Accounting Chapter 24 Test Bank

Chapter 24 Standard Cost Systems

Chapter 24 Standard Cost Systems Answer Key

True / False Questions

1. A standard cost is the per unit cost actually incurred under normal operating conditions. FALSE

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2. A favorable variance occurs when actual costs are less than standard costs. TRUE

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3. n a standard cost system actual costs co sts are recorded in !aterial" #irect $abor and %verhead accounts but standard costs are charged to &or'(in()rocess. or'(in()rocess. TRUE


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4. A total cost variance for materials can be caused by differences d ifferences in the *uantity used or in the price paid but not by both. FALSE

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+. A material price variance is arrived at by ta'ing standard *uantity times actual price less standard price. FALSE

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,. A material *uantity variance is the standard price times standard *uantity less actual *uantity. TRUE


-. A favorable variance would be credited to a cost variance account. TRUE

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. A labor efficiency variance relates to the number of hours actually wor'ed compared to the standard hours. TRUE


/. A spending variance results from incurring more overhead costs than allowed for at the actual level of activity achieved. TRUE

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10. A difference difference between a standard cost and an actual cost would wo uld be recorded in the &or'(in( )rocess account. FALSE


11. A good standard cost system should always generate unfavorable variances. FALSE


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12. Standard costs are established only for direct d irect labor and direct materials. FALSE


13. Standard cost systems are generally compatible with ob cost systems or with process cost systems. TRUE


14. n setting standards" managements level of performance epectation must be something less than ideal. TRUE

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1+. n a standard cost system" actual costs are charged to wor' in process as they are incurred. FALSE


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1,. A variance is said to be unfavorable when actual costs eceed standard costs. TRUE


1-. he materials price variance is calculated by multiplying the difference between actual unit price and standard unit price by the standard units purchased. FALSE


1. Standard costs actually are ideal costs per unit. FALSE


1/. A standard cost is predetermined" that is" determined before actual costs of the current period have been computed. TRUE


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20. n most companies using standard cost procedures" the costs charged to &or'(in()rocess" &or'(in()rocess" 5inished 6oods" and Cost of 6oods Sold are the actual costs" not the standard costs. FALSE

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21. he use of ecessive ece ssive *uantities of material in manufacturing a product causes an unfavorable materials *uantity variance. TRUE


22. A favorable materials price variance indicates that actual prices paid in ac*uiring materials were more than standard prices. FALSE


23. An unfavorable cost variance will be debited to a cost variance account.. TRUE

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24. he presence of fied costs in manufacturing overhead causes the actual amount of manufacturing overhead per unit of output to vary depending on the actual production volume attained. TRUE

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2+. t is possible for the overhead volume variance to be favorable and the overhead spending variance to be unfavorable. TRUE


Multiple Choice Questions

2,. n establishing standard costs for labor" management must loo' at all of the following ecept7 A. ime A. ime allowed to produce each product. 8. #irect 8. #irect labor re*uirements for each product. C. he C. he wage rate of a direct laborer. D. he *uantity of materials for each product.


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2-. A total cost variance for materials can result from7 A. #ifferences A. #ifferences in the *uantities used. 8. #ifferences 8. #ifferences in the prices paid to suppliers. C. 8oth A and 8. #. 9either #. 9either A nor 8.

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2. f the standard *uantity of materials is 4"+00 units : ;0.1+ per unit and the actual *uantity is /+"000 units : ;0.12 per unit" then the total materials cost variance is7 A. ;2"+0 A. ;2"+0 5avorable 8. ;1"+-+ 8. ;1"+-+ ( =/+"000 × ;.12> ? ;1"2-+5

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2/. f the standard *uantity of materials is 4"+00 units : ;0.1+ per unit and the actual *uantity is /+"000 units : ;0.12 per unit then the materials *uantity variance is7 A. ;2"+0 A. ;2"+0 5avorable B. ;1"+-+ ( =4"+00 × ;.1+> ? ;1"+-+ <


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30. f the standard *uantity of materials is 4"+00 units : ;0.1+ per unit and the actual *uantity is /+"000 units : ;0.12 per unit then the materials price variance is7 A. ;2"+0 5avorable 8. ;1"+-+ 8. ;1"+-+ ( =/+"000 × ; .1+> ? ;2"+0 5


31. f the standard *uantity of materials is 4"+00 units : ;0.1+ per unit and the actual *uantity is /+"000 units : ;0.12 per unit then the ournal entry to record the cost of materials used includes7 A. A A. A debit to &or' *in()rocess nventory of ;11"400. &or'(in()rocess nventory of ;12",-+. B. A debit to &or'(in()rocess C. A C. A debit to !aterials )rice variance of ;2"+0 #. A #. A credit to !aterials )rice variance of ;1"+-+. 4"+00 × ;.1+ ? ;12",-+


32. f actual direct labor cost was ;-"+,0 ;-"+ ,0 and standard labor cost was ;-"000 ;-"0 00 the ournal entry to record this would include7 A. A A. A credit to the labor rate variance account of ;+,0 ; +,0 and a credit to #irect $abor of ;-"000. 8. A 8. A debit to the labor rate variance account of ;+,0 and a debit to #irect $abor of ;-"000. C. A C. A credit to the labor rate variance account of ;+,0 ;+ ,0 and a debit to #irect $abor of ;-"+,0. ; +,0 and a credit to #irect $abor of ;-"+,0. D. A debit to the labor rate variance account of ;+,0


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33. here will be a favorable materials price variance if7 A. he A. he standard price per unit un it is less than the actual price per unit. B. he standard price per unit is greater than the actual price per unit. C. he C. he actual *uantity purchased is greater than epected. #. he #. he actual *uantity purchased is less than epected.


34. Controlling the materials price variance is usually the responsibility of7 A. he purchasing agent. 8. he 8. he mar'eting director. C. he C. he production supervisor. #. he #. he cost accountant.

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3+. Controlling the materials *uantity variance is usually the responsibility of7 A. he A. he cost accountant. 8. he 8. he purchasing agent. C. he C. he mar'eting director. D. he production supervisor.


