TRUE-FALSE STATEMENTS

1. Inventories cannot be valued at standard cost in financial statements.

2. Standard cost is the industry average cost for a particular item.

3. A standard is a unit amount, whereas a budget is a total amount.

4. Standard costs may be incorporated into the accounts in the general ledger.

5. An advantage of standard costs is that they simplify costing of inventories and reduce clerical
costs.

6. Setting standard costs is relatively simple because it is done entirely by accountants.

7. Normal standards should be rigorous but attainable.

8. Actual costs that vary from standard costs always indicate inefficiencies.

9. Ideal standards will generally result in favorable variances for the company.

10. Normal standards incorporate normal contingencies of production into the standards.

11. Once set, normal standards should not be changed during the year.

12. In developing a standard cost for direct materials, a price factor and a quantity factor must be
considered.

13. A direct labor price standard is frequently called the direct labor efficiency standard.

14. The standard predetermined overhead rate must be based on direct labor hours as the standard
activity index.

15. Standard cost cards are the subsidiary ledger for the Work in Process account in a standard cost
system.

16. A variance is the difference between actual costs and standard costs.

17. If actual costs are less than standard costs, the variance is favorable.

18. A materials quantity variance is calculated as the difference between the standard direct
materials price and the actual direct materials price multiplied by the actual quantity of direct
materials used.

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

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

21. There could be instances where the production department is responsible for a direct materials
price variance.
22. The starting point for determining the causes of an unfavorable materials price variance is the
purchasing department.

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

 24. Variance analysis facilitates the principle of "management by exception."
a
25. A credit to a Materials Quantity Variance account indicates that the actual quantity of direct
materials used was greater than the standard quantity of direct materials allowed.
a
26. A standard cost system may be used with a job order cost system but not with a process cost
system.
a
27. Companies assign overhead to jobs by debiting Work in Process Inventory for actual hours
multiplied by the standard overhead rate.
a
28. The overhead controllable variance relates primarily to fixed overhead costs.
a
29. The overhead volume variance relates only to fixed overhead costs.
a
30. If production exceeds normal capacity, the overhead volume variance will be favorable.

Additional True-False Questions

31. In concept, standards and budgets are essentially the same.

32. Standards may be useful in setting selling prices for finished goods.

33. The materials price standard is based on the purchasing department's best estimate of the cost of
raw materials.

34. The materials price variance is normally caused by the production department.

35. The use of an inexperienced worker instead of an experienced employee can result in a favorable
labor price variance but probably an unfavorable quantity variance.

36. In using variance reports, top management normally looks carefully at every variance.

37. The use of standard costs in inventory costing is prohibited in financial statements.
a
38. The overhead controllable variance is the difference between the actual overhead costs incurred
and the budgeted costs for the standard hours allowed.

MULTIPLE CHOICE QUESTIONS

39. What is a standard cost?
a. The total number of units times the budgeted amount expected
b. Any amount that appears on a budget
c. The total amount that appears on the budget for product costs
d. The amount management thinks should be incurred to produce a good or service

40. A standard cost is

a. a cost which is paid for a group of similar products.
b. the average cost in an industry.
c. a predetermined cost.
d. the historical cost of producing a product last year.

41. The difference between a budget and a standard is that

a. a budget expresses what costs were, while a standard expresses what costs should be.
b. a budget expresses management's plans, while a standard reflects what actually happened.
c. a budget expresses a total amount, while a standard expresses a unit amount.
 d. standards are excluded from the cost accounting system, whereas budgets are generally
incorporated into the cost accounting system.

42. Standard costs may be used by

a. universities.
b. governmental agencies.
c. charitable organizations.
d. all of these.

43. Which of the following statements is false?

a. A standard cost is more accurate than a budgeted cost.
b. A standard is a unit amount.
c. In concept, standards and budgets are essentially the same.
d. The standard cost of a product is equivalent to the budgeted cost per unit of product.

44. Budget data are not journalized in cost accounting systems with the exception of
a. the application of manufacturing overhead.
b. direct labor budgets.
c. direct materials budgets.
d. cash budget data.

45. It is possible that a company's financial statements may report inventories at

a. budgeted costs.
b. standard costs.
c. both budgeted and standard costs.
d. none of these.

46. A standard differs from a budget because a standard

a. is a predetermined cost.
b. contributes to management planning and control.
c. is a unit amount.
d. none of the above; a standard does not differ from a budget.

47. Donkey Company expects direct materials cost of $6 per unit for 100,000 units (a total of
$600,000 of direct materials costs). Donkey’s standard direct materials cost and budgeted direct
materials cost is
Standard Budgeted
a. $6 per unit $600,000 per year
b. $6 per unit $6 per unit
c. $600,000 per year $6 per unit
d. $600,000 per year $600,000 per year

48. Using standard costs

a. makes employees less “cost-conscious.”
b. provides a basis for evaluating cost control.
c. makes management by exception more difficult.
d. increases clerical costs.

49. Using standard costs

a. can make management planning more difficult.
b. promotes greater economy.
c. does not help in setting prices.
d. weakens management control.

