Cornerstones of Managerial Accounting 5th Edition Mowen Test Bank

Cornerstones of Managerial Accounting
5th Edition Mowen Test Bank

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Chapter 10—Standard Costing: A Managerial Control Tool
TRUE/FALSE
1. Managers develop quantity standards when they decide what amount of input should be used per unit
of output.
ANS: T PTS: 1 DIF: Difficulty: Easy

OBJ: LO: 10-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Decision Modeling | IMA: Performance Measurement | ACBSP:
APC-26-Management Functions KEY: Bloom's: Comprehension
NOT: 1 min.
2. Managers develop price standards when they determine what amount should be paid for the quantity of
input to be used.

APC-26-Management Functions KEY: Bloom's: Comprehension
NOT: 1 min.
3. The standard cost per unit of output for a particular input is calculated by multiplying the standard
input price by the standard input allowed per unit of output produced.

STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-27-Managerial
Accounting Features/Costs KEY: Bloom's: Comprehension
NOT: 1 min.
4. In setting standards, historical experience should be used with caution because it can perpetuate
operating inefficiencies.

STA: AICPA: BB-Industry | IMA: Performance Measurement | ACBSP: APC-25-Managerial
Characteristics/Terminology KEY: Bloom's: Comprehension
NOT: 1 min.
5. Engineering studies are often too rigorous and may not be achievable by operating personnel.

NOT: 1 min.
6. Ideal standards can be achieved under efficient operating conditions.
ANS: F
No. Currently attainable standards can be achieved under efficient operating conditions. Ideal
standards demand maximum efficiency and can be achieved only if everything operates perfectly.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-1

NAT: BUSPROG: Analytic
NOT: 1 min.
7. Ideal standards can be achieved only if everything operates perfectly, meaning that they do not allow
for any machine breakdowns, slack, etc.

NOT: 1 min.
8. Currently attainable standards offer the most behavioral benefits because higher performance levels are
attained through challenging, yet achievable, standards.

NOT: 1 min.
9. Currently attainable standards can be achieved under efficient operating conditions.

NOT: 1 min.
10. One reason for adopting a standard cost system is to make product costing easier.
ANS: F PTS: 1 DIF: Difficulty: Easy

NOT: 1 min.
11. The benefits of operational control under a standard cost system can extend to all manufacturing
environments.
ANS: F
No. Manufacturing environments that focus on continuous improvement and JIT purchasing and
manufacturing do not realize the benefits of operational control in a standard cost system.

NOT: 1 min.
12. Standard costs are developed for direct materials, direct labor, and variable overhead only.
ANS: F
No. Standard costs are assigned for direct materials, direct labor, and variable and fixed overhead.

NOT: 1 min.
13. The standard quantity of materials allowed can be calculated by multiplying the unit labor standard by
the actual output.
ANS: F
The standard quantity of materials allowed can be calculated by multiplying the unit quantity standard
by the actual output.

STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-33-Incremental
analysis KEY: Bloom's: Comprehension NOT: 1 min.
14. To compute the standard direct labor hours allowed, multiply the unit labor standard by the actual
output.

15. The quantity of each input that should be used to produce one unit of output is documented on the
standard cost sheet.

NOT: 1 min.
16. The standard cost sheet provides the input standards needed to compute the total amount of inputs
allowed for the actual output, an essential component in computing efficiency variances.

NOT: 1 min.
17. The standard unit cost is developed before the standard costs for direct materials, direct labor, and
overhead can be set.
ANS: F PTS: 1 DIF: Difficulty: Easy
NOT: 1 min.
18. The unit standard quantity of inputs is vital to the computation of total amount of inputs allowed for
the actual output and efficiency variances.

NOT: 1 min.
19. The total budget variance is the difference between the actual cost of the input and its planned cost.

Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 1 min.
20. The actual quantity of input at the standard price less than the standard quantity of input at the standard
price equals the usage variance.

21. The actual quantity of input at the actual price less the actual quantity of input at the standard price is
the price variance.

22. An unfavorable usage variance would occur when the actual usage of inputs is greater than the
standard usage.

23. An unfavorable price variance occurs whenever the actual prices are greater than the standard prices.

24. An acceptable range is established in order to determine if whether variances are significant. The
acceptable range is the standard, plus or minus an allowable deviation.

analysis KEY: Bloom's: Knowledge NOT: 1 min.
25. The sum of the price and usage variances will add up to the total materials variance only if the
materials purchased is equal to the materials used.

26. The materials price variance is computed using the actual quantity of materials used, and the materials
usage variance is computed using the actual quantity of materials purchased.
ANS: F
No. The materials price variance is computed using the actual quantity of materials purchased, and the
materials usage variance is computed using the actual quantity of materials used.

27. For better control, the materials price variance is computed using actual quantity of materials
purchased.
ANS: T
Since it is better to have information on variances earlier rather than later, the materials price variance
uses the actual quantity of materials purchased rather than the actual quantity of materials used.

28. The sum of the labor rate and labor efficiency variances will always add up to the total labor variance.

29. Kaizen costing provides fixed standards which reflect continuous improvement efforts.
ANS: F
Thus, kaizen costing differs from traditional standard costing in that the standard changes frequently,
reflecting continuous improvement efforts.

STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-27-Managerial
NOT: 1 min.
30. A kaizen standard reflects the realized improvements for the past periods and a search for more
improvements for the future.
ANS: T
Setting this new level as a minimum standard for future performance locks in the realized
improvements and initiates simultaneously the maintenance cycle and a search for additional
improvement opportunities

NOT: 1 min.
31. Favorable variances are credits and unfavorable variances are debits.

NOT: 1 min.
MATCHING
Match each item with the correct statement below.

a. Quantity Standards
b. Ideal Standards
c. Price Standards
d. Standard Cost Sheet
e. Upper Control Limit
f. Currently Attainable Standards
g. Kaizen Standards
1. Standards of perfection that require absolute efficiency.
2. Standards that are rigorous but achievable and reflect reasonable efficiency.
3. These reflect the amount that should be paid for the quantity of input to be used.
4. These reflect the amount of input that should be used per unit of output.
5. A tool used to provide the production data needed to calculate the standard unit cost.
6. This is the standard plus the allowable deviation when determining whether variances are significant.
7. This reflects the planned improvement that is set, which will help reduce nonvalue-added costs.
1. ANS: B PTS: 1 DIF: Difficulty: Easy

NOT: 1 min.
2. ANS: F PTS: 1 DIF: Difficulty: Easy
NOT: 1 min.
3. ANS: C PTS: 1 DIF: Difficulty: Easy
NOT: 1 min.
4. ANS: A PTS: 1 DIF: Difficulty: Easy
NOT: 1 min.
5. ANS: D PTS: 1 DIF: Difficulty: Easy
NOT: 1 min.
6. ANS: E PTS: 1 DIF: Difficulty: Easy
NOT: 1 min.
7. ANS: G PTS: 1 DIF: Difficulty: Easy
NOT: 1 min.
Match the variance with its correct calculation.

a. Actual Quantity  Actual Price
b. (Actual Hours  Actual Rate) − (Standard Hours  Standard Rate)
c. (Actual Quantity  Actual Price) − (Standard Quantity  Standard Price)
d. (Actual Hours − Standard Hours)  Standard Rate
e. (Actual Price − Standard Price)  Actual Quantity
f. Standard Quantity  Standard Price
g. (Actual Rate − Standard Rate)  Actual Hours
h. (Actual Quantity − Standard Quantity)  Standard Price
8. Actual Costs
9. Budgeted Costs
10. Total Materials Variance
11. Materials Price Variance
12. Materials Usage Variance
13. Labor Rate Variance
14. Labor Efficiency Variance
15. Total Direct Labor Variance
8. ANS: A PTS: 1 DIF: Difficulty: Easy

NOT: 1 min.
9. ANS: F PTS: 1 DIF: Difficulty: Easy
NOT: 1 min.
10. ANS: C PTS: 1 DIF: Difficulty: Easy
NOT: 1 min.
11. ANS: E PTS: 1 DIF: Difficulty: Easy
NOT: 1 min.
12. ANS: H PTS: 1 DIF: Difficulty: Easy
NOT: 1 min.
13. ANS: G PTS: 1 DIF: Difficulty: Easy
NOT: 1 min.
14. ANS: D PTS: 1 DIF: Difficulty: Easy
NOT: 1 min.
15. ANS: B PTS: 1 DIF: Difficulty: Easy
NOT: 1 min.
COMPLETION
1. _______________ often means the difference between success and failure or between above-average
profits and lesser profits.
ANS: Cost control
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-1

NOT: 2 min.
2. The amount of input that should be used per unit of output is known as the _______________.
ANS:
quantity decision
standard quantity

APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 2 min.
3. The amount that should be paid for the quantity of the input to be used is known as the
______________.
ANS:
pricing decision
standard price

NOT: 2 min.
4. ___________________ can provide an initial guideline for setting standards, but should be used with
caution because they can perpetuate existing inefficiencies.
ANS: Historical experiences

NOT: 2 min.
5. Standards are set by using historical experiences, ___________________, and input from operating
personnel, marketing, and accounting.
ANS: engineering studies

NOT: 2 min.
6. ________________ demands maximum efficiency and can be achieved only if everything operates
perfectly.
ANS: Ideal standards

NOT: 2 min.
7. In a ____________________, costs are assigned to products using quantity and price standards for all
three manufacturing costs: direct materials, direct labor, and overhead.
ANS: standard costing system

NOT: 2 min.
8. The __________________ provides the products data needed to calculate the standard unit cost.
ANS: standard cost sheet

NOT: 2 min.
9. The ______________________ can be used to compute the total amount of inputs allowed for the
actual output.
ANS: unit quantity standards

NOT: 2 min.
10. ___________________ is calculated by multiplying the unit labor standard by the actual output.
ANS: Standard hours allowed

NOT: 2 min.
11. The ____________________ is the difference between the actual cost of the input and its planned
cost.
ANS: total budget variance

NOT: 2 min.
12. ____________________ is the difference between the actual and standard unit price of an input
multiplied by the number of inputs used.
ANS:
Price variance
rate variance

NOT: 2 min.
13. _________________ occur whenever actual prices or actual usage of inputs are greater than standard
prices or standard usage.
ANS: Unfavorable variances

NOT: 2 min.
14. The ____________________ measures the difference between the actual costs of materials and their
budgeted costs for actual level of activity.
ANS: total variance for materials

NOT: 2 min.
15. The ____________________ measures the difference between what should have been paid for raw
materials and what was actually paid.
ANS: materials price variance

NOT: 2 min.
16. The _____________________ measures the difference between the direct materials actually used and
the direct materials that should have been used for the actual output.
ANS: materials usage variance

NOT: 2 min.
17. The _______________ computes the difference between what was paid to direct laborers and what
should have been paid.
ANS: labor rate variance

NOT: 2 min.
18. The ___________________ measures the difference between the labor hours that were actually used
and the labor hours that should have been used.
ANS: labor efficiency variance

NOT: 2 min.
19. ______________ focuses on the continuous reduction of the manufacturing costs of existing products
and processes.
ANS: Kaizen costing

NOT: 2 min.
20. A ______________ is the difference between the sales price needed to capture a predetermined market
share and the desired per-unit profit.
ANS: target cost

NOT: 2 min.
MULTIPLE CHOICE
1. Standards based on the amount of input that should be used per unit of output are called
a. quantity standards.
b. price standards.
c. ideal standards.
d. currently attainable standards.
e. kaizen standards.
ANS: A PTS: 1 DIF: Difficulty: Easy
NOT: 2 min.
2. Price standards are based on

a. the amount of input that should be used per unit of output.
b. the amount that should be paid for the total quantity of input to be used.
c. the amount that should be paid per unit of output.
d. the amount that should be paid per unit of input purchased.
e. None of these.
ANS: B
Price standards are based on the pricing decision, which is the amount that should be paid for the
quantity of input to be used.