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3,. he use of inepensive" low *uality" materials materials often results in7 A. A A. A favorable materials *uantity variance. 8. A 8. A favorable labor rate variance. C. An unfavorable materials *uantity variance. #. An #. An unfavorable materials price variance.

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3-. @cessive overtime hours wor'ed by direct labor wor'ers often results in7 A. An unfavorable labor rate variance. 8. A 8. A favorable labor rate variance. C. A C. A favorable materials price variance. #. An #. An unfavorable materials price variance.


3. here is an unfavorable labor efficiency variance when7 A. Actual hours are greater than standard hours. 8. Actual 8. Actual hours are less than standard hours. C. he C. he standard rate per hour is greater than the actual rate per hour. #. he #. he standard rate per hour hou r is less than the actual rate per hour.


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3/.

40. 5avorable standard cost variances are normally closed at the end of the period by7 A. Crediting A. Crediting the variance account and debiting Cost of 6oods Sold. B. #ebiting the variance account and crediting Cost of 6oods Sold. C. #ebiting C. #ebiting the variance account and crediting &or'(in()rocess. &or'(in()rocess. #. Crediting #. Crediting the variance v ariance account and debiting &or'(in()rocess. &or'(in()rocess.


41. An unfavorable labor rate variance v ariance could most li'ely result from all of the following ecept7 w hich eceed normal output levels. A. )roducing at levels of output which 8.

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42. An unfavorable overhead volume variance results from7 A. An A. An unfavorable overhead spending variance. 8. )oor 8. )oor decisions made by the production manager. C. )roducing C. )roducing at levels of output which eceed normal output levels. w hich fall short of normal output levels. D. )roducing at levels of output which

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43. n a standard cost system" finished goods are reported in7 A. he balance sheet at standard cost. 8. he 8. he balance sheet at actual cost. C. he C. he income statement at standard cost. #. he #. he income statement at actual cost. co st.


44. @B8 Company used a normal production level of 10"000 units to determine the standard per(unit cost of manufacturing manufacturing overhead. &hich of the following is not trueD A. here A. here is no overhead volume variance for a given month if actual production that month is 10"000 units. 8. &hen 8. &hen actual production eceeds 10"000 units" use of standard costs results in a favorable overhead volume variance. C. &hen actual production is less than 10"000 units" use of standard costs results in an unfavorable total overhead variance. #. %verhead #. %verhead variances arising as a result of producing more or less than 10"000 units do not indicate either strong or poor performance by the )roduction #epartment.


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4+. he total overhead variance is the difference between7 A. 8udgeted A. 8udgeted overhead and applied overhead. 8. Actual 8. Actual overhead and budgeted overhead. C. Actual overhead and applied overhead. #. Applied #. Applied overhead and budgeted overhead.


4,. &hich of the following is not an a n advantage of using a standard cost systemD A. t eliminates the need for analysis of variances. 8. t 8. t facilitates establishing an effective system of responsibility accounting. C. t C. t re*uires an analysis of all aspects of operations. #. t #. t helps management control costs.

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4-. An important advantage of o f a standard cost system is that standard costs7 A. Cause A. Cause financial statements to be more comparable because different companies cost their inventories in the same manner. 8. Can 8. Can be determined with w ith great precision so that inventories are valued with complete accuracy. C. Cause C. Cause a lower net income" resulting in lower income taes. D. 5ocus attention on trouble spots and facilitate prompt corrective action.


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4. Standard costs7 A. !ay A. !ay be used in ob order cost systems but not in process cost accounting systems. 8. Should 8. Should be revised upward when actual costs are higher than epected because of waste and inefficiency. C. Are C. Are the same for all companies in a given industry. D. Are the costs that should be incurred to produce a product under normal conditions.


4/. 5actory overhead variances are usually recorded when7 A. %verhead is applied to wor'(in(process. 8. 6oods 8. 6oods are finished and transferred to finished goods inventory. C. 6oods C. 6oods are sold. #. Actual #. Actual factory overhead costs are incurred.


+0. A large favorable variance from standard costs at the end of the year should be7 A. Carried A. Carried forward to the net fiscal year. 8. Shown 8. Shown as other income in the income statement. C. Added C. Added to cost of goods go ods sold in the income statement. D. Allocated between ending inventories and cost of goods sold.


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+1. Supervisor salaries are an eample of7 A. #irect A. #irect labor. 8. Ea 8. Eariable riable factory overhead. C. A C. A standard cost. D. 5ied manufacturing costs.


+2. n a system designed to measure cost variances" goods transferred from the &or'(in( &or'(in( )rocess account to the 5inished 6oods nventory are valued at7 A. Actual A. Actual cost. 8. !ar'et 8. !ar'et value. C. Standard cost. #. he #. he lower of actual cost or mar'et value.

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+3. &hen standard costs are used in a cost accounting system7 A. A A. A favorable cost variance results when standard amounts are less than actual costs. 8. Cost 8. Cost variances are shown in the year(end balance sheet as assets" if favorable" or as liabilities" if unfavorable. C. Costs C. Costs charged to the &or'(in()rocess nventory" nventory" 5inished 6oods nventory" and Cost of 6oods Sold accounts are actual costs. &or'(in()rocess nventory" 5inished 6oods nventory" and Cost of D. Costs charged to the &or'(in()rocess 6oods Sold accounts are at standard costs.

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+4. f the actual cost per pound of direct material is less than the standard cost per p er pound" there is7 A. A favorable materials price variance. 8. An 8. An unfavorable materials price variance. C. A C. A favorable materials *uantity variance. #. A #. A favorable total materials variance.


++. he calculation of the labor rate variance is7 A. Standard A. Standard rate multiplied by =standard hours minus actual hours>. h ours>. 8. Standard 8. Standard hours multiplied by =standard rate minus actual rate>. C. Actual labor hours multiplied by =standard rate minus actual rate>. #. Actual #. Actual rate multiplied by =standard hours minus actual hours>.


+,. f the actual amount of direct materials used in production was less than the standard amount allowed for units produced" there was7 A. A A. A favorable materials price variance. 8. A 8. A favorable total materials variance. C. A favorable materials *uantity variance. #. An #. An unfavorable materials *uantity variance.