50. If standard costs are incorporated into the accounting system,

 a. it may simplify the costing of inventories and reduce clerical costs.
b. it can eliminate the need for the budgeting process.
c. the accounting system will produce information that is less relevant than the historical cost
accounting system.
d. approval of the stockholders is required.

51. Standard costs

a. may show past cost experience.
b. help establish expected future costs.
c. are the budgeted cost per unit in the present.
d. all of these.

52. Which of the following statements about standard costs is false?

a. Properly set standards should promote efficiency.
b. Standard costs facilitate management planning.
c. Standards should not be used in "management by exception."
d. Standard costs can simplify the costing of inventories.

53. Which of the following is not considered an advantage of using standard costs?
a. Standard costs can reduce clerical costs.
b. Standard costs can be useful in setting prices for finished goods.
c. Standard costs can be used as a means of finding fault with performance.
d. Standard costs can make employees "cost-conscious."

54. If a company is concerned with the potential negative effects of establishing standards, it should
a. set loose standards that are easy to fulfill.
b. offer wage incentives to those meeting standards.
c. not employ any standards.
d. set tight standards in order to motivate people.

55. The two levels that standards may be set at are

a. normal and fully efficient.
b. normal and ideal.
c. ideal and less efficient.
d. fully efficient and fully effective.

56. The most rigorous of all standards is the

a. normal standard.
b. realistic standard.
c. ideal standard.
d. conceivable standard.

57. Most companies that use standards set them at

a. the normal level.
b. a conceivable level.
c. the ideal level.
d. last year's level.

58. A managerial accountant

1. does not participate in the standard setting process.
2. provides knowledge of cost behaviors in the standard setting process.
3. provides input of historical costs to the standard setting process.
a. 1
b. 2
c. 3
 d. 2 and 3

59. The cost of freight-in

a. is to be included in the standard cost of direct materials.
b. is considered a selling expense.
c. should have a separate standard apart from direct materials.
d. should not be included in a standard cost system.

60. The direct materials quantity standard would not be expressed in

a. pounds.
b. barrels.
c. dollars.
d. board feet.

61. The direct materials quantity standard should

a. exclude unavoidable waste.
b. exclude quality considerations.
c. allow for normal spoilage.
d. always be expressed as an ideal standard.

62. The direct labor quantity standard is sometimes called the direct labor
a. volume standard.
b. effectiveness standard.
c. efficiency standard.
d. quality standard.

63. A manufacturing company would include setup and downtime in their direct
a. materials price standard.
b. materials quantity standard.
c. labor price standard.
d. labor quantity standard.

64. Allowance for spoilage is part of the direct

a. materials price standard.
b. materials quantity standard.
c. labor price standard.
d. labor quantity standard.

65. The total standard cost to produce one unit of product is shown
a. at the bottom of the income statement.
b. at the bottom of the balance sheet.
c. on the standard cost card.
d. in the Work in Process Inventory account.

66. An unfavorable materials quantity variance would occur if

a. more materials were purchased than were used.
b. actual pounds of materials used were less than the standard pounds allowed.
c. actual labor hours used were greater than the standard labor hours allowed.
d. actual pounds of materials used were greater than the standard pounds allowed.

67. A standard which represents an efficient level of performance that is attainable under expected
operating conditions is called a(n)
a. ideal standard.
b. loose standard.
c. tight standard.
d. normal standard.
 68. Ideal standards
a. are rigorous but attainable.
b. are the standards generally used in a master budget.
c. reflect optimal performance under perfect operating conditions.
d. will always motivate employees to achieve the maximum output.

69. The final decision as to what standard costs should be is the responsibility of
a. the quality control engineer.
b. the managerial accountants.
c. the purchasing agent.
d. management.

70. The labor time requirements for standards may be determined by the
a. sales manager.
b. product manager.
c. industrial engineers.
d. payroll department manager.

71. To determine the standard rate for direct labor, management consults
a. purchasing agents.
b. product managers.
c. quality control engineers.
d. the payroll department.

Use the following information for questions 72–75.

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

72. The standard direct materials price per pound is

a. $3.92.
b. $4.00.
c. $4.17
d. $4.25

73. The standard direct materials quantity per unit is

a. 2.6 pounds.
b. 2.7 pounds.
c. 2.9 pounds.
d. 3.0 pounds.

74. The standard direct labor rate per hour is

a. $ 9.00.
b. $ 9.25.
c. $12.00.
d. $12.25.

75. The standard direct labor hours per unit is

a. 1 hour.
b. 1.1 hours.
 c. 1.2 hours.
d. 1.3 hours.

76. The standard direct materials quantity does not include allowances for
a. unavoidable waste.
b. normal spoilage.
c. unexpected spoilage.
d. all of the above are included.

77. Allowances should not be made in the direct labor quantity standard for
a. wasted time.
b. rest periods.
c. cleanup.
d. machine downtime.

78. The standard predetermined overhead rate used in setting the standard overhead cost is
determined by dividing
a. budgeted overhead costs by an expected standard activity index.
b. actual overhead costs by an expected standard activity index.
c. budgeted overhead costs by actual activity.
d. actual overhead costs by actual activity.