NOT: 2 min.
3. The sources of quantitative standards include

a. historical experience.
b. engineering studies.
c. input from operating personnel.
d. historical experience, engineering studies, and input from operating personnel.
e. None of these.
ANS: D PTS: 1 DIF: Difficulty: Easy
NOT: 2 min.
4. Which of the following is true regarding historical experience in standard setting?

a. It provides very rigorous guidelines.
b. Operating personnel may not be able to achieve operating standards based on historical
experience.
c. It should be used with caution because it can perpetuate inefficiencies.
d. Standards based on historical experience are better than standards based on engineering
studies.
e. None of these.
ANS: C
Historical experience should be used with caution because processes are often operating inefficiently.
Using standards based on past experience can perpetuate the inefficiencies.

NOT: 2 min.
5. Which of the following is not true regarding engineering studies?

a. They can determine the most efficient way to operate.
b. They are often achievable by operating personnel.
c. They provide very rigorous guidelines.
d. All of these statements are true.
e. More than two of these statements are true.
ANS: B
Engineering studies are typically so rigorous they are often not achievable by operating personnel.

NOT: 2 min.
6. In setting price standards for materials and labor,

a. the purchasing department must consider discounts, freight, and quality.
b. personnel must consider payroll taxes, fringe benefits, and qualifications.
c. it is the joint responsibility of operations, purchasing, personnel, and accounting.
d. All of these.
e. None of these.
ANS: D PTS: 1 DIF: Difficulty: Moderate
NOT: 2 min.
7. Ideal standards
a. do not allow for machine breakdowns, slack, or lack of skill (even momentarily).
b. demand maximum efficiency.
c. can be achieved only if everything operates perfectly.
d. All of these.
e. None of these.
NOT: 2 min.
8. Which of the following is true regarding currently attainable standards?

a. They can be achieved under efficient operating conditions.
b. Allowance is made for normal breakdowns, interruptions, etc.
c. They are challenging but achievable.
d. They tend to achieve higher performance levels from personnel.
e. All of these.
ANS: E PTS: 1 DIF: Difficulty: Moderate
APC-27-Managerial Accounting Features/Costs KEY: Bloom's: Comprehension
NOT: 2 min.
9. Standard cost systems are adopted

a. to improve planning and control.
b. to facilitate product costing.
c. to improve planning and control, and to facilitate product costing.
d. to enhance the operational control of firms that emphasize continuous improvement.
e. for all of these reasons.
ANS: C
The benefits of operational control in a standard cost system may not extend to the manufacturing
environments that emphasize continuous improvement and just-in-time purchasing and manufacturing.

NOT: 2 min.
10. Standard cost systems can enhance operational control through the use of
a. efficiency variances which indicate the need for corrective action.
b. price variances which indicate the need for better spending control.
c. standard costs which indicate the desired cost of a unit of input.
d. actual costs which indicate the price received for units sold.
e. All of these.
ANS: A PTS: 1 DIF: Difficulty: Moderate
NOT: 2 min.
11. Which of the following is true regarding standard cost systems in manufacturing environments that
emphasize continuous improvement and just-in-time manufacturing and purchasing?
a. The standard cost system enhances the operational control.
b. The materials price variance may encourage the purchasing department to buy in smaller
quantities to reduce inventories.
c. Variances can be computed and presented in reports to higher-level managers.
d. The operational level will benefit from the detailed computation of variances.
e. None of these.
ANS: C
Although the benefits of operational control may not extend to these manufacturing environments,
variances can still be computed and presented in reports to higher-level managers so they can monitor
the financial dimension.

NOT: 2 min.
12. In a standard cost system, costs are assigned to all of the following, except for
a. direct materials.
b. direct labor.
c. variable overhead.
d. fixed overhead.
e. none of these.
ANS: E PTS: 1 DIF: Difficulty: Easy
NOT: 2 min.
13. The standard cost system differs from the actual cost system in the assignment of
a. direct materials.
b. direct labor.
c. overhead.
d. all of the manufacturing inputs.
e. none of the manufacturing inputs.
NOT: 2 min.
14. Which of the following is not true regarding normal costing systems?
a. A normal costing system predetermines overhead costs.
b. A normal costing system assigns direct materials and direct labor to products using a
predetermined rate.
c. In a normal costing system overhead is assigned using a budgeted rate and actual activity.
d. A normal costing system has less capacity for control than a standard costing system.
e. All of these statements are true.
ANS: B
A normal costing system assigns direct materials and direct labor to products using actual costs.

NOT: 2 min.
15. Which of the following is not an advantage of standard costing over normal costing and actual
costing?
a. A greater capacity for control.
b. Ability to easily distinguish the FIFO and weighted average methods of accounting for
beginning inventory costs.
c. Computing a unit cost for each equivalent unit cost category is not necessary.
d. Providing for readily available unit cost information.
e. All of these are advantages of standard costing.
ANS: B
There is no need to distinguish between the FIFO and weighted average methods of accounting for
beginning inventory costs.
NOT: 2 min.
16. The production data needed to calculate the standard unit cost as well as the underlying details for the
standard cost per unit are provided in
a. the standard cost sheet.
b. the standard production budget.
c. the balance sheet.
d. the standard work-in-process account.
e. None of these.
NOT: 2 min.
17. Standard hours allowed are computed using the equation

a. unit labor standard  actual output.
b. unit labor standard  standard output.
c. unit labor standard  actual input.
d. unit labor standard  standard input.
e. not shown here.
NOT: 2 min.
18. The standard quantity of materials allowed is computed by the equation

a. unit quantity standard  standard output.
b. unit quantity standard  actual input.
c. unit quantity standard  standard input.
d. unit quantity standard  actual output.
e. not shown here.
NOT: 2 min.
19. An accountant would refer to a cost sheet to perform which of the following actions?
a. Calculate standard cost per unit.
b. Calculate efficiency variances.
c. Calculate the total amount of inputs allowed for the actual output.
d. All of these.
NOT: 2 min.
Figure 10-1.
Flying High Company manufactures model airplanes. During the month, it manufactured 10,000
airplanes. Each one used an average of 6.5 direct labor hours and an average of 1.5 sheets of
aluminum. It normally manufactures 7,500 airplanes. Materials and labor standards for making the
airplanes are:
Direct Materials (1 sheet of aluminum @ $10.00) $10.00

Direct Materials (other accessories @ $8.75) 8.75
Direct Labor (6 hours @ $7.00) 42.00
20. Refer to Figure 10-1. Compute the standard hours allowed for a volume of 10,000 airplanes.
a. 60,000 hours
b. 420,000 hours
c. 70,000 hours
d. 65,000 hours
ANS: A
SH = Unit labor standard  Actual output
SH = 6  10,000 = 60,000.

Accounting Features/Costs KEY: Bloom's: Application
NOT: 3 min.
21. Refer to Figure 10-1. Compute the standard number of sheets of aluminum allowed for a volume of
10,000 airplanes.
a. 15,000 sheets
b. 10,000 sheets
c. 7,500 sheets
d. 11,250 sheets
ANS: B
SQ = Unit quantity standard  Actual output.
SQ = 10,000  1 = 10,000 sheets.

NOT: 3 min.
22. Variances indicate

a. that actual performance is not going according to plan.
b. the cause of the variance.
c. who is responsible for the variance.
d. when the variance should be investigated.
e. none of these.
NOT: 2 min.
23. The difference between the actual cost of the input and its planned cost is
a. the total budget variance.
b. the usage variance.
c. the price variance.
d. the efficiency variance.
e. the budget variance.
NOT: 2 min.
24. Which of the following is true concerning the materials price variance?
a. It is the difference between the actual and standard unit price of an input multiplied by the
number of inputs used.
b. It is the difference between the actual and standard unit price of an output multiplied by
the number of inputs used.
c. It is the difference between the actual and standard unit price of an input multiplied by the
number of inputs purchased.
d. It is the difference between the actual and standard unit price of an output multiplied by
the number of inputs purchased.
e. None of these.
ANS: C PTS: 1 DIF: Difficulty: Moderate
NOT: 2 min.
25. The usage variance is the difference between the actual and standard quantity of inputs
a. multiplied by the standard unit price of the input.
b. budgeted multiplied by the standard unit price of the input.
c. multiplied by the actual unit price of the input.
d. purchased multiplied by the actual unit price of the input.
e. None of these.
NOT: 2 min.
26. Which of the following is true regarding variances?

a. Unfavorable variances occur whenever actual prices or actual usage of inputs are greater
than standard prices or standard usage.
b. Favorable variances occur whenever actual prices or actual usage of inputs are greater than
standard prices or standard usage.
c. Unfavorable variances are always credits.
d. Favorable variances are always debits.
e. None of these.
NOT: 2 min.
27. All of the following are true regarding variance investigation except
a. the investigation should be undertaken only if the anticipated benefits are greater than the
expected costs.
b. managers must consider whether a variance will recur.
c. it is difficult to assess the costs and benefits of variance analysis on a case-by-case basis.
d. variances are not investigated unless they are large enough to be of a concern.
e. every variance is investigated.
ANS: E
Only material variances are investigated.