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+-. #awson Company has a union contract which calls for an F cost of living increase in the wages paid to all factory wor'ers as of Buly 1 of the current year. his suggests that7 A. he A. he labor rate variance for Buly will be unfavorable. 8. he 8. he labor rate variances during the first half of the current year have been favorable. C. he standard labor cost per unit should be revised as of Buly 1. #. he #. he labor efficiency variance for Buly will be unfavorable.


+. A labor efficiency =usage> variance is most li'ely to occur if7 A. @mployees A. @mployees are paid at an overtime wage rate. B. @mployees are inefficient and units must be rewor'ed. C. $abor C. $abor cost per unit eceeds materials costs per unit. #. @mployee #. @mployee turnover rates are low.


+/. f the hourly wage rate actually paid during Banuary is higher than the standard rate" the result is7 A. An unfavorable labor rate variance. 8. A 8. A favorable labor rate variance. C. An C. An unfavorable labor efficiency variance. #. A #. A favorable total labor variance.


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,0. he calculation of the labor efficiency variance is7 h ours>. A. Standard rate multiplied by =standard hours minus actual hours>. 8. Standard 8. Standard hours multiplied by =standard rate minus actual rate>. C. Actual C. Actual labor hours multiplied by =standard rate minus actual rate>. #. Actual #. Actual rate multiplied by =standard hours minus actual hours>.


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,2. A standard cost is the per unit cost incurred under7 A. deal A. deal operating conditions. 8. )erfect 8. )erfect operating conditions. C. 9ormal" but efficient operating conditions. #. !inimally #. !inimally acceptable operating conditions.

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,3. f fewer units are produced than had been estimated when standard unit costs were determined" there would normally be7 A. A A. A favorable labor efficiency =usage> variance. B. An unfavorable overhead volume variance. C. A C. A favorable materials *uantity variance. #. An #. An unfavorable overhead spending variance.


,4. An unfavorable volume variance in a factory is generally7 A. he A. he responsibility of the production manager. B. Eiewed as an idle capacity loss. C. he C. he result of actual volume eceeding normal volume. #. reated #. reated as part of the controllable factory overhead variance. v ariance.

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,+. he Eictor Corporation has been incurring favorable overhead volume variances in each of the last several months. hese persistent favorable variances indicate7 A. Eictors A. Eictors management is unusually un usually efficient. 8. he 8. he overhead application rate should be revised upward. C. !onthly C. !onthly output is consistently under budget. D. !onthly output is consistently over that budgeted.


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,,. %verhead volume variances indicate7 A. @fficient A. @fficient performance. 8. nefficient 8. nefficient performance. C. 5luctuations in the level of production from month to month. #. nade*uate #. nade*uate budgeting.

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,-. &hich statement is true regarding a standard cost systemD A. 8oth actual and standard costs are used. 8. %nly 8. %nly standard costs are used. C. f C. f variances occurred" then something negative in the operations has occurred. #. Standards #. Standards are used only when actual amounts are not available.


,. A large unanticipated reduction in the property taes on a companys factory would" all other things e*ual" most li'ely cause7 A. A favorable overhead spending variance. 8. An 8. An unfavorable overhead spending variance. C. A C. A favorable overhead volume variance. #. An #. An unfavorable overhead volume variance.


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,/. he overhead spending variance7 A. %ccurs A. %ccurs automatically whenever actual production levels differ from the normal production level used to compute the standard overhead cost per unit. 8. s 8. s the difference between amounts spent for actual manufacturing overhead costs and the amount applied to production. C. s C. s computed as the difference between variable v ariable overhead per the fleible budget and actual variable overhead costs incurred. D. s the portion of the total overhead variance that is considered controllable by the production manager.


Bames nc.s fleible budget for Bune" based upon actual output" called for the use of 10"+00 pounds of materials at a standard cost of ;-.40 per pound. he )roduction #epartment actually used 10"-00 pounds of materials costing ;-.10 per pound during Bune.

-0. Gefer to the information above. Bamess materials price variance for Bune is7 A. ;3"1+0 A. ;3"1+0 unfavorable. 8. ;3"1+0 8. ;3"1+0 favorable. C. ;3"210 C. ;3"210 unfavorable. D. ;3"210 favorable. =10"-00 × ;-.10> ( =10"-00 × ;-.40> ? ;3"210 5


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-1. Gefer to the information above. he materials *uantity variance for Bamess Bune operations is7 A. ;3"1+0 A. ;3"1+0 favorable. 8. ;3"210 8. ;3"210 unfavorable. C. ;1"40 unfavorable. #. ;3"210 #. ;3"210 favorable. =10"-00 × ;-.40> ( =10"+00 × ;-.40> ? ;1"40 <


-2. Gefer to the information above. he ournal entry to record the cost of direct materials used in Bune includes each of the following ecept7 A. A A. A debit to &or'(in()rocess &or'(in()rocess nventory of ;--"-00. 8. A 8. A credit to !aterials )rice Eariance Eariance of ;3"210. C. A credit to #irect !aterials nventory of ;--"-00. #. A #. A debit to !aterials Huantity Eariance Eariance of ;1"40.


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-3. 6reenleafs fleible budget for Bune" based on actual output" called for the use of 10"000 s*uare feet of materials at a standard cost of ;/./0 per s*uare foot. Company records show that the actual price paid for the materials used in Bune was ;/.-0 per pe r s*uare foot" and that the direct materials price variance for the month was ;2"0/0 favorable. he materials *uantity variance for 6reenleafs Bune operations was7 A. ;1"000 A. ;1"000 favorable. B. ;4"4++ unfavorable. C. ;4"3,+ C. ;4"3,+ favorable. #. mpossible #. mpossible to determine from the data given. ;2"0/0I=;/./0 ( ;/.-0> ? 10"4+0J =10"4+0 ( 10"000> × ;/./0 ? ;4"4++ <


!aple Companys fleible budget" based upon the number of e*uivalent units produced" called for the use of +"000 s*uare yards of fabric at a standard cost co st of ;2.4+ per s*uare yard. he )roduction #epartment actually used +"200 s*uare yards costing ;2.3+ per s*uare yard during Bune.