79. Fleck’s standard quantities for 1 unit of product include 2 pounds of materials and 1.5 labor hours.
The standard rates are $3 per pound and $10 per hour. The standard overhead rate is $12 per
direct labor hour. The total standard cost of Fleck’s product is
a. $21.
b. $25.
c. $33
d. $39.

80. Which of the following statements is true?

a. Variances are the differences between total actual costs and total standard costs.
b. When actual costs exceed standard costs, the variance is favorable.
c. An unfavorable variance results when actual costs are decreasing but standards are not
changed.
d. All of the above are true.

Use the following information for questions 81–83.

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

81. ToolTime’s total material variance is

a. $300 F.
b. $90 U.
c. $310 U.
d. $400 U.

82. ToolTime’s materials price variance is

a. $90 U.
b. $310 F.
c. $400 F.
d. $700 F.

83. ToolTime’s materials quantity variance is

a. $90 F.
 b. $310 U.
c. $400 U.
d. $700 U.

Use the following information for questions 84–86.

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

84. ToolTime’s total labor variance is

a. $770 U.
b. $800 U.
c. $1,030 F.
d. $1,930 F.

85. ToolTime’s labor price variance is

a. $770 U.
b. $800 U.
c. $1,030 F.
d. $1,930 F.

86. ToolTime’s labor quantity variance is

a. $770 U.
b. $1,030 F.
c. $1,800 F.
d. $1,930 F.

87. The labor price variance is

a. (AH × AR) – (SH × SR).
b. (AH × AR) – (AH × SR).
c. (AH × SR) – (SH × SR).
d. (AH × SR) – (SH × AR).

88. The labor quantity variance is

a. (AH × AR) – (SH × SR).
b. (AH × AR) – (AH × SR).
c. (AH × SR) – (SH × SR).
d. (AH × SR) – (SH × AR).

Use the following information for questions 89–91.

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

89. Stiner Company's materials price variance is

a. $100 U.
b. $1,000 U.
c. $900 U.
d. $1,000 F.
90. Stiner Company's materials quantity variance is
a. $1,000 U.
b. $1,000 F.
c. $1,100 F.
d. $1,100 U.
 91. Stiner Company's total materials variance is
a. $2,000 U.
b. $2,000 F.
c. $2,100 U.
d. $2,100 F.

92. The standard quantity allowed for the units produced was 6,500 pounds, the standard price was
$2.50 per pound, and the materials quantity variance was $375 favorable. Each unit uses 1
pound of materials. How many units were actually produced?
a. 6,350
b. 6,500
c. 15,875
d. 6,650

93. The matrix approach to variance analysis

a. will yield slightly different variances than the formula approach.
b. is more accurate than the formula approach.
c. does not separate the price and quantity variance calculations.
d. provides a convenient structure for determining each variance.

94. Labor efficiency is measured by the

a. materials quantity variance.
b. total labor variance.
c. labor quantity variance.
d. labor rate variance.

95. An unfavorable labor quantity variance may be caused by

a. paying workers higher wages than expected.
b. misallocation of workers.
c. worker fatigue or carelessness.
d. higher pay rates mandated by union contracts.

96. The investigation of materials price variance usually begins in the

a. first production department.
b. purchasing department.
c. controller's office.
d. accounts payable department.

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

a. production department.
b. purchasing department.
c. sales department.
d. controller's department.

98. If the labor quantity variance is unfavorable and the cause is inefficient use of direct labor, the
responsibility rests with the
a. sales department.
b. production department.
c. budget office.
d. controller's department.

99. Which one of the following describes the total overhead variance?
a. The difference between what was actually incurred and the flexible budget amount
b. The difference between what was actually incurred and overhead applied
c. The difference between the overhead applied and the flexible budget amount
d. The difference between what was actually incurred and the total production budget
100. A company developed the following per-unit standards for its product: 2 gallons of direct materials
at $6 per gallon. Last month, 3,000 gallons of direct materials were purchased for $17,100. The
direct materials price variance for last month was
a. $17,100 favorable.
b. $450 favorable.
c. $900 favorable.
d. $900 unfavorable.

101. The per-unit standards for direct materials are 2 pounds at $4 per pound. Last month, 11,200
pounds of direct materials that actually cost $42,400 were used to produce 6,000 units of product.
The direct materials quantity variance for last month was
a. $3,200 favorable.
b. $2,400 favorable.
c. $3,200 unfavorable.
d. $5,600 unfavorable.

102. The per-unit standards for direct labor are 1.5 direct labor hours at $12 per hour. If in producing
2,400 units, the actual direct labor cost was $36,800 for 3,000 direct labor hours worked, the total
direct labor variance is
a. $1,920 unfavorable.
b. $6,400 favorable.
c. $4,000 unfavorable.
d. $6,400 unfavorable.

103. The standard rate of pay is $10 per direct labor hour. If the actual direct labor payroll was
$39,200 for 4,000 direct labor hours worked, the direct labor price (rate) variance is
a. $800 unfavorable.
b. $800 favorable.
c. $1,000 unfavorable.
d. $1,000 favorable.

