Chapter 10
1. Standard costs should generally be based on the actual costs of prior periods.
Ans: False Difficulty: Easy
2. The standard direct labour rate should NOT include fringe benefits.
Ans: False Difficulty: Easy
3. From a standpoint of cost control, the most effective time to recognize material price
variances is when the materials are placed into production.
Ans: False Difficulty: Medium
4. The material quantity variance is computed based on the quantity of all materials
purchased during the period.
Ans: False Difficulty: Medium
5. Purchase of poor quality materials will generally result in a favourable materials price
variance and an unfavourable labour rate variance.
Ans: False Difficulty: Medium
6. At the end of the variance analysis cycle, management should be able to cast blame on
individuals responsible for unfavourable variances.
Ans: False Difficulty: Medium
7. (Appendix 10B) A favourable labour efficiency variance would result in a credit balance
in the labour efficiency variance account.
Ans: True Difficulty: Medium
8. Management by exception means that a manager's attention is directed toward those parts
of the organization where things are NOT proceeding according to plans.
Ans: True Difficulty: Easy
9. The production manager is usually held responsible for the labour efficiency variance.
Ans: True Difficulty: Easy
10. All cost variances should be considered exceptions that require the attention of
management.
Ans: False Difficulty: Easy
11. (Appendix 10A) A mix variance for direct materials can be derived as the difference
between the quantity variance and the yield variance.
Ans: True Difficulty: Medium
Page 1
,12. Standard costs can be used in conjunction with job-order costing but NOT with process
costing.
Ans: False Difficulty: Medium
13. The overhead spending variance contains price but not quantity elements.
Ans: False Difficulty: Easy
14. The variable overhead efficiency variance reflects how efficiently variable overhead
resources were used.
Ans: False Difficulty: Medium
15. A reason for keeping a constant denominator activity level is to maintain stability in the
amount of overhead cost that is applied to each unit of product manufactured over the
period.
Ans: True Difficulty: Easy
16. The fixed portion of the predetermined overhead rate is used for product costing purposes
and has no significance in terms of cost control.
Ans: True Difficulty: Medium
17. In a standard costing system, under- or overapplied fixed overhead is equal to the sum of
the fixed overhead budget variance and the fixed overhead volume variance.
Ans: True Difficulty: Medium
18. If the standard hours allowed for the actual output of the period is greater than the
denominator level of activity (in hours), then the overhead budget variance will be
unfavourable.
Ans: False Difficulty: Medium
19. The fixed overhead budget variance is NOT controllable by managers because fixed costs
are NOT controllable.
Ans: False Difficulty: Medium
20. One cause of an unfavourable overhead volume variance would be increases in cost for
fixed overhead items.
Ans: False Difficulty: Medium
21. If the denominator activity (in hours) used to compute the predetermined overhead rate is
equal to the actual activity (in hours) for the period, then there is no volume variance.
Ans: False Difficulty: Hard
22. Because managers want stable unit cost figures, the accountant creates an artificial
stability so far as fixed costs are concerned by applying fixed costs to products as if the
fixed costs were really variable.
Ans: True Difficulty: Medium
, Chapter 10, Standard Costs and Overhead Analysis
23. Waste or excessive usage of overhead items will show up as part of the variable overhead
efficiency variance.
Ans: False Difficulty: Easy
24. Capacity analysis is most affected by the presence of variable costs, NOT fixed costs.
Ans: False Difficulty: Hard
25. (Appendix 10A) Direct labour efficiency variance can be analyzed further into mix and
yield variances if more than one class of direct labour that are good substitutes is used in
operations.
Ans: True Difficulty: Medium
26. Which of the following refers to standards that allow for no machine breakdowns or other
work interruptions and that require peak efficiency at all times?
A) Normal standards. C) Ideal standards.
B) Practical standards. D) Budgeted standards.
Ans: C Difficulty: Easy
27. To measure controllable production inefficiencies, which of the following is the best
basis for a company to use in establishing the standard hours allowed for the output of
one unit of product?
A) Average historical performance for the last several years.
B) Engineering estimates based on ideal performance.
C) Engineering estimates based on attainable performance.
D) The hours per unit that would be required for the present workforce to satisfy
expected demand over the long run.
Ans: C Difficulty: Medium
28. Which of the following statements concerning practical standards is NOT correct?
A) Practical standards can be used for product costing and cash budgeting.
B) Practical standards can be attained by the average worker.
C) When practical standards are used, there is no reason to adjust standards if an old
machine is replaced by a newer, faster machine.
D) Under practical standards, large variances are less likely than under ideal standards.
Ans: C Difficulty: Easy
29. If a company follows a practice of isolating variances at the earliest point in time, what
would be the appropriate time to isolate and recognize a direct material price variance?
A) When material is issued. C) When material is used in production.
B) When material is purchased. D) When production is completed.
Ans: B Difficulty: Easy
Page 3
, 30. What does an unfavourable labour efficiency variance indicate?
A) The actual labour rate was higher than the standard labour rate.
B) The labour rate variance must also be unfavourable.
C) Actual labour hours worked exceeded standard labour hours for the production
level achieved.
D) Overtime labour was used during the period.
Ans: C Difficulty: Medium
31. What does a favourable labour rate variance indicate?
A) Actual hours exceed standard hours.
B) Standard hours exceed actual hours.