NOT: 2 min.
28. Which of the following is not true concerning control limits?

a. Control limits are the top and bottom measures of the allowable range.
b. The upper control limit is the standard plus the allowable deviation.
c. The lower control limit is the standard minus the allowable deviation.
d. In current practice, control limits are set objectively using standard formulas.
e. Variances that fall outside the control limits are investigated.
ANS: D
In current practice, control limits are set subjectively, using past experience, judgment, and intuition.

NOT: 2 min.
29. Acme Company's standard cost is $500,000. The allowable deviation is 10%. Its actual costs for three
months are
January $520,000
February $550,000
March $575,000
The upper and lower control limits are, respectively,

a. $550,000 and $450,000
b. $500,000 and $450,000
c. $550,000 and $500,000
d. $575,000 and $520,000
ANS: A
The upper control limit is $550,000 ($500,000 + ($500,000  10%)).
The lower control limit is $450,000 ($500,000 − ($500,000  10%)).

NOT: 3 min.
Figure 10-2.
Highland Company's standard cost is $250,000. The allowable deviation is 10%. Its actual costs for
six months are
January $235,000
February 220,000
March 245,000
April 265,000
May 270,000
June 280,000
30. Refer to Figure 10-2. The upper and lower control limits are, respectively,
a. $250,000 and $225,000
b. $305,000 and $195,000
c. $275,000 and $250,000
d. $275,000 and $225,000
ANS: D
The upper control limit is $275,000 ($250,000 + ($250,000  10%)).
The lower control limit is $225,000 ($250,000 − ($250,000  10%)).

NOT: 3 min.
31. Refer to Figure 10-2. The variance that is higher than the upper control limit is
a. $220,000
b. $280,000
c. $265,000
d. $235,000
ANS: B PTS: 1 DIF: Difficulty: Easy
NOT: 3 min.
32. Refer to Figure 10-2. The variance that is lower than the lower control limit is
a. $220,000
b. $280,000
c. $265,000
d. $235,000
NOT: 3 min.
33. Which of the following is not true concerning direct materials variances?
a. The sum of the price and usage variances will add up to the total materials variance only if
the materials purchased is equal to the materials used.
b. The materials price variance uses the actual quantity of materials purchased rather than the
actual quantity of materials used.
c. The materials price variance always uses the actual quantity of materials used rather than
the actual quantity of materials purchased.
d. The materials usage variance uses the actual quantity of materials used.
e. Separate materials variances can be computed for each type of material used.
ANS: C
Typically, the quantity of material purchased is used to determine the materials price variance.

NOT: 3 min.
34. The materials price variance is computed using the equation

a. (Actual Price  Actual Quantity) − (Standard Price  Standard Quantity).
b. (Standard Price  Actual Quantity) − (Actual Price  Actual Quantity).
c. (Standard Price  Standard Quantity) − (Actual Price  Actual Quantity).
d. (Actual Price  Actual Quantity) − (Standard Price  Actual Quantity).
e. None of these.
NOT: 3 min.
35. The materials usage variance is calculated by the equation

a. (Standard Price  Actual Quantity) − (Standard Price  Standard Quantity).
b. (Standard Price  Standard Quantity) + (Standard Price  Actual Quantity).
c. (Actual Price  Actual Quantity) − (Standard Price  Actual Quantity).
d. (Actual Price  Standard Quantity) + (Actual Quantity  Standard Price).
e. None of these.
NOT: 3 min.
36. Which of the following is not true regarding the use of materials variance information?
a. The purchasing agent has the responsibility for controlling the materials price variance.
b. The production manager is generally responsible for materials usage.
c. The production manager is concerned with minimizing scrap, waste, and rework.
d. The purchasing department is responsible for acquiring quality materials.
e. All of these are true.
ANS: E PTS: 1 DIF: Difficulty: Moderate
NOT: 3 min.
37. During the month of March, Baker's Express purchased 10,000 pounds of flour at $1 per pound. At the
end of March, Baker's Express found that it had an unfavorable materials price variance of $500. The
standard cost per pound must be
a. $1.95
b. $1.00
c. $1.05
d. $0.95
ANS: D
MPV = (AP − SP)AQ
$500 = ($1 − SP)10,000
SP = $0.95

NOT: 3 min.
38. During the month of March, Baker's Express purchased 10,000 pounds of flour at $1 per pound. At the
end of March, Baker's Express found that it had a favorable materials price variance of $500. The
standard cost per pound must be
a. $0.95
b. $1.00
c. $1.05
d. $1.95
ANS: C
MPV = (AP − SP)AQ
−$500 = ($1 − SP)10,000
SP = $1.05
Or (10,000  $1.00) + 500 = $10,500

$10,500/10,000 = $1.05

NOT: 3 min.
39. During June, Cisco Company produced 12,000 chainsaw blades. The standard quantity of material
allowed per unit was 1.5 pounds of steel per blade at a standard cost of $8 per pound. Cisco
determined that it had a favorable materials usage variance of $1,000 for June. Calculate the actual
quantity of materials Cisco used.
a. 17,875 pounds
b. 12,125 pounds
c. 11,875 pounds
d. 18,125 pounds
ANS: A
12,000 blades  1.5 pounds = 18,000 pounds of steel
MUV = (AQ − SQ)SP

−$1,000 = (AQ − 18,000)$8
AQ = 17,875 pounds
Or 12,000 blades  1.5 pounds  $8 = $144,000 − $1,000 = $143,000/$8 = 17,875 pounds

NOT: 3 min.
allowed per unit was 1.5 pounds of steel per blade at a standard cost of $8 per pound. The actual cost
was $7 per pound. The actual pounds of steel that Cisco purchased were 19,500 pounds. All materials
purchased were used. Calculate Cisco's materials usage variance.
a. $10,500 U
b. $12,000 F
c. $12,000 U
d. $10,500 F
ANS: C
MUV = (AQ − SQ)SP

= (19,500 − 18,000)$8
= $12,000 U

NOT: 3 min.
41. Perfect Builders makes all sorts of moldings. Its standard quantity of material allowed is 1 foot of
wood per 1 foot of molding at a standard price of $2.00 per foot. During August, it purchased 500,000
feet of wood at a cost of $1.90 per foot, which produced only 499,000 feet of molding. Calculate the
materials price variance and the materials usage variance, respectively.
a. $50,000 F and $2,000 U
b. $49,900 U and $2,000 F
c. $50,000 F and $1,900 U
d. $49,900 F and $1,900 U
ANS: A
MPV = (AP − SP)AQ
= ($1.90 − $2.00)500,000
= $50,000 F
MUV = (AQ − SQ)SP
= (499,000 − 500,000)$2.00
= $2,000 U

NOT: 4 min.
42. Mover Company has developed the following standards for one of its products:
Direct materials: 7.5 pounds  $8 per pound

Direct labor: 2 hours  $12 per hour
The following activity occurred during March:
Materials purchased: 5,000 pounds costing $42,500

Materials used: 3,600 pounds
Units produced: 500 units
Direct labor: 1,150 hours at $11.80/hour
The company records materials price variances at the time of purchase. The variable standard cost per
unit for materials and labor is
a. $98.
b. $84.
c. $74.
d. $38.
ANS: B
Direct materials (7.5 pounds  $8) $60
Direct labor (2 hours  $12) 24
$84

NOT: 3 min.
43. Roberts Company uses a standard costing system. The following information pertains to direct
materials for the July:
Standard price per lb. $18.00

Actual purchase price per lb. $16.50
Quantity purchased 3,100 lbs.
Quantity used 2,950 lbs.
Standard quantity allowed for actual output 3,000 lbs.
Actual output 1,000 units
Roberts Company reports its material price variances at the time of purchase. What is the material
usage variance for Roberts Company?
a. $900 F
b. $1,950 F
c. $2,850 F
d. $900 U
ANS: A
(2,950 − 3,000)  $18 = $900 F

NOT: 3 min.
44. During August, 10,000 units were produced. The standard quantity of material allowed per unit was 10
pounds at a standard cost of $3 per pound. If there was an unfavorable usage variance of $18,750 for
August, the actual quantity of materials used must be
a. 106,250 pounds.
b. 93,750 pounds.
c. 31,875 pounds.
d. 23,438 pounds.
ANS: A
10,000  10  $3 = $300,000
$300,000 + $18,750 = $318,750
$318,750/$3 = 106,250 pounds

NOT: 3 min.
45. During September, 40,000 units were produced. The standard quantity of material allowed per unit
was 5 pounds at a standard cost of $2.50 per pound. If there was a favorable usage variance of $25,000
for September, the actual quantity of materials used must have been
a. 210,000 pounds.
b. 190,000 pounds.
c. 105,000 pounds.
d. 95,000 pounds.
ANS: B
40,000  5  $2.50 = $500,000
$500,000 − $25,000 = $475,000
$475,000/$2.50 = 190,000 pounds

NOT: 3 min.
46. Max Company has developed the following standards for one of its products.
Direct materials: 15 pounds  $16 per pound

Direct labor: 4 hours  $24 per hour
Variable overhead: 4 hours  $14 per hour
The following activity occurred during the month of October:
Materials purchased: 10,000 pounds costing $170,000

Materials used: 7,200 pounds
Units produced: 500 units
Direct labor: 2,300 hours at $23.60/hour
The company records materials price variances at the time of purchase. The direct materials price
variance is
a. $50,000 F.
b. $50,000 U.
c. $10,000 U.
d. $10,000 F.
ANS: C
$170,000 − (10,000  $16) = $10,000 U

NOT: 3 min.
47. All of the following are true except

a. A favorable labor efficiency variance could result from using higher quality materials that
result in fewer inspections.
b. A favorable labor rate variance could result from lower wage workers quitting.
c. A favorable materials price variance could result from purchasing identical materials from
another supplier at a lower price.
d. An unfavorable materials usage variance could result from not efficiently utilizing raw
materials, thus causing waste.
e. An unfavorable labor efficiency variance can be caused by machine downtime, and poor
quality materials.
ANS: B PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 10-4 | LO: 10-5 NAT: BUSPROG: Analytic
NOT: 2 min.
Figure 10-3.
Bortello Corporation produces high-quality leather boots. The company has a standard cost system and
has set the following standards for materials and labor:
Leather (12 strips @ $20) $240