104. The standard number of hours that should have been worked for the output attained is 10,000
direct labor hours and the actual number of direct labor hours worked was 10,500. If the direct
labor price variance was $10,500 unfavorable, and the standard rate of pay was $15 per direct
labor hour, what was the actual rate of pay for direct labor?
a. $14 per direct labor hour
b. $12 per direct labor hour
c. $16 per direct labor hour
d. $15 per direct labor hour
105. A company purchases 15,000 pounds of materials. The materials price variance is $6,000
favorable. What is the difference between the standard and actual price paid for the materials?
a. $2.00
b. $.40
c. $2.50
d. $10.00

106. A company uses 40,000 gallons of materials for which it paid $9.00 a gallon. The materials price
variance was $80,000 favorable. What is the standard price per gallon?
a. $2.00
b. $7.00
c. $10.00
d. $11.00
107. CIB, Inc. produces a product requiring 4 pounds of material costing $2.50 per pound. During
December, CIB purchased 4,200 pounds of material for $10,080 and used the material to
produce 500 products. What was the materials price variance for December?
a. $400 F
b. $420 F
c. $80 U
d. $480 U

108. Debbie Co. manufactures a product requiring two pounds of direct material. During 2009, Debbie
purchases 24,000 pounds of material for $74,400 when the standard price per pound is $3.00.
During 2009, Debbie uses 22,000 pounds to make 12,000 products. The standard direct material
cost per unit of finished product is
a. $6.20.
b. $6.76.
c. $6.00.
d. $6.40.

109. Cola Co. manufactures a product with a standard direct labor cost of two hours at $24.00 per
hour. During July, 2,000 units were produced using 4,200 hours at $24.40 per hour. The labor
quantity variance was
a. $4,880 F.
b. $4,800 U.
c. $3,280 U.
d. $4,880 U.

110. Cola Co. manufactures a product with a standard direct labor cost of two hours at $24.00 per
hour. During July, 2,000 units were produced using 4,200 hours at $24.40 per hour. The labor
price variance was
a. $1,680 U.
b. $6,480 U.
c. $6,480 F.
d. $4,800 U.

111. A company developed the following per unit materials standards for its product: 3 pounds of
direct materials at $4 per pound. If 12,000 units of product were produced last month and 37,500 pounds
of direct materials were used, the direct materials quantity variance was
a. $3,600 favorable.
b. $6,000 unfavorable.
c. $3,600 unfavorable.
d. $6,000 favorable.

112. The standard direct labor cost for producing one unit of product is 5 direct labor hours at a
standard rate of pay of $12. Last month, 15,000 units were produced and 73,500 direct labor
hours were actually worked at a total cost of $810,000. The direct labor quantity variance was
a. $18,000 unfavorable.
b. $27,000 unfavorable.
c. $27,000 favorable.
d. $18,000 favorable.

113. Blue Fin Co. produces a product requiring 10 pounds of material at $1.50 per pound. Blue Fin
produced 10,000 units of this product during 2009 resulting in a $30,000 unfavorable materials
quantity variance. How many pounds of direct material did Blue Fin use during 2009?
a. 120,000 pounds
b. 100,000 pounds
c. 200,000 pounds
d. 145,000 pounds
114. Wild West Inc. produces a product requiring 3 direct labor hours at $20.00 per hour. During
January, 2,000 products are produced using 6,300 direct labor hours. Wild West’s actual payroll
during January was $122,850. What is the labor quantity variance?
a. $2,850 U
b. $6,000 F
c. $3,150 F
d. $6,000 U

115. Raylight Products planned to use 1 yard of plastic per unit budgeted at $81 a yard. However, the
plastic actually cost $80 per yard. The company actually made 2,600 units, although it had
planned to make only 2,200 units. Total yards used for production were 2,640. How much is the
total materials variance?
a. $32,400 U
b. $3,240 U
c. $2,640 F
d. $600 U

116. If actual direct materials costs are greater than standard direct materials costs, it means that
a. actual costs were calculated incorrectly.
b. the actual unit price of direct materials was greater than the standard unit price of direct
materials.
c. the actual unit price of raw materials or the actual quantities of raw materials used was
greater than the standard unit price or standard quantities of raw materials expected.
d. the purchasing agent or the production foreman is inefficient.

117. If actual costs are greater than standard costs, there is a(n)
a. normal variance.
b. unfavorable variance.
c. favorable variance.
d. error in the accounting system.

118. A total materials variance is analyzed in terms of

a. price and quantity variances.
b. buy and sell variances.
c. quantity and quality variances.
d. tight and loose variances.

119. A company developed the following per-unit standards for its product: 2 pounds of direct
materials at $4 per pound. Last month, 1,000 pounds of direct materials were purchased for
$3,800. The direct materials price variance for last month was
a. $3,800 favorable.
b. $200 favorable.
c. $100 favorable.
d. $200 unfavorable.

