QUESTIONS ON STANDARD COSTING (CHAPTER-9)

1. The Schlosser Lawn Furniture Company uses 12 meters of aluminum pipe at $0.80 per meter
as standard for the production of its Type A lawn chair. During one month's operations, 100,000
meters of the pipe were purchased at $0.78 a meter, and 7,200 chairs were produced using 87,300
meters of pipe. The materials price variance is recognized when materials are purchased.

Required: Materials price and quantity variances.

2. The processing of a product requires a standard of 0.8 direct labor hours per unit for Operation
4-802 at a standard wage rate of $6.75 per hour. The 2,000 units actually required 1,580 direct
labor hours at a cost of $6.90 per hour.

Required: Calculate:

1. Labor rate variance.

2. Labor efficiency or usage or quantity variance.

3. On May 1, Bovar Company began the manufacture of a new mechanical device known a
"Dandy." The company installed a standard cost system in accounting for manufacturing costs.
The standard costs for a unit of Dandy are:

Materials: 6 lbs. at $1 per lb. $ 6.00

Direct labor: 1 hour at $4 per hour $ 4.00
Factory overhead: 75% of direct labor cost $ 3.00
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Total $13.00
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The following data were obtained from Bovar's record for May:

Actual production of Dandy 4,000 units

Units sold of Dandy 2,500
Sales $50,000
Purchases (26,000 pounds) 27,300
Materials price variance (applicable to May purchase) $1,300 unfavorable
Materials quantity variance 1,000 unfavorable
Direct labor rate variance 760 unfavorable.
Direct labor efficiency variance 800 favorable
Factory overhead total variance 500 unfavorable
Required:

1. Standard quantity of materials allowed (in pounds).

2. Actual quantity of materials used (in pounds).
3. Standards hours allowed.
4. Actual hours allowed.
5. Actual direct labor rate.
6. Actual total factory overhead.

4. An adverse labour efficiency variance together with a favourable labour rate variance may
mean that:

a. The business is paying a higher hourly rate than the standard

b. More products are being made per hour
c. Less skilled staff are being used in production
d. Less labour hours are needed to make the same amount of output

5. When carrying out variance analysis, ideally we should:

a. Look at all variances

b. Look at controllable adverse and favourable variances that are over a predetermined
amount
c. Look at all adverse and favourable variances that are over a predetermined amount
d. Look at adverse variances that are over a predetermined amount

6. The standard cost of a product is:

a. The average unit cost of products produced during a particular period

b. The unit cost of products incurred at the start of a particular period
c. The planned unit cost of products produced during a particular period
d. The average unit cost of products produced in the previous period

7. The following information relates to product A:

Quantity Unit Price Cost per Unit
Material (kg) 3 £23 £69
Labour (hours) 2 £20 £40

Budgeted profit is 1,000 units.

Actual production is 900 units.
Actual inputs were as follows:

Material 2,650 kg costing £66,250

Labour 1840 hours costing £34,960

The material price variance is:

a. £4,150 adverse
b. £5,300 favourable
c. £4,150 favourable
d. £5,300 adverse

8. Using the information from question 7 the material usage variance is:

a. £1,250 favourable
b. £1,150 favourable
c. £1,250 adverse
d. £1,150 adverse

9. Using the information from question 7 the labour rate variance is:

a. £1,840 adverse

b. £1,040 adverse

c. £1,840 favorable

d. £1,040 favourable

10. Using the information from question 8 the labour efficiency variance is:

a. £760 favourable

b. £760 adverse

c. £800 favourable

d. £800 adverse
11. In August actual material used amounted to 5,650 kg, budgeted output was 1,000 units and
standard material usage was 5 kg per unit. Actual output was 1,075 units. If the standard material
cost of each product is £25 the material usage variance will be:

a. £3,250 adverse
b. £1,375 favourable
c. £3,250 favourable
d. £1,375 adverse

12. During July actual labour costs amounted to £19,800, the standard rate of pay was £4.50 per
hour and the labour rate variance amounted to £225 adverse. The actual hours worked were:

a. 4,450

b. 1,012.5

c. 4,400

d. 4,350

13. Which of the following would produce a materials price variance?

a) an excess quantity of materials used.

b) an excess number of direct labor-hours worked in completing a job.
c) shipping materials to the plant by air freight rather than by truck.
d) breakage of materials in production.

14.The following standards for variable manufacturing overhead have been established for a
company that makes only one product:

Standard hours per unit of output.................... 5.6 hours

Standard variable overhead rate ...................... $19.15 per hour

The following data pertain to operations for the last month:

Actual hours ...................................................... 5,100 hours

Actual total variable overhead cost ................... $99,195
Actual output..................................................... 1,100 units

What is the variable overhead efficiency variance for the month?

A) $20,299 F
B) $18,769 F
C) $1,848 F
D)$20,617 F
15. If the price a company paid for overhead items, such as utilities, decreased during the year,
the company would probably report a(n):
A) favorable efficiency variance.
B) favorable spending variance.
C) unfavorable efficiency variance.
D) unfavorable spending variance

16.Hall Company's standards call for 750 direct labor-hours to produce 500 units. During May
400 units were produced. The company worked 650 direct labor-hours. The standard
hours allowed for May production would be:
A) 750 hours
B) 650 hours
C) 600 hours
D) 100 hours

17. Explain two instances of inter-relationships between cost and sales variances.

18. Explain the likely effect of using low-quality material on material and labour variances.

19. What causes the fixed overhead variance to occur? When will this variance be favorable?
When will this be unfavorable?

20. What causes the variable overhead efficiency variance to occur? When will this variance be
favorable? When will this be unfavorable?