-4. Gefer to the information above. he materials price variance for !aple Company for Bune is7 A. ;+20 favorable. 8. ;//0 8. ;//0 favorable. C. ;30 C. ;30 unfavorable. D. ;+20 favorable. =+"200 × ;2.3+> ( =+"200 × ;2.4+> ? ;+20 5


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-+. Gefer to the information above. he materials *uantity variance for !aple Company for Bune is7 A. ;//0 A. ;//0 favorable. 8. ;+20 8. ;+20 unfavorable. C. ;4/0 unfavorable. #. ;+20 #. ;+20 favorable. =+"200 × ;2.4+> ( =+"000 × ;2.4+> ? ;4/0 <


-,. Gefer to the information above. he ournal entry to record the cost of direct materials used in Bune includes7 A. A A. A debit to &or'(in()rocess &or'(in()rocess nventory of ;12"220. Eariance of ;+20. B. A credit to !aterials )rice Eariance C. A C. A debit to !aterials )rice Eariance Eariance of ;+20. #. A #. A credit to #irect !aterials nventory of ;12"2+0.


--. Gefer to the information above. &ith respect to materials costs" the supervisor of the )roduction #epartment should be held responsible for7 A. A A. A favorable cost variance of ;+20. 8. A 8. A favorable cost variance of ;//0. C. An C. An unfavorable cost variance of ;++0. D. An unfavorable cost variance of ;4/0.


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Goman !fg.s Buly production involved actual direct labor costs of ;4,"2- for 3"-00 3"- 00 direct labor hours. he budget for the Buly level of production called for 3"00 direct labor hours at ;12.+0 per hour" using a standard cost system.

-. Gefer to the information above. &ith respect to labor costs" Gomans production manager is responsible for7 A. Any labor rate variance as well as any labor efficiency variance. 8. %nly 8. %nly a labor rate variance. C. %nly C. %nly a labor efficiency variance. #. %nly #. %nly unfavorable labor variances.


-/. Gefer to the information above. Gomans labor rate variance for Buly is7 A. ;1"2+0 A. ;1"2+0 favorable. 8. ;1"213 8. ;1"213 favorable. C. ;3- unfavorable. #. ;1"213 #. ;1"213 unfavorable. =3"-00 × ;12.+0> ( ;4,"2- ? ;3-.<


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0. Gefer to the information above. Gomans labor efficiency variance for Buly is7 A. ;1"2+0 favorable. 8. ;1"1/0 8. ;1"1/0 favorable. C. ;1"213 C. ;1"213 unfavorable. #. ;3#. ;3- unfavorable. =3"00 ( 3"-00> × ;12.+0 ? ;1"2+0 5


1. Gefer to the information above. &hich of the following is the most li'ely eplanation for the types of labor variances resulting from Gomans Buly operationsD wo r'ed more efficiently. efficiently. A. !anagement used wor'ers who received a higher wage and wor'ed 8. !anagement 8. !anagement reduced the wage rates in Buly" which caused the wor'ers to deliberately slow down productivity. productivity. C. !anagement C. !anagement used less eperienced wor'ers whose lower wage rate more than offset o ffset their lower productivity. productivity. #. !anagement #. !anagement paid wor'ers more than standard hourly rates" but the ecess pay did not result in increased productivity. productivity.


@agle Company uses a standard cost system which has provided the following data7

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2. Gefer to the information above. he direct labor rate variance for the period was7 A. ;42+ A. ;42+ favorable. 8. ;3,0 8. ;3,0 favorable. C. ;3,0 unfavorable. #. ;42+ #. ;42+ unfavorable. ;3"240 ( =10 × ;1,> ? ;3,0 <


3. Gefer to the information above. he direct labor efficiency variance for the period was7 A. ;3,0 A. ;3,0 favorable. 8. ;3,0 8. ;3,0 unfavorable. C. ;320 favorable. #. ;320 #. ;320 unfavorable. =10 × ;1,> ( =1,0 × ;1,> ? ;320 5


4. Gefer to the information above. he ournal entry to record the cost of direct labor used in this period includes7 A. A A. A debit to &or'(n()rocess &or'(n()rocess nventory of ;2"0. &or'(n()rocess nventory of ;2"+,0 B. A debit to &or'(n()rocess C. A C. A credit to #irect $abor Gate Eariance Eariance of ;320. #. A #. A debit to #irect $abor Gate Eariance Eariance of ;3,0. ;3,0 . =0 × 2> × ;1, ? ;2"+,0


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Cooper Corporation produces decorator wall coverings. 8udgeted production is 240"000 s*uare feet per month" and the standard direct labor re*uirement to ma'e this amount is ,"000 hours. All overhead is allocated based on direct labor hours. . he following information is available7

+. Gefer to the information above. he ournal entry to apply overhead to &or'(n()rocess &or'(n()rocess nventory for the month included7 A. A A. A debit to &or'(n()rocess &or'(n()rocess nventory of ;1,"000. 8. A 8. A debit to &or'(n()rocess &or'(n()rocess nventory of ;13"+00. &or'(n()rocess nventory of ;1,"-+. C. A debit to &or'(n()rocess #. A #. A credit to &or'(n()rocess nventory of ;-+. =;13"+00I,"000> ? ;2.2+ × -"+00 ? ;1,"-+


24(2/


,. Gefer to the information above. he overhead spending variance for the month in *uestion was7 A. ;2+0 unfavorable. 8. ;2"+00 8. ;2"+00 unfavorable. C. ;-+ C. ;-+ favorable. #. ;3"3-+ #. ;3"3-+ unfavorable. -"+00 × =;/"000I,"000>  ;4"+00 ? ;1+"-+0J ;1,"000 ( ;1+-+0 ? ;2+0<


-. Gefer to the information above. he overhead volume variance for the month in *uestion was7 A. ;2+0 A. ;2+0 unfavorable. B. ;1"12+ favorable. C. ;3"3-+ C. ;3"3-+ favorable. #. ;1"12+ #. ;1"12+ unfavorable. =-"+00 × ;1.+0  44"+00> ( =-"+00 × ;2.2+> ? ;1.12+5


Essay Questions

24(30


. Accounting terminology $isted below are seven technical accounting accoun ting terms introduced or emphasiLed in this chapter7