120. The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month, 2,800
gallons of direct materials that actually cost $10,600 were used to produce 1,500 units of product.
The direct materials quantity variance for last month was
a. $800 favorable.
b. $600 favorable.
c. $800 unfavorable.
d. $1,400 unfavorable.

121. The purchasing agent of the Skateboard Company ordered materials of lower quality in an effort
to economize on price. What variance will most likely result?
 a. Favorable materials quantity variance
b. Favorable total materials variance
c. Unfavorable materials price variance
d. Unfavorable labor quantity variance

122. The per-unit standards for direct labor are 2 direct labor hours at $15 per hour. If in producing
1,200 units, the actual direct labor cost was $32,000 for 2,000 direct labor hours worked, the total
direct labor variance is
a. $1,200 unfavorable.
b. $4,000 favorable.
c. $2,500 unfavorable.
d. $4,000 unfavorable.

123. The standard rate of pay is $15 per direct labor hour. If the actual direct labor payroll was $88,200
for 6,000 direct labor hours worked, the direct labor price (rate) variance is
a. $1,800 unfavorable.
b. $1,800 favorable.
c. $2,250 unfavorable.
d. $2,250 favorable.

124. The standard number of hours that should have been worked for the output attained is 6,000
direct labor hours and the actual number of direct labor hours worked was 6,300. If the direct labor price
variance was $3,150 unfavorable, and the standard rate of pay was $9 per direct labor hour, what was the
actual rate of pay for direct labor?
a. $8.50 per direct labor hour
b. $7.50 per direct labor hour
c. $9.50 per direct labor hour
d. $9.00 per direct labor hour

125. Which one of the following statements is true?

a. If the materials price variance is unfavorable, then the materials quantity variance must also
be unfavorable.
b. If the materials price variance is unfavorable, then the materials quantity variance must be
favorable.
c. Price and quantity variances move in the same direction. If one is favorable, the others will be
as well.
d. There is no correlation of favorable or unfavorable for price and quantity variances.

126. Variances from standards are

a. expressed in total dollars.
b. expressed on a per-unit basis.
c. expressed on a percentage basis.
d. all of these.

127. A favorable variance

a. is an indication that the company is not operating in an optimal manner.
b. implies a positive result if quality control standards are met.
c. implies a positive result if standards are flexible.
d. means that standards are too loosely specified.

128. The total materials variance is equal to the

a. materials price variance.
b. difference between the materials price variance and materials quantity variance.
c. product of the materials price variance and the materials quantity variance.
d. sum of the materials price variance and the materials quantity variance.
129. The total overhead variance is equal to the
a. sum of the total materials variance and the total labor variance.
b. difference between the total materials variance and the total labor variance.
c. sum of the controllable variance and the volume variance.
d. total variance minus the controllable variance and the volume variance.

130. The total variance is $25,000. The total materials variance is $10,000. The total labor variance is
twice the total overhead variance. What is the total overhead variance?
a. $2,500
b. $5,000
c. $7,500
d. $10,000

131. The formula for the materials price variance is

a. (AQ × SP) – (SQ × SP).
b. (AQ × AP) – (AQ × SP).
c. (AQ × AP) – (SQ × SP).
d. (AQ × SP) – (SQ × AP).

132. The formula for the materials quantity variance is

a. (SQ × AP) – (SQ × SP).
b. (AQ × AP) – (AQ × SP).
c. (AQ × SP) – (SQ × SP).
d. (AQ × AP) – (SQ × SP).

133. A company uses 8,400 pounds of materials and exceeds the standard by 400 pounds. The
quantity variance is $1,800 unfavorable. What is the standard price?
a. $1.50
b. $3.00
c. $4.50
d. Cannot be determined from the data provided.

134. A company purchases 20,000 pounds of materials. The materials price variance is $3,000
favorable. What is the difference between the standard and actual price paid for the materials?
a. $.75
b. $.15
c. $3.75
d. Cannot be determined from the data provided.

135. A company uses 20,000 pounds of materials for which it paid $6.00 a pound. The materials price
variance was $30,000 unfavorable. What is the standard price per pound?
a. $1.50
b. $4.50
c. $6.00
d. $7.50

136. If the materials price variance is $2,400 F and the materials quantity and labor variances are each
$1,800 U, what is the total materials variance?
a. $2,400 F
b. $1,800 U
c. $600 F
d. $2,700 U

137. Unfavorable materials price and quantity variances are generally the responsibility of the
 Price Quantity
a. Purchasing department Purchasing Department
b. Purchasing department Production Department
c. Production department Production Department
d. Production Department Purchasing Department

138. The total overhead variance is the difference between the

a. actual overhead costs and overhead costs applied based on standard hours allowed.
b. actual overhead costs and overhead costs applied based on actual hours.
c. overhead costs applied based on actual hours and overhead costs applied based on
standard hours allowed.
d. the actual overhead costs and the standard direct labor costs.

139. The predetermined overhead rate for Weed-B-Gone is $8, comprised of a variable overhead rate
of $5 and a fixed rate of $3. The amount of budgeted overhead costs at normal capacity of
$240,000 was divided by normal capacity of 30,000 direct labor hours, to arrive at the
predetermined overhead rate of $8. Actual overhead for June was $15,800 variable and $9,100
fixed, and standard hours allowed for the product produced in June was 3,000 hours. The total
overhead variance is
a. $4,900 F.
b. $900 F.
c. $900 U.
d. $4,900 U.