Direct labor (10 hours @ $12) $120
Total prime cost $360
During the year Bortello produced 125 boots. Actual leather purchased was 1,700 strips, at $16 per
strip. There were no beginning or ending inventories of leather. Actual direct labor was 1,500 hours at
$15 per hour.
48. Refer to Figure 10-3. Compute the materials price variance and the materials usage variance,
respectively.
a. $9,000 F and $1,200 U
b. $9,300 U and $1,500 F
c. $6,800 F and $4,000 U
d. $6,800 U and $4,000 F
ANS: C
MPV = (AP - SP) x AQ
($16 - $20)1,700 = $6,800 F
MUV = (AQ - SQ) x SP

(1,700 - 1,500)$20 = $4,000 U

NOT: 4 min.
49. Refer to Figure 10-3. Calculate the labor rate variance and the labor efficiency variance, respectively.
a. $4,500 U and $3,000 U
b. $4,500 F and $3,000 F
c. $4,500 U and $3,000 F
d. $4,500 F and $3,000 U
ANS: A
LRV = (AR - SR)AH
($15 - $12)1,500 = $4,500 U
LEV = (AH - SH)SR

(1,500 - 1,250)$12 = $3,000 U

NOT: 3 min.
50. Refer to Figure 10-3. Compute the total budget variances for materials and labor, respectively.
a. $2,800 F and $7,500 F
b. $2,800 F and $7,500 U
c. $2,800 U and $7,500 U
d. $2,800 U and $7,500 F
ANS: B
Actual Cost* Budgeted Cost^ Variance
Materials $27,200 $30,000 2,800 F
Labor 22,500 15,000 7,500 U
*(1,700 x $16); (1,500 x $15)
^Budgeted Materials: (SQ x SR) x AQ = $240 x 125 = $30,000

^Budgeted Labor: (SH x SR) x AQ = $120 x 125 = $15,000
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4 | LO: 10-5

NOT: 4 min.
51. Refer to Figure 10-3. Compute the costs of leather and direct labor that should have been incurred for
the production of 125 boots.
a. $36,000 and $36,000
b. $46,500 and $37,500
c. $37,200 and $20,000
d. $30,000 and $15,000
ANS: D
Materials: (SQ x SR) x AQ = $240 x 125 = $30,000
Labor: (SH x SR) x AQ = $120 x 125 = $15,000

NOT: 4 min.
Figure 10-5.
Seaside Company produces picture frames. During the year 190,000 picture
frames were produced. Materials and labor standards for producing the picture
frames are as follows:
Direct materials (2 pieces of wood @ $2.25) $4.50

Direct labor (2 hours @ $10) $20.00
Seaside purchased and used 400,000 pieces of wood at $2.00 each and its actual
labor hours were 360,000 hours at a wage rate of $10.50.
52. Refer to Figure 10-5. What is the materials price variance?

a. $100,000 F
b. $112,500 U
c. $135,000 F
d. $170,000 U
ANS: A
MPV= (AP-SP)AQ
(2.00 - $2.25) x 400,000
$100,000 F
NOT: 3 min.
53. Refer to Figure 10-5. What is the materials usage variance?

a. $112,500 F
b. $112,500 U
c. $45,000 F
d. $45,000 U
ANS: D
($2.25 x 400,000) - ($2.25 x 380,000)

$45,000 U

NOT: 3 min.
54. Refer to Figure 10-5. What is Seaside's labor rate variance?

a. $180,000 F
b. $180,000 U
c. $225,000 U
d. $217,500 F
ANS: B
LRV = (AR - SR)AH
($10.50 - $10.00) x 360,000
$180,000 U

NOT: 3 min.
55. Refer to Figure 10-5. What is Seaside's total labor variance?

a. $20,000 F
b. $20,000 U
c. $112,500 F
d. $120,000 U
ANS: A
(360,000 x $10.50) - (380,000 x $10.00)
$20,000 F

NOT: 3 min.
56. Which of the following is true regarding direct labor variances?

a. The labor efficiency variance measures the difference between what was paid to direct
laborers and what should have been paid.
b. The labor rate and labor efficiency variances will always add up to the total labor variance.
c. The labor rate variance measures the difference between the labor hours that were actually
used and the labor hours that should have been used.
d. The labor rate variance measures the difference between the labor hours that were
originally budgeted and the labor hours that should have been used.
e. The labor rate variance measures the difference between the labor hours that were actually
used and the labor hours that were originally budgeted.
ANS: B PTS: 1 DIF: Difficulty: Easy
NOT: 2 min.
57. The labor rate variance is computed by

a. (Actual Rate  Actual Hours) − (Standard Rate  Standard Hours).
b. (Standard Rate  Actual Rate) − (Actual Rate  Actual Hours).
c. (Actual Rate  Standard Hours) − (Standard Rate  Actual Hours).
d. (Actual Rate  Actual Hours) − (Standard Rate  Actual Hours).
e. None of these.
NOT: 2 min.
58. The labor efficiency variance is calculated by the equation

a. (Standard Hours  Actual Hours) − (Actual Hours  Standard Rate).
b. (Actual Rate  Actual Hours) − (Standard Rate  Actual Hours).
c. (Actual Hours  Standard Rate) − (Standard Hours  Standard Rate).
d. (Standard Hours  Actual Rate) − (Actual Hours  Actual Rate).
e. None of these.
ANS: C PTS: 1 DIF: Difficulty: Moderate
NOT: 2 min.
59. Which of the following is not true regarding the use of labor variance information?
a. The actual wage rate is almost always different from the standard rate.
b. Unexpected overtime can cause variation in the labor rate.
c. An average wage rate is chosen as the labor rate standard.
d. The production manager controls the use of labor.
e. The actual wage rate is used in determining the labor rate variance.
ANS: A
Typically, the actual wage rate is equal to the standard rate.

NOT: 2 min.
60. Kaizen costing involves

a. changing the standards frequently.
b. changing management.
c. outsourcing processes.
d. major ad campaigns.
ANS: A
Thus, kaizen costing differs from traditional standard costing in that the standard changes frequently,
reflecting continuous improvement efforts.

NOT: 2 min.
61. Which of the following is not true about Kaizen Standards?

a. Kaizen standards are the standards used for continuous improvement.
b. Kaizen standards are a currently attainable standard that reflects planned improvement.
c. Kaizen standards are constantly changing.
d. Kaizen standards are the standards used in traditional costing systems.
NOT: 2 min.
62. Claire Company uses a standard costing system. The following information pertains to direct labor
costs for February:
Standard direct labor rate per hour $15.00

Actual direct labor rate per hour $13.50
Labor rate variance $18,000 F
Standard hours allowed for actual production 10,000 hours
What is the total labor budget variance for Claire Company?

a. $18,000 F
b. $12,000 F
c. $18,000 U
d. $12,000 U
ANS: D
$18,000/($15.00 − $13.50) = 12,000 actual hours
(12,000  $13.50) − (10,000  $15) = $12,000 U
STA: AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-27-Managerial
NOT: 4 min.
63. Claire Company uses a standard costing system. The following information pertains to direct labor
costs for February:
Standard direct labor rate per hour $15.00

Actual direct labor rate per hour $13.50
Labor rate variance $18,000 F
Standard hours allowed for actual production 10,000 hours
How many actual labor hours were worked during February for Claire Company?
a. 10,000 hours
b. 2,000 hours
c. 1,200 hours
d. 12,000 hours
ANS: D
$18,000/($15.00 − $13.50) = 12,000 hours

NOT: 4 min.
64. If the actual labor rate exceeds the standard labor rate and the actual labor hours exceed the number of
hours allowed, the labor rate variance and labor efficiency variance will be
Labor Rate Labor Efficiency

Variance Variance
a. Favorable Favorable
b. Favorable Unfavorable
c. Unfavorable Favorable
d. Unfavorable Unfavorable
NOT: 2 min.
65. During January, 7,000 direct labor hours were worked at a standard cost of $20 per hour. If the direct
labor rate variance for January was $17,500 favorable, the actual cost per direct labor hour must be
a. $17.50.
b. $20.00.
c. $22.50.
d. $25.00.
ANS: A
7,000  $20 = $140,000
$140,000 − $17,500 = $122,500
$122,500/7,000 = $17.50

NOT: 2 min.
66. During October, 10,000 direct labor hours were worked at a standard cost of $10 per hour. If the direct
labor rate variance for October was $4,000 unfavorable, the actual cost per direct labor hour must be
a. $10.40.
b. $10.00.
c. $9.60.
d. $9.20.
ANS: A
10,000  $10 = $100,000
$100,000 + $4,000 = $104,000
$104,000/10,000 = $10.40

NOT: 2 min.
67. Bender Corporation produced 100 units of Product AA. The total standard and actual costs for
materials and direct labor for the 100 units of Product AA are as follows:
Materials: Standard Actual

Standard: 200 pounds at $3.00 per pound $600
Actual: 220 pounds at $2.85 per pound $627
Direct labor:
Standard: 400 hours at $15.00 per hour 6,000
Actual: 368 hours at $16.50 per hour 6,072
What is the labor efficiency variance for Bender Corporation?

a. $480 U
b. $552 F
c. $552 U
d. $480 F
ANS: D
(368 − 400)  $15 = $480 F

NOT: 3 min.
Figure 10-4.
High Fliers Company produces model airplanes. During the month of November, it produced 2,000
planes. The actual labor hours were 7 hours per plane. Its standard labor hours are 10 hours per plane.
The standard labor rate is $11 per hour. At the end of November, High Fliers found that it had a
favorable labor rate variance of $10,500.
68. Refer to Figure 10-4. What was High Fliers' actual cost per labor hour?
a. $12.75
b. $11.50
c. $10.50
d. $10.25
ANS: D
LRV = (AR - SR)AH

(10,500) = (AR - $11.00)(2,000 x 7)
AR = $10.25

NOT: 3 min.
69. Refer to Figure 10-4. What was High Fliers' total labor variance?
a. $61,500 F
b. $76,500 F
c. $76,500 U
d. $61,500 U
ANS: B
LEV= (AH - SH)SR

(14,000 - 20,000) x $11
LEV = $66,000 F
Total variance = $66,000 + 10,500 = $76,500

NOT: 3 min.
Figure 10-6.
Extreme Builders constructs houses. The standard labor rate is $25 per hour and the standard number
of hours is 15,000 hours per home. During the year, it constructed 12 homes using 18,000 labor hours
per home and a rate of $28 per hour.
70. Refer to Figure 10-6. Calculate the Extreme Builders' labor rate variance.
a. $540,000 U
b. $540,000 F
c. $648,000 U
d. $648,000 F
ANS: C
LRV= (AR - SR)AH
($28 - $25)216,000
$648,000 U

NOT: 3 min.
71. Refer to Figure 10-6. Calculate the labor efficiency variance.

a. $1,008,000 F
b. $900,000 U
c. $1,008,000 U
d. $900,000 F
ANS: B
LEV = (AH - SH)SR
(216,000 - 180,000) x $25
$900,000 U

NOT: 3 min.
72. Assume that SQ = Standard Quantity, SP = Standard Price, AQ = Actual Quantity, and AP = Actual
Price. The correct entry along with the equation to record the issuance and usage of materials,
assuming a favorable materials usage variance, is as follows
a. Work in Process SQ  SP
Materials Usage Variance (AQ − SQ)SP
Materials AQ  SP
b. Work in Process SQ  SP
Materials AQ  SP
c. Work in Process AQ  AP
Materials AQ  SP
d. Work in Process AQ  AP
Materials AQ  SP
e. None of these.
ANS: A
Only standard quantities and standard prices are used to assign costs to Work in Process.