@ach of the following statements may =or may not> n ot> describe one of these technical terms. n the space provided below each statement" indicate the accounting term described" or answer 9one if the statement does not correctly describe any of the terms. =a> A materials variance which is the responsibility of the )urchasing #epartment. #ep artment. =b> he variance which eists whenever actual production levels differ from normal levels. =c> A labor variance caused by a difference between standard and actual hours re*uired to complete a tas'. =e> he variance caused by incurring more overhead costs than allowed for at a given level of production. =a> !aterials price variance =b> Eo Eolume variance =c> Standard S tandard costs =d> $abor efficiency variance =e> %verhead spending variance

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning O!ective: " * $

24(31


/. Standard cost systems variance computations $ivingston Corporation recently implemented a standard cost system. he companys cost accountant has provided the following data to perform a variance analysis for !ay7

Compute the following variances. ndicate whether each variance is favorable =5> or unfavorable =<>7 =a> !aterials price variance7 ;MMMMMMMMMM =b> !aterials *uantity variance7 ;MMMMMMMMMM =c> $abor rate variance7 ;MMMMMMMMMM =d> $abor efficiency variance7 ;MMMMMMMMMM =e> %verhead spending variance7 ;MMMMMMMMMM =f> %verhead volume variance7 ;MMMMMMMMMM =a> ;3/"000 =5> =b> ;31"200 =5> =c> ;,"300 =5> =d> ;-"000 =5> =e> (;/-0 =5> =f> (;3"400 =<> Computations7 =a> 3/"000 pounds × =;12 standard ( ;11 actual> ? ;3/"000 =5> =b> ;12 × =41",00 lbs. standard ( 3/"000 lbs. actual> ? ;31"200 =5> =c> 4"200 hours × =;- standard ( ;+.+0 actual> ? ;,"300 =5> =d> ;- × =+"200 hours standard ( 4"200 hours actual> ? ;-"000 =5> =e> ;42"-20 budgeted ( ;41"/+0 actual ? ;--0 =5> =f> ; 20"00 applied ( ;24"000 budgeted ? ;3"300 =<>

24(32

Chapter 24 Standard Cost Systems AACSB: Anal(tic AICPA BB: Res)urce Management Management AICPA FN: Measurement Learning O!ective: # Learning O!ective: $

/0. Standard cost system overhead variances Gogers !anufacturing produces a component part used throughout the computer industry. Eariable overhead is allocated to production at a rate of ;+ per unit. he companys monthly fied overhead costs average ;30"000. 9ormal output levels average 40"000 units per month. #uring April" April" Gogers produced +0"000 units and incurred actual overhead costs of ;20"000. =a> otal otal overhead applied to production in April amounted to ;MMMMMMMMMM. =b> otal overhead budgeted in April for the level of output achieved amounted to ;MMMMMMMMMM. =c> Aprils Aprils overhead spending variance was ;MMMMMMMMMM =favorableIunfavorable>. =d> Aprils Aprils overhead volume variance was ;MMMMMMMMMM =favorableIunfavorable>. =e> 5or which of Gogers two overhead variances is the production manager held responsibleD Computations =a> ;2-"+00 =b> ;20"000 =c> ;0 =d> ;-"+00 =5avorable> =e> he overhead spending variance Computations =a> N=;30"000 I 40"000 units>  ;+O × +0"000 units ? ;2-"+00 =b> ;30"000  =;+ × +0"000 units> ? ;20"000 =c> ;20"000 budgeted ( ;20"000 actual ? ;0 =d> ;3-+"000 fied overhead applied ( ;30"000 budgeted fied overhead ? ;-"+00 =5avorable>


24(33


/1. Standard cost system materials variances $evron Corporation manufactures a line of cosmetics. he standard price of the ingredients in its beauty cream is ;- per ounceJ ou nceJ the standard amount of material allowed per ar is 1.2+ ounces. #uring #ecember" +"300 ars were produced" re*uiring ,"-4 ounces of ingredients at a total direct materials cost of ;3-"312. =a> Calculate the materials price variance for #ecember. ndicate whether it is favorable =5> or unfavorable =<>. ;MMMMMMMMMM =b> &ho is responsible for this varianceD MMMMMMMMM =c> Calculate the materials *uantity variance for #ecember. ndicate whether it is favorable =5> or unfavorable =<>. ;MMMMMMMMMM =d> &hat is $evron Corporations total materials variance for #ecemberD ndicate whether it is favorable =5> or unfavorable =<>. ;MMMMMMMMMM =a> Actual *uantity × =standard price ( actual price> ,"-4 ounces × N;- ( =;3-"312 I ,"-4>O ,"-4 ounces × =;-.00 ( ;+.+0> ? ;10"1-, 5 =b> )urchasing agent =c> Standard price × =standard *uantity ( actual *uantity> ;- per ounce × N=+"300 × 1.2> ( ,"-4 ouncesO ;- per ounce × =,",2+ ounces ( ,"-4 ounces> ? ;1"113 < =d> ;10"1-, 5 ( ;1"113 < ? ;/"0,3 5 or Standard cost =,",2+ × ;-> ( actual cost ;3-"312 ? ;/"0,3 5


24(34


/2. Standard cost system labor variance he following computations of !arch labor variances for Sams Supply Company are incomplete. he missing items are labeled =a> through =d>. $abor rate variance ? 4"00 hours × N=a> ( ;.+0O ? ;3+0 favorable $abor efficiency variance ? =b>  N=c> ( +"000 +"00 0 hoursO ? ;=d> %n the appropriately labeled line" identify each missing item by name =a through c> and show the missing value =a through d>. Show supporting computations in the space provided. =a> MMMMMMMMMMMMMMMMMMMMMMMMM ;MMMMMMMMMMMMMMM =b> MMMMMMMMMMMMMMMMMMMMMMMMM ;MMMMMMMMMMMMMMM =c> MMMMMMMMMMMMMMMMMMMMMMMMM MMMMMMMMMMMMMMMMMMMM hours =d> ;MMMMMMMMMMMMMM 5 or < =Circle the correct term.> =e> #uring !arch" the supervisor left for vacation without arranging for a replacement. &hich variances would have been most affected by this situationD MMMMMMMMMMMMMMMMMMMMMMMMM Computations =a> Standard rate7 ;.+=b> Standard rate7 ;.+=c> Actual hours7 4"00 hours =d> ;1"-14 5 =e> $abor efficiency variance =assuming the supervisor is on paid vacation> Computations =a.> $abor rate variance ? actual hours × =standard rate ( actual rate> ;3+0 ? 4"00 hours × =standard rate ( ;.+0> ;3+0I4"00 ? =standard rate ( ;.+0> ;0.0-  ;.+0 ? standard rate of ;.+=b> $abor efficiency variance ? standard rate × =standard hours ( actual hours> Standard rate ? ;.+- =See part a for computation.> =c> Actual Actual hours ? 4"00 =given in formula for labor rate variance> =d> ;.+- × =+"000 hours ( 4"00 hours> ? ;1"-14 5