140. The predetermined overhead rate for Weed-B-Gone is $8, comprised of a variable overhead rate
of $5 and a fixed rate of $3. The amount of budgeted overhead costs at normal capacity of
$240,000 was divided by normal capacity of 30,000 direct labor hours, to arrive at the
predetermined overhead rate of $8. Actual overhead for June was $14,800 variable and $8,100
fixed, and 1,500 units were produced. The direct labor standard is 2 hours per unit produced. The
total overhead variance is
a. $2,900 F.
b. $1,100 F.
c. $1,100 U.
d. $2,900 U.

141. Which of the following is true?

a. The form, content, and frequency of variance reports vary considerably among companies.
b. The form, content, and frequency of variance reports do not vary among companies.
c. The form and content of variance reports vary considerably among companies, but the
frequency is always weekly.
d. The form and content of variance reports are consistent among companies, but the frequency
varies.

142. Sonic Corporation’s variance report for the purchasing department reports 500 units of material A
purchased and 1,200 units of material B purchased. It also reports standard prices of $2 for
Material A and $3 for Material B. Actual prices reported are $2.10 for Material A and $2.80 for
Material B. Sonic should report a total price variance of
a. $190 F.
b. $20 F.
c. $20 U.
d. $190 U.

143. When is a variance considered to be 'material'?

a. When it is large compared to the actual cost
b. When it is infrequent
c. When it is unfavorable
 d. When it could have been controlled more effectively
144. Variance reports are
a. external financial reports.
b. SEC financial reports.
c. internal reports for management.
d. all of these.

145. In using variance reports, management looks for

a. total assets invested.
b. significant variances.
c. competitors’ costs in comparison to the company's costs.
d. more efficient ways of valuing inventories.

146. Magliano Company prepared its income statement for internal use. How would amounts for cost
of goods sold and variances appear?
a. Cost of goods sold would be at actual costs, and variances would be reported separately.
b. Cost of goods sold would be combined with the variances, and the net amount reported at
standard cost.
c. Cost of goods sold would be at standard costs, and variances would be reported separately.
d. Cost of goods sold would be combined with the variances, and the net amount reported at
actual cost.

147. Dell Widgets prepared its income statement for management using a standard cost accounting
system. Which of the following appears at the “standard” amount?
a. Sales
b. Selling expenses
c. Gross profit
d. Cost of goods sold

148. The costing of inventories at standard cost for external financial statement reporting purposes is
a. not permitted.
b. preferable to reporting at actual costs.
c. in accordance with generally accepted accounting principles if significant differences exist
between actual and standard costs.
d. in accordance with generally accepted accounting principles if significant differences do not
exist between actual and standard costs.

149. Income statements prepared internally for management often show cost of goods sold at
standard cost and variances are
a. separately disclosed.
b. deducted as other expenses and revenues.
c. added to cost of goods sold.
d. closed directly to retained earnings.

150. In Sonic Corporation’s income statement, they report gross profit of $50,000 at standard and the
following variances:
Materials price $ 420 F
Materials quantity 600 F
Labor price 420 U
Labor quantity 1,000 F
Overhead 900 F
Sonic would report actual gross profit of
a. $46,660.
b. $47,500.
c. $52,500.
 d. $53,340.

151. In Sonic Corporation’s income statement, they report actual gross profit of $52,500 and the
following variances:
Materials price $ 420 F
Materials quantity 600 F
Labor price 420 U
Labor quantity 1,000 F
Overhead 900 F
Sonic would report gross profit at standard of
a. $46,660.
b. $47,500.
c. $50,000.
d. $53,340.

152. The balanced scorecard

a. incorporates financial and nonfinancial measures in an integrated system.
b. is based on financial measures.
c. is based on nonfinancial measures.
d. does not use financial or nonfinancial neasures.

153. Which is not one of the four most commonly used perspectives on a balanced scorecard?
a. The financial perspective
b. The customer perspective
c. The external process perspective
d. The learning and growth perspective

154. The balanced scorecard approach

a. uses only financial measures to evaluate performance.
b. uses rather vague, open statements when setting objectives in order to allow managers and
employees flexibility.
c. normally sets the financial objectives first, and then sets the objectives in the other
perspectives to accomplish the financial objectives.
d. evaluates performance using about 10 different perspectives in order to effectively
incorporate all areas of the organization.

155. The customer perspective of the balanced scorecard approach

a. is the most traditional view of the company.
b. evaluates the internal operating processes critical to the success of the organization.
c. evaluates how well the company develops and retains its employees.
d. evaluates how well the company is performing from the viewpoint of those people who buy its
products and services.