STA: AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-06-Recording
Transactions KEY: Bloom's: Comprehension NOT: 3 min.
73. Which of the following is true regarding the disposition of materials and labor variances?
a. The variances for materials and labor are closed directly to Cost of Goods Sold regardless
of materiality.
b. If the materials price variance is material, it is prorated among Materials Inventory,
Materials Usage Variance, Work in Process, and Finished Goods.
c. The materials usage variance and the labor variances, if material, are prorated among
Work in Process, Finished Goods, and Cost of Goods Sold.
d. The materials usage variance and the labor variances are always prorated among Work in
Process, Finished Goods, and Cost of Goods Sold.
e. The materials usage variance and the labor variances are always closed to Cost of Goods
Sold.
ANS: C
The variances for materials and labor are closed directly to Cost of Goods Sold only if immaterial.
If the materials price variance is material, it is prorated among Materials Inventory, Materials Usage
Variance, Work in Process, Finished Goods, and Cost of Goods Sold.

NOT: 3 min.
74. During September, a small roofing company purchased 500 bundles of a certain type of shingle at a
price of $35 per bundle, $5 less than the standard price. Its standard quantity of this type of shingle is
550 bundles. What is the journal entry to record the purchase of materials?
a. Materials 20,000
Materials Price Variance 2,500
Accounts Payable 17,500
b. Materials 20,000
c. Materials 17,500
d. Materials 20,000
ANS: A
Materials = SP  AQ = $40  500 = $20,000
MPV = (AP − SP)AQ = ($35 − $40)500 = $2,500 F

STA: AICPA: FN-Measurement | IMA: Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom's: Application NOT: 4 min.
allowed per unit was 1.5 pounds of steel per blade at a standard cost of $5 per pound. The actual
purchase price was $6.25 per pound. Cisco determined that it had a favorable materials usage variance
of $2,500 for June. What is the journal entry to record the issuance and usage of materials?
a. Work in Process 112,500
Materials Usage Variance 2,500
Materials 110,000
b. Work in Process 110,000
Materials 112,000
c. Work in Process 112,500
Materials 115,000
d. Work in Process 140,625
Materials 138,125
ANS: A
MUV = (AQ − SQ)SP
−$2,500 = (AQ − 22,500)$5
AQ = 22,000 pounds
Or, 15,000 blades  1.5 pounds  $5 = $112,500 − $2,500 = $110,000/$5 = 22,000 pounds
Work in Process = SQ  SP = 22,500  $5 = $112,500

Materials = AQ  SP = 22,000  $5 = $110,000

STA: AICPA: FN-Measurement | IMA: Reporting | ACBSP: APC-06-Recording Transactions
Figure 10-7.
During April, a small roofing company purchased 700 bundles of a certain type of shingle at a price of
$35 per bundle, $8 more than the standard price. Its standard quantity of this type of shingle is 725
bundles.
76. Refer to Figure 10-7. What is the journal entry to record the issuance and usage of materials assuming
that the roofing company purchased and used 700 bundles?
a. Work in Process 18,900
Materials Usage Variance 675
Materials 19,575
b. Work in Process 19,575
Materials 18,900
c. Work in Process 24,500
Materials 25,375
d. Work in Process 25,375
Materials 24,500
ANS: B
Work in Process = SQ  SP = 725  27 = $19,575
MUV = (AQ − SQ)SP = (700 − 725)27 = $675 F
Materials = AQ  SP = 700  $27 = $18,900

STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-06-Recording
Transactions KEY: Bloom's: Application NOT: 4 min.
77. Refer to Figure 10-7. What is the journal entry to record the purchase of materials?
a. Materials 19,575
b. Materials 24,500
c. Materials 18,900
d. Materials 25,375
ANS: C
Accounts Payable = AP  AQ = $35  700 = $24,500
MPV = (AP − SP)AQ = ($8)700 = $5,600 U
Materials = AQ  SP = 700  $27 = $18,900

Figure 10-8.
The Perfect Tool Company (South America Division) produced 80,000 saw blades during the year. It
took 1.5 hours of labor per blade at a rate of $8.50 per hour. However, its standard labor rate is $8.00.
Its labor efficiency variance was an unfavorable $40,000.
78. Refer to Figure 10-8. What is Perfect's standard hours allowed for a volume of 80,000 blades?
a. 210,000 hours
b. 189,000 hours
c. 115,000 hours
d. 125,000 hours
ANS: C
LEV = (AH - SH) x SR
$40,000 = (120,000 - SH) x $8
115,000 hours

NOT: 3 min.
79. Refer to Figure 10-8. What is Perfect's labor rate variance?

a. $57,500 U
b. $57,500 F
c. $60,000 U
d. $60,000 F
ANS: C
= (AR - SR)AH
($8.50 - $8) x 120,000
$60,000 U

NOT: 3 min.
80. Refer to Figure 10-8. What is the journal entry to record both labor variances?
a. Work In Process 920,000
Labor Rate Variance 60,000
Labor Efficiency Variance 40.000
Accrued Payroll 1,020,000
b. Work In Process 960,000
Labor Efficiency Variance 40,000
Accrued Payroll 1,057,500
c. Work In Process 920,000
Accrued Payroll 940,000
d. Work In Process 960,000
ANS: A
= (AR - SR)AH
($8.50 - $8) x 120,000
$60,000 U
Accrued Payroll = (80,000 x 1.5) x $8.50 = 1,020,000
Work in Process = SH x SR = 115,000 x $8 = $920,000

$40,000 = (120,000 - SH) x $8
115,000 hours

Figure 10-9.
James Company manufactures t-shirts. During the year, it manufactured 250,000 t-shirts, using 2 hours
of direct labor at a rate of $8.50 per hour. The materials and labor standards for manufacturing the
t-shirts are:
Direct materials (6 yards of fabric @ $3 per yard) $18

Direct labor (2.4 hours @ $8.00 per hour) 17
It took James 1,400,000 yards at $2.50 per yard to make the 250,000 t-shirts.
81. Refer to Figure 10-9. What is James’ materials price variance assuming that materials purchased
equals materials used?
a. $750,000 F
b. $700,000 F
c. $700,000 U
d. $750,00 U
ANS: B
($2.50 - $3.00) x 1,400,000
$700,000 F

NOT: 3 min.
82. Refer to Figure 10-9. What is James’ materials usage variance?

a. $250,000 F
b. $300,000 F
c. $300,000 U
d. $250,000 U
ANS: B
= (AQ - SQ)SP
(1,400,000 - 1,500,000) x $3
$300,0000 F
SQ = 1,500,000 = 250,000 x 6

NOT: 3 min.
83. Refer to Figure 10-9. What is James’ labor rate variance?

a. $190,625 F
b. $250,000 F
c. $250,000 U
d. $193,750 U
ANS: C
(AR - SR)AH
($8.50 - $8.00) x 500,000
$250,000 U
AH = 500,000 = 250,000 x 2

NOT: 3 min.
84. Refer to Figure 10-9. What is James’ labor efficiency variance?

a. $800,000 U
b. $850,000 F
c. $800,000 F
d. $850,000 U
ANS: C
(AH - SH)SR
(500,000 - 600,000) x $8
$800,000 F
AH = 500,000 = 250,000 x 2
SH = 600,000 = 250,000 x 2.4

NOT: 3 min.
85. Refer to Figure 10-9. What is the entry to record the purchase of materials?
a. Materials 3,500,000
Accounts Payable 4,250,000
b. Materials 4,200,000
c. Materials 4,200,000
d. Materials 3,500,000
ANS: C
Materials = SP x AQ = $3 x 1,400,000 = $4,200,000
Accounts Payable = 1,400,000 x $2.50 = $3,500,000
Material Price Variance = ($2.50 - $3.00) x 1,400,000 = $700,000 F

86. Refer to Figure 10-9. What is the entry to record the issuance and usage of materials?
a. Work in Process 4,500,000
Materials 4,800,000
b. Work in Process 4,200,000
Materials 4,500,000
c. Work in Process 4,200,000
Materials 3,900,000
d. Work in Process 4,500,000
Materials 4,200,000
ANS: D
Materials = SP x AQ = $3 x 1,400,000 = $4,200,000
Work in Process = SQ x SP = (250,000 x 6) x $3 = $4,500,000
Material Usage Variance = (1,400,000 - (250,000 x 6))$3 = $300,000 F

87. Refer to Figure 10-9. What is the entry to close the variances of labor and materials?
a. Materials Price Variance 700,000
Cost of Goods Sold 1,800,000
Cost of Goods Sold 250,000

b. Materials Price Variance 750,000
Cost of Goods Sold 1,850,000

c. Cost of Goods Sold 1,800,000

d. Cost of Goods Sold 1,850,000

ANS: A
Labor Efficiency Variance = (AH - SH)SR = (500,000 - 600,000)$8 = $800,000 F
Material Usage Variance = (AQ - SQ)SP = (1,400,000 - 1,500,000)$3 = $300,000 F
Material Price Variance = (AP - SP)AQ = ($2.50 - $3.00)1,4000,000= $700,000 F
LRV = (AR - SR)AH = ($8.50 - $8.00)500,000 = $250,000 U
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 10-6