24(3+


/3. Standard cost system(materials and labor variances Bob no. 11 involved the production of 200 units of product !5. he total standard and actual costs for materials and direct labor on this ob are shown below7

Compute the following cost variances for ob no. 11. ndicate whether each variance is favorable =5> or unfavorable =<>. =a> !aterials price variance7 ;MMMMMMMMMMMMMMM =b> !aterials *uantity variance7 ;MMMMMMMMMMMMMMM =c> $abor rate variance7 ;MMMMMMMMMMMMMMM =d> $abor efficiency variance7 ;MMMMMMMMMMMMMMM


24(3,


/4. Standard cost system(overhead variances Assume the following data for Bohn Companys August operations.

=a> Compute the amount of overhead applied to &or'(in()rocess &or'(in()rocess during August. ;MMMMMMMMMMMMMMM =b> Compute the total manufacturing overhead budgeted based on hours wor'ed during August. ;MMMMMMMMMMMMMMM =c> Compute the overhead spending variance for August. ndicate whether favorable =5> or unfavorable =<>. ;MMMMMMMMMMMMMMM =d> Compute the overhead volume variance for August. ndicate whether favorable =5> or unfavorable =<>. ;MMMMMMMMMMMMMMM

24(3-

Chapter 24 Standard Cost Systems AACSB: Anal(tic AICPA BB: Res)urce Management Management AICPA FN: Measurement Learning O!ective: $

/+. Standard cost system(disposition of variances he cost of goods sold at standard cost for 5ield Company for 200/ amounted to ;42+"000 and was ,0F of net sales. As of the end of 200/" the total of balances remaining in cost variance accounts was a net unfavorable cost variance of ;"000" which is not considered material. =a> &hat is the amount shown in 5ield s 200/ income statement for cost of goods soldD ;MMMMMMMMMMMMMMM =b> &hat is the amount reported in 5ield s 200/ income statement for gross profit on salesD ;MMMMMMMMMMMMMMM


24(3


/,. Standard cost system(using variance data #uring its first month of operations" the 8eech Company charged &or &or'(in()rocess '(in()rocess nventory with ;40"000 of direct materials" ;4,"000 of direct labor costs" and ;0"000 of o f manufacturing overhead costs. 8alsam Company uses a standard cost system" and the variances at the end of this first month are as follows7

=a> Compute the actual cost of direct materials placed into production during the month. ;MMMMMMMMMMMMMMM =b> Compute the actual cost of direct labor hours wor'ed during this month. ;MMMMMMMMMMMMMM =c> Compute the actual cost of manufacturing overhead for this month. ;MMMMMMMMMMMMMMM =d> Assume Assume that the balance in the &or'(in()rocess &or'(in()rocess account is ;,"000 at the end of this first month. f total standard unit cost is ;20 per unit" the number of units completed during du ring this month and transferred to 5inished 6oods nventory is MMMMMMMMMMMMMMM units.


24(3/


/-. Standard cost system(materials and labor variances variances he emloc' Corporation produces a single product. he company has developed the following standards for labor and materials7

#uring the past month" the company purchased 3"+00 pounds of direct d irect materials at a total cost of ;4"++0. All of this material was used in the production of 1"300 units of output. #irect labor cost totaled ;40"300 for the month. he following variances have been computed7

Compute the following. f the result is a variance indicate whether it is favorable or unfavorable. =a> he standard price of materials. MMMMMMMMMMMMMMM MMMMMMMMMMMMMM M =b> he standard *uantity of materials allowed per unit of output MMMMMMMMM =c> he actual direct labor cost per hour h our for the month. MMMMMMMMMMMM =d> he labor rate variance. MMMMMMMMMMMMMMMM Computations

24(40


=a> ;1.+ =b> 3./3 pounds =c> ;1-.02 =d> ;4"--+.+0 < Computations


24(41


/. Standard costs #efine standard costs. prices" wages" production methods" and normal production levels. f unepected changes in prices" such as the costs of direct materials" or in wage rates occur" the standard costs should be revised to reflect the new eisting conditions. Also" standard costs should be revised if significant changes are made in production methods or in the normal volume of production.


//. @stablishing standard cost amounts @plain why the determination of standard cost amounts a mounts should not be the sole responsibility of a companys cost accountant. Standard cost systems are influenced by comple relationships related to7 cost" *uality" prices" prices" industry trends" seasonality" plant capacity" automation" automation" overtime" motivation" and s'ill levels. hus" the determination of standard cost amounts re*uires input and involvement from many individuals" including7 purchasing agents" engineers" mar'eting directors" personnel managers" union representatives" supervisors" factory employees" and cost accountants.

AACSB: Anal(tic AICPA BB: Critical Thinking AICPA FN: Measurement Learning O!ective: " Learning O!ective: %

24(42


100. Eolume variances Consider the following statement7 9o manager should be held responsible for a volume variance. 8riefly eplain why a volume variance should not be investigated and viewed as the responsibility of some manager in an organiLation. As long as the production departments of an organiLation are producing the desired number of units" the volume variance does not indicate either efficient or inefficient production. he volume variance arises from fluctuations in the level of production from month to month. Such fluctuations may occur for a variety of reasons such as seasonal demand" scheduled vacation time" etc.
AACSB: Anal(tic AICPA BB: Res)urce Management Management AICPA FN: Measurement Learning O!ective: # Learning O!ective: $ Learning O!ective: %

101. 2"/00 yards of material were purchased and used by #elu Company for their manufacturing process. he actual cost of the materials was ;2.20 per yard. Standard materials and costs were 2"-00 yards at ;2.00 ;2 .00 per yard. Ge*uired7 =a> Compute the materials *uantity variance =b> Compute the materials price variance =c> Compute the total material variance.