156. The perspectives included in the balanced scorecard approach include all of the following except
the
a. internal process perspective.
b. capacity utilization perspective.
c. learning and growth perspective.
d. customer perspective.
a
157. If 10,000 pounds of direct materials are purchased for $7,200 on account and the standard cost is
$.70 per pound, the journal entry to record the purchase is
a. Raw Materials Inventory................................................................ 7,200
Accounts Payable................................................................ 7,200
 b. Work In Process Inventory............................................................ 7,200
Accounts Payable................................................................ 7,000
Materials Quantity Variance................................................. 200
c. Raw Materials Inventory................................................................ 7,200
Accounts Payable................................................................ 7,000
Materials Price Variance...................................................... 200
d. Raw Materials Inventory................................................................ 7,000
Materials Price Variance................................................................ 200
Accounts Payable................................................................ 7,200
a
158. Debit balances in variance accounts represent
a. unfavorable variances.
b. favorable variances.
c. favorable for price variances; unfavorable for quantity variances.
d. favorable for quantity variances; unfavorable for price variances.
a
159. Manufacturing overhead costs are applied to work in process on the basis of
a. actual hours worked.
b. standard hours allowed.
c. ratio of actual variable to fixed costs.
d. actual overhead costs incurred.
a
160. If a company purchases raw materials on account for $13,220 when the standard cost is $12,600,
it will
a. debit Materials Price Variance for $620.
b. credit Materials Price Variance for $620.
c. debit Materials Quantity Variance for $620.
d. credit Material Quantity Variance for $620.
a
161. If a company issues raw materials to production at a cost of $12,600 when the standard cost is
$12,200, it will
a. debit Materials Price Variance for $400.
b. credit Materials Price Variance for $400.
c. debit Materials Quantity Variance for $400.
d. credit Material Quantity Variance for $400.
a
162. If a company incurs direct labor cost of $41,000 when the standard cost is $42,000, it will
a. debit Labor Price Variance for $1,000.
b. credit Labor Price Variance for $1,000.
c. debit Labor Quantity Variance for $1,000.
d. credit Labor Quantity Variance for $1,000.
a
163. If a company assigns factory labor to production at a cost of $42,000 when standard cost is
$40,000, it will
a. debit Labor Price Variance for $2,000.
b. credit Labor Price Variance for $2,000.
c. debit Labor Quantity Variance for $2,000.
d. credit Labor Quantity Variance for $2,000.
a
164. The overhead variances measure whether overhead costs
Are Effectively Managed Were Used Effectively
a. Controllable Controllable and Volume
b. Controllable Volume
c. Controllable and Volume Controllable
 d. Volume Controllable
a
165. The overhead volume variance is
a. actual overhead less overhead budgeted for actual hours.
b. actual overhead less overhead budgeted for standard hours allowed.
c. overhead budgeted for actual hours less applied overhead.
d. the fixed overhead rate times the difference between normal capacity hours and standard
hours allowed.

Use the following information for questions 166–169.

The following information was taken from the annual manufacturing overhead cost budget of Coen
Company.
Variable manufacturing overhead costs $46,200
Fixed manufacturing overhead costs $27,720
Normal production level in labor hours 23,100
Normal production level in units 5,775
Standard labor hours per unit 4
During the year, 5,600 units were produced, 18,340 hours were worked, and the actual manufacturing
overhead was $75,600. Actual fixed manufacturing overhead costs equaled budgeted fixed manufacturing
overhead costs. Overhead is applied on the basis of direct labor hours.
a
166. Coen’s total overhead rate is
a. $1.20.
b. $2.00.
c. $3.20.
d. $3.27.
a
167. Coen’s total overhead variance is
a. $840 U.
b. $3,080 U.
c. $3,920 U.
d. $11,200 U.
a
168. Coen’s controllable overhead variance is
a. $840 U.
b. $3,080 U.
c. $3,920 U.
d. $11,200 U.
a
169. Coen’s volume overhead variance is
a. $840 U.
b. $3,080 U.
c. $3,920 U.
d. $11,200 U.
a
170. Which of the following statements is false?
a. The overhead volume variance indicates whether plant facilities were used efficiently during
the period.
b. The costs that cause the overhead volume variance are usually controllable costs.
c. The overhead volume variance relates solely to fixed costs.
d. The overhead volume variance is favorable if standard hours allowed for output are greater
than the standard hours at normal capacity.
a
171. If the standard hours allowed are less than the standard hours at normal capacity,
 a. the overhead volume variance will be unfavorable.
b. variable overhead costs will be underapplied.
c. the overhead controllable variance will be favorable.
d. variable overhead costs will be overapplied.
a
172. Which of the following statements about overhead variances is false?
a. Standard hours allowed are used in calculating the controllable variance.
b. Standard hours allowed are used in calculating the volume variance.
c. The controllable variance pertains solely to fixed costs.
d. The total overhead variance pertains to both variable and fixed costs.
a
173. The overhead volume variance relates only to
a. variable overhead costs.
b. fixed overhead costs.
c. both variable and fixed overhead costs.
d. all manufacturing costs.