PROBLEM
1. Top Notch Music Inc. produces car stereos. During the year Top Notch Music produced 7,000 stereos.
Materials and labor standards for producing these units are as follows:
Direct materials (1 electronic component kit @ $185) 185

Direct materials (2 plastic casing @ $45) 90
Direct labor (8 hours @ $15) 120
Required:
A. Compute the standards hours allowed for a volume of 7,000 stereos and the planned
cost.
B. Compute the standard number of kits and casings allowed for a value of 7,000 units
and the planned cost for each direct material.
C. Compute the total budget variances for materials and labor assuming that actual
number of electronic kits purchased and used were 7,300 at a price of $179 and actual
plastic casings purchased were 14,400 at a price of $43. Actual labor was 57,200 hours
at $15.75 per hour.
ANS:
A.
SH = 8 hours x 7,000 = 56,000
PC = $15 x 56,000 = $840,000
B.
SQ = 1 x 7,000 = 7,000 electronic kits
SQ = 2 x 7,000 = 14,000 plastic casings
PC = 7,000 x $185 = $1,295,000 electronic kits
PC = 14,000 x $45 = $630,000 plastic casings
C.
Actual Cost Budgeted Cost Variance
Materials (electronic component kits) 11,700 U
1,306,700 1,295,000
Materials (plastic casings) F
619,200 630,000 (10,800)
Labor 60,900 U
900,900 840,000
PTS: 1 DIF: Difficulty: Moderate

OBJ: LO: 10-2 | LO: 10-3 | LO: 10-4 NAT: BUSPROG: Analytic
analysis KEY: Bloom's: Application NOT: 10 min.
2. Leeds Company uses the following rule to determine whether labor efficiency variances should be
investigated:
A labor efficiency variance will be investigated when the variance is greater than either $100 or 10%
of the standard labor cost.
During September, the company used 500 direct labor hours at a rate of $15 per hour. Its standard rate
is 475 direct labor hours at a rate of $14.50 per hour.
A. Determine the company's labor efficiency variance and whether it is favorable or

unfavorable.
B. Should the variance be investigated?
ANS:
A. LEV = (AH − SH)SR

= (500 − 475)$14.50
= $362.50 U
B. Standard Labor Cost = 475  $14.50 = $6,887.50  10% = $688.75.

The unfavorable LEV of $362.50 is greater than the $100 rule but not the 10% rule.
Hence, the variance should be investigated.

3. Acme Brick Company uses the following rule to determine whether materials usage variances should
be investigated:
A materials usage variance will be investigated when the variance is greater than either $5,000 or 10%
of the standard cost.
During June, the company purchased and used 9,500 pounds of concrete for $5 per pound. It was able
to make 20,000 bricks. Its standard quantity of materials allowed is 0.45 pound of concrete per brick at
a standard price of $6 per pound.
A. Determine Acme's material usage variance and whether it is favorable or unfavorable.

B. Should the variance be investigated?
ANS:
A. MUV = (AQ − SQ)SP

= (9,500 − 9,000)$6
= $3,000 U
B. Standard Materials Cost = 9,000  $6 = $54,000  10% = $5,400.

The unfavorable MUV of $3,000 is not greater than the $5,000 rule or greater than
10% of the standard cost. Hence, the variance should not be investigated.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-3 | LO: 10-4

4. Westminster Company has the following information concerning its direct materials:
Direct Materials:
Standard Quantity 100,000
Actual Quantity 80,000
Standard Price $3
Actual Price $4
A. Determine the materials price variance and whether it is favorable or unfavorable.

B. Determine the materials usage variance and whether it is favorable or unfavorable.
C. Westminster has set control limits stating that actual costs should be investigated if
they fall outside the acceptable range of the standard materials cost ±10%.
i. What is the standard materials cost?
ii. What are the upper and lower control limits?
iii. What is the actual materials cost?
iv. Should the actual materials cost be investigated?
ANS:
A. MPV = (AP − SP)AQ

= ($4 − $3)80,000
= $80,000 U
B. MUV = (AQ − SQ)SP

= (80,000 − 100,000)$3
= $60,000 F
C. i. The standard materials cost = 100,000  $3 = $300,000.

ii. The upper control limit = $300,000 + ($300,000  10%) = $330,000.
The lower control limit = $300,000 − ($300,000  10%) = $270,000.
iii. The actual materials cost = $80,000  $4 = $320,000.
iv. No, $320,000 falls between $270,000 and $330,000.

5. PURE Inc. produces flavored waters, sold in gallons. Recently the company adopted the following
materials standard for one gallon of its raspberry flavored water:
Direct materials (90 oz. @ $0.08) $ 7.20
During the first month of operations the company experienced the following results:
A. Gallon units produced: 80,000
B. Ounces of materials purchased and used: 7,320,000 ounces at $0.07
C. No beginning or ending inventories of raw materials
Required:
A. Compute the materials price variance indicating if it is favorable or unfavorable.
B. Compute the materials usage variance indicating if it is favorable or unfavorable.
ANS:
A.
($0.07 - $0.08) x 7,320,000 = $73,200 F
B.
(7,320,000 - 7,200,000) x $0.08 = $9,600 U

Accounting Features/Costs | ACBSP: APC-33-Incremental analysis
6. McDaniel Company manufactures 100-pound bags of fertilizer that have the following unit standard
costs for direct materials and direct labor:
Direct materials (100 lbs. @ $1.00 per lb.) $100.00

Direct labor (0.5 hours at $24 per hour) 12.00
Total standard prime cost per 100 lb. bag $112.00
The following activities were recorded for October:
• 1,000 bags were manufactured.

• 95,000 lbs. of materials costing $76,000 were purchased.
• 102,500 lbs. of materials were used.
• $12,000 was paid for 475 hours of direct labor.
There were no beginning or ending work-in-process inventories.
Required:
A. Compute the direct materials variances.
B. Compute the direct labor variances.
C. Give possible reasons for the occurrence of each of the preceding variances.
ANS:
A. Material price variance:

[$76,000 − (95,000  $1.00)] = $19,000 F
Material usage variance

[102,500 − 1,000(100)]  $1.00 = $2,500 U
B. Labor rate variance

[$12,000 − (475 hrs.  $24)] = $600 U
Labor efficiency variance

[(475 − 500)]$24 = $600 F
C. All of the material price variances could be caused by out-of-date or inappropriate

standards. Other potential reasons could be that the firm could be purchasing in larger
quantities (larger quantity discounts), purchasing lower grade materials, or that the
supplier could be forced to offer a lower price due to the economics of their product.
Material usage variance:

Low-quality materials; lower skilled workers; less efficient machines; low employee
morale.
Labor rate variance:

Higher skilled workers; longer tenured workers with higher wages.
Labor efficiency variance:

The firm could be using a more experienced work force than desired.
PTS: 1 DIF: Difficulty: Challenging

STA: AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-33-Incremental analysis
7. DuRoss Company produces coats. The company uses a standard costing system and has set the
following standards for materials and labor:
Fabric (8 yards @ $6) $48

Direct labor (2 hours @ $18) $36
During the year DuRoss produced 55,000 coats. Actual fabric purchased was 460,000 yards at $5.75
per yard. There were no beginning or ending inventories of fabric. Actual direct labor was 120,000
hours at $19.25 per hour.
Required:
A. Compute the cost of leather and direct labor that should be incurred for the production of 55,000
coats.
B. Compute the total budget variances for materials and labor.
C. Compute the materials price variance.
D. Compute the materials usage variance.
E. Compute the labor rate variance.
F. Compute the labor efficiency variance.
ANS:
A.
Materials = $48 x 55,000 = $2,640,000
Labor = $36 x 55,000 = $1,980,000
B.
Actual Cost Budgeted Cost Variance
Materials U
$2,645,000 $2,640,000 $5,000
Labor U
$2,310,000 $1,980,000 $330,000
C.
($5.75 - $6) x 460,000 = $115,000 F
D.
(460,000 - 440,000) x $6 = $120,000 U
E.
LRV = (AR -SR) x AH
(19.25 - 18.00) x 120,000 = $150,000 U
F.
(120,000 - 110,000) x $18 = $180,000 U

8. Moving Baby Company produces baby strollers. During the year 90,000 strollers were produced.
The actual labor used was 225,000 hours at $12.75 per hour. Moving Baby has the following labor
standards: 2 hours at $13.00 per hour.
Required:
A. Compute the labor rate variance, indicating if it is favorable or unfavorable.
B. Compute the labor efficiency variance, indicating if it is favorable or unfavorable.
ANS:
A.
LRV = (AR - SR) x AH
($12.75 - $13.00) x 225,000 = $56,250 F
B.
(225,000 - 180,000) x $13.00 = $585,000 U

9. Starling Manufacturing has developed the following standards for one of its products.
Materials: 5 yards  $6 per yard $30
Direct labor: 2 hours  $8 per hour 16
The company records materials price variances at the time of purchase.
The following activity occurred during December:
Materials purchased: 5,200 yards costing $29,900

Materials used: 4,750 yards
Units produced: 1,000 units
Direct labor: 2,100 hours costing $17,850
Required:
A. Calculate the direct materials price variance.
B. Calculate the direct materials usage variance.
C. Calculate the direct labor rate variance.
D. Calculate the direct labor efficiency variance.
ANS:
A. $1,300 F $29,900 − (5,200  $6)

B. $1,500 F $6  (4,750 − 5,000)
C. $1,050 U $17,850 − (2,100  $8)
D. $800 U $8  (2,100 − 2,000)

10. Eastminster Company has the following information:
Direct Materials: Direct Labor:

Standard Quantity 10,000 Standard Hours 2,000
Actual Quantity 12,000 Actual Hours 1,875
Standard Price $14 Standard Rate $10
Actual Price $12 Actual Rate $11

C. Determine the labor rate variance and whether it is favorable or unfavorable.
D. Determine the labor efficiency variance and whether it is favorable or unfavorable.
ANS:

= ($12 − $14)12,000
= $24,000 F

= (12,000 − 10,000)$14
= $28,000 U
C. LRV = (AR − SR)AH
= ($11 − $10)1,875
= $1,875 U
D. LEV = (AH − SH)SR

= (1,875 − 2,000)$10
= $1,250 F

11. Crawford Corporation has the following information:

Standard Quantity 1,500 Standard Hours 500
Actual Quantity 1,400 Actual Hours 525
Actual Price $17.50 Actual Rate $14