=a> !aterials *uantity variance ? ;+"00 ( ;+"400 ? ;400 unfavorable =b> !aterials price variance ? ;,"30 ( ;+"00 ? ;+0 unfavorable =c> otal otal material variance ? ;400  ;+0 ;+ 0 ? ;/0 unfavorable


24(43


102. Caesar" nc. purchased and used 4-",00 pounds of goods to produce an actual *uantity of 1+"300 units. @ach unit re*uired 3 pounds of goods. he *uantity variance was ;10"200 unfavorable and the price variance was ;-"140 unfavorable. &hat was the actual price and the standard price per poundD =a> he actual *uantity less the standard *uantity times the standard price ? *uantity variance


24(44


CHATER !"

#AME

%&'M(#UTE QU() A

SECT(*#

$

Use the following data for questions 1 through 3.

he following budget for the 0"000(unit normal production level was prepared by the !ontgomery Corporation for September7 9ormal 9ormal %utput %utput =0"000 Standard Eariable Costs7 #ire #irect ct mate materi rial als. s.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ....... ... ;3+" ;3+"00 000 0 #ire #irect ct labo labor. r.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ...... 44"0 44"000 00 Eariab riable le over overhe head ad... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ...... .. 2,"4 2,"400 00 Standard 5ied Costs7 !anu !anufa fact ctur urin ing g ove overh rhea ead. d.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... .... +-"2 +-"200 00 otal manu manufac factu turin ring g cost costs.. s....... .......... .......... .......... .......... .......... .......... ......... ........... ................ .................. .............. ..... ;1,2 ;1,2",0 ",00 0 #uring September" the )roduction #epartment actually produced /0"000 units at a total manufacturing cost of ;1,+"000. % Refer to the above above data. data. &hich of the following is not an accurate budgeted amount for an output level of /0"000 unitsD otal overhead cost" ;,"/00. a otal otal manufacturing costs" ;13"1+0 + otal c #irect materials" ;3/",00. ;4/"+00. N#! only wor's out if you round the unit price to 2 decimal , #irect labor" ;4/"+00. places. places. Also" Also"  get the correct answer as 8. otal otal manufacturing manufacturing costs should be 1-,"000 if you use your #! number or 1-+"--+ if there is no roundingO

summary of !ontgomery !ontgomeryPs Ps performance performance in September September ! Refer to the above data. data. A summary would not show7 a Actual total costs under budget by ;1"000. + otal costs of ;13"1+0 budgeted for /0"000 units. c Actual total costs under budget by ;1"1+0. , overhead applied to production of ;,4"3+0.Nhe only one of these statements that is true is d because there was an error in footing the column above.O

24(4+


-

Refer to the the above data. data. he cost(volume relationship used to prepare the fleible budget for this department includes7 a !anufacturing overhead cost of ;1.00 per unit. + 5ied cost of ;0.,+ per unit. c otal cost of ;1./0 per unit. Eariable costs of ;1.32 per unit , Eariable "



f the actual number of direct labor hours used eceeds the standard direct labor hours allowed" this indicates7 a An unfavorable labor efficiency variance. + A favorable labor efficiency variance. c An unfavorable labor rate variance. , An unfavorable total labor variance.

24(4,


CHATER !"

#AME

%&'M(#UTE QU() B

SECT(*#

$

Use the following data for questions 1 through 3.

!atson Company incurred actual direct labor costs of ;-0"+00 in April for ,"000 direct labor hours" although the standard labor cost for output produced was only ;,-"200 =,"400 hours at ;10.+0 per hour>. % Refer to the the above above data. data. !atsonPs labor rate variance for April is7 ;-"+00 unfavorable. a ;"000 unfavorable. + ;4"200 favorable. c ;3"300 unfavorable. , ! Refer to the the above above data. data. !atsonPs labor efficiency variance for April is7 ;3"300 unfavorable. a ;-"+00 unfavorable. + ;4"-00 favorable. c ;4"200 favorable. , - Refer to the above data. data. he ournal entry to record direct labor costs relating to wor' performed performed in in April April includes7 includes7 A debit to &or'(in()rocess nventory for ;-0"+00. a A credit to $abor Gate Eariance for ;-"+00. + A credit to $abor @fficiency Eariance for ;4"200. c A credit to #irect $abor for ;,-"200. , "

SmithP SmithPss actual actual manufa manufactu cturin ring g costs costs for !ay total totaled ed ;-2 ;-2"00 "000" 0" where whereas as budge budgeted ted manufacturing costs =at standard> were ;0"000. A comparison comparison of the budgeted costs and actual amounts7 s not significant unless the budgeted and actual figures are based upon the same a level of production. #emonstra #emonstrates tes that SmithPs SmithPs !anufactu !anufacturing ring #epartme #epartment nt operated operated very efficien efficiently tly + during !ay. ndicates that production cost per unit was 10F below budgeted cost per unit. c ndica ndicates tes that Smith Smith produc produced ed only only /0F /0F of the number number of units units bud budget geted ed for , productio production n in !ay. !ay.



&hen standard costs are used in a cost accounting system" the transfer of units from the 5inished 6oods nventory to the Cost of 6oods Sold account involves7 A debit to the Cost of 6oods Sold account for the actual cost of units transferred. a A credit to the 5inished 6oods nventory account for the standard cost of units + transferred. Gecording a cost variance for the difference between the actual and standard cost of c units transferred. he elimination of any cost variances relating to units sold. ,

24(4-


CHATER !"

#AME

%&'M(#UTE QU() C

SECT(*#

$

Serene Sound produces a high *uality audio audio tape used in the recording industry. industry. Serene allocates variable overhead to production production at a rate of ;12 per batch manufactured. manufactured. he companyPs companyPs monthly fied overhead costs average ;-2"000. An average of +00 batches per month is considered normal. normal. #uring Bune" Serene produced 4+0 batches of audio tape and incurred actual overhead costs of ;-/"+00. %

!