174. What does the controllable variance measure?

a. Whether a company incurred more or less fixed overhead costs compared to the amount of
overhead applied
b. Whether a company incurred more or less overhead costs than allowed
c. The efficiency of using variable overhead resources
d. Whether the production manager is able to control the production facility
a
175. The overhead controllable variance is calculated as the difference between actual overhead costs
incurred and the budgeted
a. overhead costs for the standard hours allowed.
b. overhead costs applied to the product.
c. overhead costs at the normal level of activity.
d. fixed overhead costs.
a
176. If the standard hours allowed are less than the standard hours at normal capacity, the volume
variance
a. cannot be calculated.
b. will be favorable.
c. will be unfavorable.
d. will be greater than the controllable variance.
a
177. The budgeted overhead costs for standard hours allowed and the overhead costs applied to the
product are the same amount
a. for both variable and fixed overhead costs.
b. only when standard hours allowed are less than normal capacity.
c. for variable overhead costs.
d. for fixed overhead costs.

Use the following information for questions 178 and 179.

Budgeted overhead for Harrington Company at normal capacity of 30,000 direct labor hours is $4.50 per
hour variable and $3 per hour fixed. In May, $232,500 of overhead was incurred in working 31,500 hours
when 32,000 standard hours were allowed.
a
178. The overhead controllable variance is
a. $3,750 favorable.
b. $1,500 favorable.
c. $7,500 favorable.
d. $7,500 unfavorable.
a
179. The overhead volume variance is
a. $6,000 favorable.
b. $8,250 favorable.
c. $3,750 favorable.
d. $7,500 favorable.
a
180.An overhead volume variance is calculated as the difference between normal capacity hours and
standard hours allowed
a. times the total predetermined overhead rate.
b. times the predetermined variable overhead rate.
c. times the predetermined fixed overhead rate.
d. divided by actual number of hours worked.
Additional Multiple Choice Questions

181. All of the following are advantages of standard costs except they
a. facilitate management planning.
b. are useful in setting selling prices.
c. simplify costing in inventories.
d. increase net income.

182. Standards based on the optimum level of performance under perfect operating conditions are
a. attainable standards.
b. ideal standards.
c. normal standards.
d. practical standards.

183. The direct materials price standard should include an amount for all of the following except
a. receiving costs.
b. storing costs.
c. handling costs.
d. normal spoilage costs.

184. The standard unit cost is used in the calculation of which of the following variances?
Materials Price Variance Materials Quantity Variance
a. No No
b. No Yes
c. Yes No
d. Yes Yes

185. The difference between the actual labor rate multiplied by the actual labor hours worked and the
standard labor rate multiplied by the standard labor hours is the
a. total labor variance.
b. labor price variance.
c. labor quantity variance.
d. labor efficiency variance.

186. Which department is usually responsible for a labor price variance attributable to misallocation of
workers?
a. Quality control
b. Purchasing
c. Engineering
d. Production

187. In reporting variances,

 a. promptness is relatively unimportant.
b. management normally investigates all variances.
c. the reports should facilitate management by exception.
d. the reports are not departmentalized.

a
188. A standard cost system may be used in
Job Order Costing Process Costing
a. No No
b. Yes No
c. No Yes
d. Yes Yes

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
a
1. F 7. T 13. F 19. T 25. F 31. T 37. F
a a
2. F 8. F 14. F 20. F 26. F 32. T 38. T
a
3. T 9. F 15. F 21. T 27. F 33. T
a
4. T 10. T 16. T 22. T 28. F 34. F
a
5. T 11. F 17. T 23. T 29. T 35. T
a
6. F 12. T 18. F 24. T 30. T 36. F

Answers to Multiple Choice Questions

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
a
39. d 61. c 83. c 105. b 127. b 149. a 171. a
a
40. c 62. c 84. c 106. d 128. d 150. c 172. c
a
41. c 63. d 85. a 107. b 129. c 151. c 173. b
a
42. d 64. b 86. c 108. c 130. b 152. a 174. b
a
43. a 65. c 87. b 109. b 131. b 153. c 175. a
a
44. a 66. d 88. c 110. a 132. c 154. c 176. c
a
45. b 67. d 89. b 111. b 133. c 155. d 177. c
a
46. c 68. c 90. a 112. d 134. b 156. b 178. b
a a
47. a 69. d 91. a 113. a 135. b 157. d 179. a
a a
48. b 70. c 92. b 114. d 136. c 158. a 180. c
a
49. b 71. d 93. d 115. d 137. b 159. b 181. d
a
50. a 72. c 94. c 116. c 138. a 160. a 182. b
a
51. d 73. d 95. c 117. b 139. c 161. c 183. d
a
52. c 74. d 96. b 118. a 140. b 162. b 184. d
a
53. c 75. d 97. a 119. b 141. a 163. c 185. a
a
54. b 76. c 98. b 120. a 142. a 164. b 186. d
a
55. b 77. a 99. b 121. d 143. a 165. d 187. c
a a
56. c 78. a 100. c 122. b 144. c 166. c 188. d
a
57. a 79. d 101. a 123. b 145. b 167. c
a
58. d 80. a 102. b 124. c 146. c 168. b
a
59. a 81. b 103. b 125. d 147. d 169. a
a
60. c 82. b 104. c 126. a 148. d 170. b