ANS:

= ($17.50 − $20)1,400
= $3,500 F

= (1,400 − 1,500)$20
= $2,000 F

= ($14 − $14)525
= $0

= (525 − 500)$14
= $350 U

12. Allison Company adopted a standard cost system several years ago. The standard costs for the prime
costs of its single product follow:
Material: 10 kilograms @ $4.50 per kilogram $45.00
Labor: 6 hours @ $8.50 per hour $51.00
The following operating data were taken from the records for November:
1. Units completed: 5,800 units

2. Budgeted output: 6,000 units
3. Materials purchased: 60,000 kilograms
4. Total actual labor costs: $306,600
5. Actual hours of labor: 36,500 hours
6. Material usage variance: $2,250 U
7. Total material variance: $450 U
Compute the following:
A. Labor rate variance

B. Labor efficiency variance
C. Actual kilograms of material used in the production process
D. Actual cost paid per kilogram of material
ANS:
A. Actual
Standard Actual Quantity
Cost Cost Difference or Hours Variance
Labor
Rate $8.50/hr. $8.40/hr.* $.10 36,500 $3,650
Variance (fav.) hrs. (fav.)
* $306,600 labor cost/36,500 hours worked = $8.40 per hour
B. Standard Actual
Quantity Quantity Standard
or Hours or Hours Difference Cost Variance
Labor
Efficiency 34,800 36,500 1,700 hrs. $8.50/hr. $14,450
Variance hrs.** hrs. (unfav.) (unfav.)
** 5,800 units produced  6 hrs allowed = 34,800
C. Standard Actual
Quantity Quantity Standard
of Kg. of Kg. Difference Cost Variance
Materials
Usage 58,000 unknown 500 kg.# $4.50/kg. $2,250
Variance kg.*** kg. (unfav.) (unfav.)
*** 5,800 units  10 kg. per unit

# working back: $2,250/$4.50 = 500 kg.
The actual kg. would be 58,500 (58,000 + 500) The unfavorable variance is added to
standard.
D. Actual
Standard Actual Quantity
Cost Cost Difference of Kg. Variance
Materials
Price $4.50/kg. Unknown $0.03## 60,000 $1,800
Variance (fav.) kg. (fav.)
## $1,800/60,000 = $0.03 (rounded)

Working back: $4.50 − $.03 = $4.47 (Favorable variance is subtracted from standard)
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 10-4 | LO: 10-5

13. Gardener's Market manufactures hedgers. During the year, it manufactured 5,000 hedgers, using 4.2
hours of direct labor per hedger at a rate of $8. The materials and labor standards for manufacturing
the hedgers are:
Direct materials (10 units @ $2) $20

Direct labor (4 hours @ $7.50 per hour) 30
Gardener's Market actually purchased and used 53,000 units of direct materials at a price of $2.25 per
unit.
Required:
ANS:

= ($2.25 − $2.00)53,000
= $13,250 U

= (53,000 − 50,000)$2
= $6,000 U

= ($8.00 − $7.50)21,000
= $10,500 U

= (21,000 − 20,000)$7.50
= $7,500 U

14. Rhodes Corporation manufactures a product with the following standard costs:
Direct materials (20 yards @ $1.85 per yard) $37.00

Direct labor (4 hours @ $12.00 per hour) 48.00
Standards are based on normal monthly production involving 2,000 direct labor hours (500 units of
output).
The following information pertains to July:
Direct materials purchased (16,000 yards @ $1.80 per yard) $28,800

Direct materials used (9,400 yards)
Direct labor (1,880 hours @ $12.20 per hour) 22,936
Actual production in July: 460 units
Required:
A. Compute the following variances for the month of July, indicating whether each
variance is favorable or unfavorable:
1. Materials purchase price variance

2. Materials usage variance
3. Labor rate variance
4. Labor efficiency variance
B. Give potential reasons for each of the variances. Be sure to consider inter-relationships
among variances.
ANS:
A. Materials purchase price variance = (Actual unit price − standard unit price)  actual
quantity of materials purchased
Materials purchase price variance = ($1.80 − $1.85)  16,000 = $800 favorable
(actual price less than standard price)
Materials quantity variance = (Actual quantity of materials used − standard quantity of

materials allowed)  standard unit price
Materials quantity variance = (9,400 − 9,200*)  $1.85 = $370 unfavorable
(actual quantity exceeds standard quantity)
* 460 units  20 yards per unit = 9,200
Labor rate variance = (Actual rate per hour − standard rate per hour)  Actual hours
worked
Labor rate variance = ($12.20 − $12.00)  1,880 = $376 unfavorable
(actual rate exceeds standard rate)
Labor efficiency variance = (Actual hours worked − standard hours allowed) 

standard rate
Labor efficiency variance = (1,880 − 1,840**)  $12.00 = $480 unfavorable
(actual hours exceed standard hours allowed)
** 460 units  4 hours per unit = 1,840
B. The favorable purchase price variance may have occurred because the purchasing
manager purchased materials at a lower price that were of lesser quality. The workers
encountered production problems as a result of the lesser quality materials which
resulted in using more materials and taking more time than anticipated. The supervisor
also had to assign more experienced workers to this production, which resulted in a
higher average wage rate.

15. Dog's Best Friend manufactures dog food. During the month, it manufactured 3,000 bags of kibble,
using 0.25 hour of direct labor per bag at a rate of $9.00 per hour. The materials and labor standards
for manufacturing the bags of kibble are:
Direct materials (1 pound of beef @ $1.00 per pound) $1.00

Direct materials (1 bag @ $0.25) 0.25
Direct labor (0.30 hour @ $9.00) 2.70
The company actually used 3,300 pounds of beef at a price of $1.10 per pound. It also purchased 3,000
bags at a price of $0.15 per bag.
A. Determine the total materials price variance and whether it is favorable or unfavorable.
B. Determine the materials usage variance for beef and whether it is favorable or
unfavorable.
ANS:
A. MPV for Beef = (AP − SP)AQ

= ($1.10 − $1.00)3,300
= $330 U
MPV for Bags = ($0.15 − $0.25)3,000
= $300 F
Total MPV = $30 U

= (3,300 − 3,000)$1.00
= $300 U

= ($9.00 − $9.00)750
= $0 Neither favorable nor unfavorable

= (750 − 900)$9.00
= $1,350 F

16. Mersey Company produced 1,000 trash cans during March using 450 direct labor hours and purchased
and used 3,100 pounds of rubber. Its materials and labor standards are:
Direct materials (3 pounds of rubber @ $0.50) $1.50

Direct labor (0.5 hours @ $16.00) 3.00
Its materials price variance was a favorable $620 and its labor rate variance was an unfavorable $900.
A. Calculate the actual price per unit.

B. Calculate the actual labor rate.
C. Determine the materials usage variance and whether it is favorable or unfavorable.
ANS:

−$620 = (AP − $0.50)3,100
AP = $0.30 per pound
B. LRV = (AR − SR)AH

$900 = (AR − $16.00)450
AR = $18.00 per hour
C. MUV = (AQ − SQ)SP

= (3,100 − 3,000)$0.50
= $50 U

= (450 − 500)$16
= $800 F

17. Pontefract Company produced 2,500 widgets during November using 4,000 units of materials at a cost
of $5.00 each. It also used 5,000 direct labor hours at a rate of $7.00. Its direct materials standard is 2
units per widget. Its direct labor standard is 2.5 hours per widget.
Its materials price variance was a favorable $8,000 and its labor rate variance was an unfavorable
$1,000.
A. Calculate the standard materials price per unit.

B. Calculate the standard labor rate.
C. Determine the materials usage variance and whether it is favorable or unfavorable.
ANS:

−$8,000 = ($5.00 − SP)4,000
SP = $7.00 per pound
$1,000 = ($7.00 − SR)5,000
SR = $6.80 per hour
C. MUV = (AQ − SQ)SP

= (4,000 − 5,000)$7.00
= $7,000 F

= (5,000 − 6,250)$6.80
= $8,500 F

18. Just Right Inc. produces jeans. The following standards have been established:
Direct materials (4 yards of denim @ $1.20) $4.80

Direct labor (1.5 hours @ $9) $13.50
Standard prime cost $18.30
During the year 25,000 pairs of jeans were produced. 150,000 yards of denim were purchased and
used at $1.23 per yard. Actual direct labor hours were 36,800 at $9.25 per hour.
Required:
A. Compute the materials variances and indicate if they are favorable or
unfavorable.
B. Compute the labor variances and indicate if they are favorable or unfavorable.
C. Prepare the journal entries for the following:
Purchase of raw materials
Issuance of raw materials
Addition of labor to Work in Process
Closing of variances to Cost of Goods Sold
ANS:
A.
($1.23 - $1.20) x 150,000 = $4,500 U

(150,000 - 100,000) x $1.20 = $60,000 U
B.
LRV = (AR- SR) x AH
($9.25 - $9.00) x 36,800 = $9,200 U

(36,800 - 37,500) x $9 = $6,300 F
C.
Materials 180,000
Work in Process
120,000
Materials
180,000
Work in Process
337,500
Labor Rate Variance
9,200
Labor Efficiency Variance
6,300
Accrued Payroll
340,400

Materials Usage 60,000
Variance
Labor Rate Variance
9,200
Labor Efficiency Variance

6,300
Cost of Goods Sold
6,300

OBJ: LO: 10-3 | LO: 10-4 | LO: 10-5 | LO: 10-6 NAT: BUSPROG: Analytic
Transactions | ACBSP: APC-27-Managerial Accounting Features/Costs | ACBSP:
APC-33-Incremental analysis KEY: Bloom's: Application
NOT: 15 min.
19. During April, Rain Gear Unlimited produced 5,500 umbrellas from nylon that costs $0.45 per yard,
which is $0.05 cheaper than the standard cost. It also used 3,000 direct labor hours at a rate of $6.50.
Its direct materials standard is 1 yard per umbrella. Its direct labor standard is 0.5 hour per umbrella.
Its materials usage variance was a favorable $500 and its labor rate variance was a favorable $900.
A. Calculate the actual quantity of materials.