Compute the following amounts7

a

otal overhead applied to production in Bune amounted to ;MMMMMMMMMM.

+

otal tal over overhe head ad budg budget eted ed in Bune Bune for for the the 4+0 4+0 batc batche hess manu manufa fact ctur ured ed amou amount nted ed to ;MMMMMMMMMM.

c

SerenePs overhead spending variance was ;MMMMMMMMMM =favorableIunfavorable>. =favorableIunfavorable>.

,

SerenePs overhead volume variance was ;MMMMMMMMMM =favorableIunfavorable>.

n the space provided" prepare the ournal entry to dispose of any over( or under (applied overhead directly to cost of goods sold.

24(4


CHATER !"

#AME

%&'M(#UTE QU() D

SECT(*#

$

Bob no. 00- invol involved ved the product production ion of 100 units units of product product BG. he total total standard standard and actual costs for materials and direct labor on this ob are shown below7 Stan,ar,

#irect materials7 Stand Standar ard7 d7 3/0 3/0 pou pound ndss : ;-.0 ;-.00 0 per per pou pound nd.... .......... .............. .......... Actual7 410 pounds : ;-.10 per pound...................... #irect labor7 Stan Standa dard rd77 1,0 1,0 hour hourss : ;22 ;22 per per hour hour... ...... ...... ...... ...... ....... ........ ........ .... Actual7 1+0 hours : ;23 per hour.............................. %

!

Actual

;2"-3 ;2"-30 0 ;2"/11 3"+2 3"+20 0 3"4+0

Compute the following following cost variances for ob no. 00-. ndicate whether each variance is favorable favorable =F> or unfavorable = U>. a

!aterials price variance7 ;MMMMMMMMMM

+

!aterials *uantity variance7 ;MMMMMMMMMM

c

$abor rate variance7 ;MMMMMMMMMM ;MMMMMMMMMM

,

$abor efficiency variance7 ;MMMMMMMMMM

n the space provided" give the ournal entry to record the cost of direct materials used on ob no. 00-.

24(4/


CHATER !" SELF'TEST QUEST(*#S FR*M TETB**0

Choose the best answer for each of the following *uestions and insert the identifying letter in the space provided. %

he labor rate variance is determined by multiplying the difference between the actual labor rate and the standard labor rate by7 he standard labor hours allowed for a given level of output. a he standard labor rate. + he actual hours wor'ed during the period. c # he actual labor rate.

!

&hich of the following is not a possible cause of an unfavorable direct labor efficiency varianceD $ac' of motivation. a $ow *uality materials. + )oor supervision. c All of the above could be considered a possible cause of an unfavorable labor , efficiency variance.

-

An unfavorable overhead volume variance indicates that7 otal fied overhead eceeds the standard amount budgeted. a Eariance overhead per unit eceeds the standard amount budgeted. + Actual production was less than what is typically considered the normal volume c of output. Actual production was more than what is typically considered the normal volume , of output.

"

A favorable overhead spending variance means that7 %verhead has been over (applied. a %verhead has been under (applied. + Actual production was less than what is typically considered the normal volume c of output. 9one of the the above. above. ,

24(+0




!odern !odern Art" nc. produces produces hand painted painted mouse pads. he following following budgeted budgeted and actual results are for a recent month in which actual production was e*ual to budgeted producti production7 on7

#irect materials7 foam usage7 price7 #irect labor7 usage7 price7

Bu,1ete, a2ounts

Actual results

1.+ s*uare feet per pad ;0.1+ per s*uare foot

1.3 s*uare feet per pad ;0.1 per s*uare foot

0.2+ hours per pad ;1+ per hour

0.30 hours per pad ;13 per hour

&hich of the following are trueD he materials price variance is favorable. a he direct labor rate variance is favorable. + he materials *uantity variance is unfavorable. c he direct labor labor efficiency variance variance is favorable. Nd is not trueO ,

24(+1


S*LUT(*#S T* CHATER !" %&'M(#UTE QU())ES QU() A 8 % A ! # 8 " A 

QU() B A % # ! C A " 8 

QU() C % N=;-2"000 ÷ +00 batches>  ;12O  4+0 batches ? ;-0"200 a +

;-2"000  =;12  4+0 batches>?;--"400

c ,

;--"400 budgeted (;-/"+00 actual ? (;2"100 = ;-0"200 applied ( ;--"400 budgeted ? (;-"200 =

! Cost Cost of 6ood 6oodss Sol Sold.. d....... .......... .......... .......... ......... ......... .......... .......... .......... .......... .......... .......... ......... ......... .......... .......... .......... ........ ... %verhead Spending Eariance........................................... ...... ...... ...... ...... ....... ...... .... %verhead Eolume Eariance........................................................ ....... ...... ...... ... o record the disposition of overhead variances to cost of goods sold

/"30 /"300 0 2"100 -"200

QU() D % 410 pounds  =;-.00 standard ( ;-.10 actual> ? ;41 U a +

;- standard price  =3/0 pounds ( 410 pounds> ? ;140 U

c

1+0 hours  =;22 standard ( ;23 actual> ? ;1+0 U

,

;22 standard rate  =1,0 hours ( 1+0 hours> ? ;220 F

! &or' in in )ro )roces cesss nv nven ento tory. ry...... .......... .......... ......... ......... .......... .......... .......... .......... .......... .......... ......... ......... .......... ............. ........ !ate !ateri rial alss )ric )ricee Earian riance ce... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ...... !ate !ateri rial alss Huan Huanti tity ty Earian riance ce... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ........ ........ ...... #irect !aterials nventory................................................... ....... ...... ...... ...... ...... ... o record cost of direct material used on ob no. -0-.

2"-3 2"-30 0 41 140 140

S*LUT(*#S T* T* CHATER CHATER !" SELF'TEST QUEST(*#S FR*M TETB**0 TETB**0

1 c

2 d

3 c

4 d

+ b and d

Nd is not trueO

24(+2

2"/11

Accounting Chapter 24 Test Bank

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