaled 5,150. The direct labor efficiency variance was
a. $1,250 favorable
b. $925 favorable
c. $325 favorable
d. $325 unfavorable
During September, Chetek produced 5,000 units, using 9,640 labor hours at a total wage of $94,670 and
incurring $78,600 in variable overhead. The variable overhead budget variance is
a. $6,300 unfavorable
b. $3,600 unfavorable
c. $2,700 favorable
d. some other number
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c 49. Barron Company has standard variable costs as follows:
Materials, 3 pounds at $4.00 per pound $12.00
Labor, 2 hours at $10.00 per hour 20.00
Variable overhead, $7.50 per labor hour 15.00
$47.00
During September, Barron produced 5,000 units, using 9,640 labor hours at a total wage of $94,670 and
incurring $78,600 in variable overhead. The variable overhead efficiency variance is
a. $6,300 unfavorable
b. $3,600 unfavorable
c. $2,700 favorable
d. $3,300 favorable
c 50. Silver Bow manufactured the first batch of product in 100 hours. The second batch took an additional 60
hours. What percent learning occurred?
a. 100%
b. 90%
c. 80%
d. Cannot be determined with the information given.
True-False
T 1. Standard costs are per-unit expressions of flexible budget allowances based on output.
F 2. The value of b, the exponent in the learning curve formula, is the learning rate.
F 4. Learning curves can only be used for a one-of-a-kind special order product.
F 5. So long as total actual costs approximate total budgeted costs there is no need for managerial concern or action.
T 6. It is not always possible to separate the variable and fixed components of actual overhead cost.
F 7. When an unfavorable variance occurs, there is some action that some manager can take to correct the event or
circumstance that gave rise to the variance.
F 8. Standard costs are devices for measuring effectiveness but not efficiency.
F 9. "Ideal standards" are those most likely to be met under most conditions.
T 10. The labor efficiency variance excludes the effects of laborers being paid more or than the standard labor rate.
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Problem
Standard costs:
Materials, 2 pounds at $6 per pound $12 per unit
Labor, 3 hours at $15 per hour $45 per unit
Variable overhead at $8 per labor hour $24 per unit
Budgeted fixed production costs $140,000 per year
Budgeted production for the year 4,000 units
For each variance, determine the amount and circle the correct direction,
F = favorable, U = unfavorable
SOLUTION:
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2. The data below relate to a product of Conroy Company.
Standard costs:
Materials, 3 pounds at $4 per pound $12 per unit
Labor, 5 hours at $12 per hour $60 per unit
Variable overhead at $7 per labor hour $35 per unit
Budgeted fixed production costs $150,000 per year
Budgeted production for the year 5,000 units
For each variance, determine the amount and circle the correct direction,
F = favorable, U = unfavorable
SOLUTION:
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3. Anne's Arbors has the following budget and actual results for May:
Budget Actual
------ ------
Unit production 9,000 9,600
Direct labor hours 11,250 11,550
Materials used, feet 15,750 16,100
Standard labor rate is $12 per hour; standard material price is $4.50 per foot. Actual wages were $140,250;
actual material purchases were 17,500 pounds for $77,160.
For each variance, determine the amount and circle the correct direction,
F = favorable, U = unfavorable
SOLUTION:
4. North Company has the following budget and actual results for July:
Budget Actual
------ ------
Unit production 10,000 8,400
Direct labor hours 12,000 11,860
Materials used, feet 16,000 16,750
Standard labor rate is $14 per hour; standard material price is $7.50 per foot. Actual wages were $168,750;
actual material purchases were 18,800 pounds for $149,825.
For each variance, determine the amount and circle the correct direction,
F = favorable, U = unfavorable
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d. Direct labor efficiency variance. F U
SOLUTION:
Standard costs:
Materials, 5 yards at $3 per pound $15 per unit
Labor, 3 hours at $14 per hour $42 per unit
Variable overhead at $10 per labor hour $30 per unit
Budgeted fixed production costs $175,000 per year
Budgeted production for the year 7,700 units
For each variance, determine the amount and circle the correct direction,
F = favorable, U = unfavorable
SOLUTION:
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d. DLEV $17,360 F ($14 x 17,660) - ($42 x 6,300)
6. Toimi Inc. had the following variances for the most recent month:
Other information included: actual wages paid $72,310; materials purchased $130,760; standards per unit were
2 labor hours at $5 per hour, 3 pounds at $6 per pound. There were no changes in materials inventories.
SOLUTION:
b. 14,220 SH $71,100 / $5
c. 15,616 AH $78,080 / $5
7. Ralph Inc. had the following variances for the most recent month:
Other information included: actual wages paid $105,560; materials purchased $124,860; standards per unit were
2 labor hours at $5 per hour and variable overhead at $6 per hour.
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d. Find the variable overhead efficiency variance.
SOLUTION:
b. 17,468 SH 8,734 x 2
8. Gros Ventre Company expects a learning rate of 80%. The first batch of a new product is expected to take 500
direct labor hours.
a. Compute the cumulative average time for the first four batches.
SOLUTION:
b. 1,280
Output (X) Average time (Y) Total time (XY)
1 500 500
2 400 (500 x 80%) 800 (2 x 400)
4 320 (400 x 80%) 1,280 (4 x 320)
9. Benco Inc. has the following results for December when production was 8,000 units:
Per unit standards are 2.5 pounds of materials at $12.00 per pound and 3.5 hours at $16 per hour.
For each variance, determine the amount and circle the correct direction,
F = favorable, U = unfavorable
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d. Direct labor efficiency variance. F U
SOLUTION:
10. Cascade Company expects a learning rate of 90%. The first batch of a new product is expected to take 200
direct labor hours.
a. Compute the cumulative average time for the first eight batches.
SOLUTION:
b. 1,166.4
Output (X) Average time (Y) Total time (XY)
1 200 200
2 180 (200 x 90%) 360 (2 x 180)
4 162 (180 x 90%) 648 (4 x 162)
8 145.8 (162 x 90%) 1,166.4 (8 x 145.8)
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