B. Calculate the standard labor rate.
C. Determine the materials price variance and whether it is favorable or unfavorable.
E. Record the entries for the materials purchase, the issuance and usage of materials, and
the labor variances.
F. Provide the closing entries.
ANS:
A. MUV = (AQ − SQ)SP

−$500 = (AQ − 5,500)$0.50
AQ = 4,500

−$900 = ($6.50 − SR)3,000
SR = $6.80 per hour
C. MPV = (AP − SP)AQ

= ($0.45 − $0.50)4,500
= $225 F

= (3,000 − 2,750)$6.80
= $1,700 U
E.
Materials 2,250 (4,500  $0.50)
Materials Price Variance 225
Work in Process 2,750

Materials 2,250
Work in Process 18,700 (0.5  5,500  $6.80)

Labor Rate Variance 900
F.
Materials Price Variance 225


Transactions | ACBSP: APC-33-Incremental analysis KEY: Bloom's: Application
NOT: 15 min.
20. Eider Company has the following information:

Standard Quantity 100,000 Standard Hours 1,000
Actual Quantity 99,500 Actual Hours 1,050
Actual Price $4 Actual Rate $13

E. Provide the journal entries to record the purchase of materials, the issuance and usage
of materials, and direct labor variances.
F. Provide the closing entries for the immaterial variances.
ANS:

= ($4 − $5)99,500
= $99,500 F

= (99,500 − 100,000)$5
= $2,500 F

= ($13 − $12)1,050
= $1,050 U

= (1,050 − 1,000)$12
= $600 U
E. Materials 497,500

Materials 497,500

Labor Efficiency Variance 600
F. Cost of Goods Sold 1,650

Labor Efficiency Variance 600

Since the materials price variance is material, ($99,500) it is prorated among Materials Inventory,
Materials Usage Variance, Work in Process, Finished Goods, and Cost of Goods Sold.

NOT: 15 min.
21. The Cat's Meow manufactures gourmet cat food. During the month, it manufactured 5,000 cans of
tuna, using 0.10 hour of direct labor per can at a rate of $8.00 per hour. The materials and labor
standards for manufacturing the cans of tuna are as follows:
Direct materials (1 pound of tuna @ $0.50 per pound) $0.50

Direct materials (1 can @ $0.35) 0.35
Direct labor (0.20 hour @ $7.00) 1.40
The company actually used 4,900 pounds of tuna at a price of $0.65 per pound. It also purchased 5,000
cans at a price of $0.45 per can.
B. Determine the materials usage variance for tuna and whether it is favorable or
unfavorable.
E. Make all necessary journal entries to record the purchase of materials, the issuance and
usage of materials, and the direct labor variances.
ANS:
A. MPV for Tuna = (AP − SP)AQ

= ($0.65 − $0.50)4,900
= $735 U
MPV for Cans = ($0.45 − $0.35)5,000
= $500 U
Total MPV = $1,235 U

= (4,900 − 5,000)$0.50
= $50 F

= ($8.00 − $7.00)500
= $500 U

= (500 − 1,000)$7.00
= $3,500 F
E. Materials 4,200 (4,900  $0.50) + (5,000  $0.35)

Work in Process 4,250 (5,000  $0.50) + (5,000  $0.35)
Materials 4,200 (4,900  $0.50) + (5,000  $0.35)




NOT: 20 min.
22. Grandma's Attic Company produces soft pillows made from goose down. The company uses a
standard cost system and has set the following standards for materials and labor for each pillow:
Feathers from 5 large white geese (5 geese @ $5) $25

Fabric to make pillow cases (3 yards @ $2) 6
Direct labor (5 hours @ $8) 40
During the month, the company produced 1,000 goose down pillows. Actual geese purchased were
5,100, at $4 per goose. Actual fabric purchased was 2,900 yards at $2.10 per yard. There were no
beginning or ending inventories of geese or fabric. Actual direct labor was 5,200 hours at $7.75 per
hour.
B. Determine the total materials usage variance and whether it is favorable or unfavorable.
E. Make all necessary journal entries to record the purchase of materials, the issuance and
usage of materials, and the direct labor variances.
ANS:
A. MPV for Geese = (AP − SP)AQ

= ($4.00 − $5.00)5,100
= $5,100 F
MPV for Fabric = ($2.10 − $2.00)2,900
= $290 U
Total MPV Variance = $5,100 − $290 = $4,810 F
B. MUV for Geese = (AQ − SQ)SP

= (5,100 − 5,000)$5
= $500 U
MUV for Fabric = (2,900 − 3,000)$2
= $200 F
Total MUV = $500 U − $200 F = $300 U

= ($7.75 − $8.00)5,200
= $1,300 F

= (5,200 − 5,000)$8.00
= $1,600 U
E.
Materials 31,300 (5,100  $5.00) + (2,900  $2.00)
Work in Process 31,000 (5,000  $5.00) + (3,000  $2.00)

Materials 31,300 (5,100  $5.00) + (2,900  $2.00)




NOT: 20 min.
23. Stratford Company inspects every steam iron it manufactures for safety issues. The standard labor cost
is $12 per hour. The maintenance standard at the beginning of the first quarter is 20 minutes per iron.
Stratford is implementing a new production process that will aid in reducing any potential electrical
defects in the irons. This will decrease the inspection time to 15 minutes per iron. After the end of the
first quarter, the new process had reduced the inspection time per iron from 20 minutes to 14 minutes.
A. Identify the kaizen and maintenance labor standards in place at the beginning of the
first quarter. Express the standards in both physical and financial terms.
B. Calculate the expected cost reduction and actual cost reduction.
ANS:
A. Maintenance:
Physical standard: 20 minutes
Financial standard: $4.00 ($12  20/60 hours)
Kaizen:
Physical standard: 15 minutes
Financial standard: $3.00 ($12  15/60 hours)
B. Expected cost reduction: $4.00 − $3.00 = $1.00 per unit

Actual cost reduction: $4.00 − ($12  14/60 hours) = $1.20 per unit

NOT: 5 min.
24. Wiltshire Limited produces woolen blankets and clothing. During Year 1, Wiltshire produced 10,000
items of blankets and clothing using 4,250 bundles of wool at a price of $10 per bundle.
Standard bundles of wool 4,000

Standard price $20 per bundle
The difference between the actual quantity of materials and the standard quantity of materials is due to
waste. At the end of Year 1, Wiltshire developed a new process that would cut down on the waste by
60%. By the end of Year 2, the company had actually cut down its waste by 50%.
A. Identify the kaizen and materials standards in place at the beginning of Year 2. Express
the standards in both physical and financial terms.
B. Calculate the expected cost reduction.
C. Calculate the actual cost reduction.
ANS:
A. Materials:
Physical standard: 4,000 bundles
Financial standard: $85,000 ($20  4,250)
Kaizen:
Physical standard: 4,100 bundles [4,250 − ((4,250 − 4,000)  60%)]
Financial standard: $82,000 ($20  4,100)
B. Expected cost reduction: $85,000 − $82,000 = $3,000
C. Actual cost reduction: $85,000 − $82,500 = $2,500

4,250 − ((4,250 − 4,000)  50%) = 4,125 bundles
4,125  $20 = $82,500
NOT: 5 min.
25. Overland Automotive Company is considering on manufacturing a new brand of car. Given the current
product and process designs, the cost data are:
Direct materials costs (per car) $10,000

Direct labor costs (per car) $ 3,000
Overhead costs (per car) $ 4,000
The company expects the selling price to be $20,000 and has set a target profit of $5,000.
A supplier told Overland that it could purchase a couple of similar components under a different brand
name at a lower price. This would result in cost savings of $2,000 per car. Furthermore, the company
found that it could redesign its manufacturing process to cut down on both inspection labor and worker
labor, which would result in cost savings of $1,000 per car.
A. Calculate Overland's target cost.

B. Calculate the total costs per car after Overland redesigns its processes and schedules to
buy cost-saving components.
C. Should Overland manufacture the car? Calculate the expected profit after the cost
savings are taken into account.
ANS:
A. $20,000 − $5,000 = $15,000
B. Direct materials costs $10,000

Direct labor costs 3,000
Overhead costs 4,000
Total $17,000
Less:
Value analysis $2,000
Process redesign 1,000
Total Costs $14,000
C. Yes, Overland should manufacture the car because the total costs of $14,000 is less
than its target cost. Its expected profit is now $6,000 ($20,000 − $14,000).

NOT: 5 min.
26. Anderson Company has the following information concerning its direct labor:
Direct Labor:
Standard Hours 6,500
Actual Hours 6,350
Standard Rate $15
Actual Rate $18
A. Determine the labor rate variance and whether it is favorable or unfavorable.

B. Determine the labor efficiency variance and whether it is favorable or unfavorable.
C. Provide the journal entry for the labor variances.
ANS:
A. LRV = (AR − SR)AH

= ($18 − $15)6,350
= $19,050 U
B. LEV = (AH − SH)SR

= (6,350 − 6,500)$15
= $2,250 F
C. Work in Process 97,500


NOT: 5 min.
ESSAY
You decide
1. Explain the three potential sources of quantitative standards.
ANS:
Historical experience can provide an initial guideline for setting standards, but should be used with
caution because they can perpetuate existing inefficiencies. Engineering studies can identify efficient
approaches rigorous guidelines, but engineering standards often are too rigorous. Input from operating
personnel-since operating personnel are accountable for meeting standards, they should have
significant input in setting standards.

NAT: BUSPROG: Communication
NOT: 5 min.

Cornerstones of Managerial Accounting 5th Edition Mowen Test Bank

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Cornerstones of Managerial Accounting 5th Edition Mowen Test Bank

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Cornerstones of Managerial Accounting

5th Edition Mowen Test Bank

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

6. Ideal standards can be achieved under efficient operating conditions.

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-1

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

9. Currently attainable standards can be achieved under efficient operating conditions.

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: F PTS: 1 DIF: Difficulty: Easy

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-1

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-1

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-2

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-4

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-4

ANS: T PTS: 1 DIF: Difficulty: Easy

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-5

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-5

ANS: T PTS: 1 DIF: Difficulty: Easy

Match each item with the correct statement below.

1. ANS: B PTS: 1 DIF: Difficulty: Easy

Match the variance with its correct calculation.

8. ANS: A PTS: 1 DIF: Difficulty: Easy

ANS: Cost control

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-1

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-1

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-1

ANS: Historical experiences

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-1

ANS: engineering studies

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-1

ANS: Ideal standards

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-1

ANS: standard costing system

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-1

ANS: standard cost sheet

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-2

ANS: unit quantity standards

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-2

ANS: Standard hours allowed

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-2

ANS: total budget variance

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-3

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-3

ANS: Unfavorable variances

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-3

ANS: total variance for materials

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4