C) The actual rate exceeds the standard rate.
D) The standard rate exceeds the actual rate.
Ans: D Difficulty: Easy
32. (Appendix 10B) What does a credit balance in a direct labour efficiency variance account
indicate?
A) The average wage rate paid to direct labour employees was less than the standard
rate.
B) The standard hours allowed for the units produced were greater than actual direct
labour hours used.
C) The actual total direct labour costs incurred were less than standard direct labour
costs allowed for the units produced.
D) The number of units produced was less than the number of units budgeted for the
period.
Ans: B Difficulty: Hard
33. If the actual labour hours worked exceed the standard labour hours allowed, what type of
variance will occur?
A) Favourable labour efficiency variance.
B) Favourable labour rate variance.
C) Unfavourable labour efficiency variance.
D) Unfavourable labour rate variance.
Ans: C Difficulty: Easy
1. Standard costs should generally be based on the actual costs of prior periods.
Ans: False Difficulty: Easy
2. The standard direct labour rate should NOT include fringe benefits.
Ans: False Difficulty: Easy
3. From a standpoint of cost control, the most effective time to recognize material price
variances is when the materials are placed into production.
Ans: False Difficulty: Medium
4. The material quantity variance is computed based on the quantity of all materials
purchased during the period.
Ans: False Difficulty: Medium
5. Purchase of poor quality materials will generally result in a favourable materials price
variance and an unfavourable labour rate variance.
Ans: False Difficulty: Medium
6. At the end of the variance analysis cycle, management should be able to cast blame on
individuals responsible for unfavourable variances.
Ans: False Difficulty: Medium
7. (Appendix 10B) A favourable labour efficiency variance would result in a credit balance
in the labour efficiency variance account.
Ans: True Difficulty: Medium
8. Management by exception means that a manager's attention is directed toward those parts
of the organization where things are NOT proceeding according to plans.
Ans: True Difficulty: Easy
9. The production manager is usually held responsible for the labour efficiency variance.
Ans: True Difficulty: Easy
10. All cost variances should be considered exceptions that require the attention of
management.
Ans: False Difficulty: Easy
11. (Appendix 10A) A mix variance for direct materials can be derived as the difference
between the quantity variance and the yield variance.
Ans: True Difficulty: Medium
Page 1
,12. Standard costs can be used in conjunction with job-order costing but NOT with process
costing.
Ans: False Difficulty: Medium
13. The overhead spending variance contains price but not quantity elements.
Ans: False Difficulty: Easy
14. The variable overhead efficiency variance reflects how efficiently variable overhead
resources were used.
Ans: False Difficulty: Medium
15. A reason for keeping a constant denominator activity level is to maintain stability in the
amount of overhead cost that is applied to each unit of product manufactured over the
period.
Ans: True Difficulty: Easy
16. The fixed portion of the predetermined overhead rate is used for product costing purposes
and has no significance in terms of cost control.
Ans: True Difficulty: Medium
17. In a standard costing system, under- or overapplied fixed overhead is equal to the sum of
the fixed overhead budget variance and the fixed overhead volume variance.
Ans: True Difficulty: Medium
18. If the standard hours allowed for the actual output of the period is greater than the
denominator level of activity (in hours), then the overhead budget variance will be
unfavourable.
Ans: False Difficulty: Medium
19. The fixed overhead budget variance is NOT controllable by managers because fixed costs
are NOT controllable.
Ans: False Difficulty: Medium
20. One cause of an unfavourable overhead volume variance would be increases in cost for
fixed overhead items.
Ans: False Difficulty: Medium
21. If the denominator activity (in hours) used to compute the predetermined overhead rate is
equal to the actual activity (in hours) for the period, then there is no volume variance.
Ans: False Difficulty: Hard
22. Because managers want stable unit cost figures, the accountant creates an artificial
stability so far as fixed costs are concerned by applying fixed costs to products as if the
fixed costs were really variable.
Ans: True Difficulty: Medium
, Chapter 10, Standard Costs and Overhead Analysis
23. Waste or excessive usage of overhead items will show up as part of the variable overhead
efficiency variance.
Ans: False Difficulty: Easy
24. Capacity analysis is most affected by the presence of variable costs, NOT fixed costs.
Ans: False Difficulty: Hard
25. (Appendix 10A) Direct labour efficiency variance can be analyzed further into mix and
yield variances if more than one class of direct labour that are good substitutes is used in
operations.
Ans: True Difficulty: Medium
26. Which of the following refers to standards that allow for no machine breakdowns or other
work interruptions and that require peak efficiency at all times?
A) Normal standards. C) Ideal standards.
B) Practical standards. D) Budgeted standards.
Ans: C Difficulty: Easy
27. To measure controllable production inefficiencies, which of the following is the best
basis for a company to use in establishing the standard hours allowed for the output of
one unit of product?
A) Average historical performance for the last several years.
B) Engineering estimates based on ideal performance.
C) Engineering estimates based on attainable performance.
D) The hours per unit that would be required for the present workforce to satisfy
expected demand over the long run.
Ans: C Difficulty: Medium
28. Which of the following statements concerning practical standards is NOT correct?
A) Practical standards can be used for product costing and cash budgeting.
B) Practical standards can be attained by the average worker.
C) When practical standards are used, there is no reason to adjust standards if an old
machine is replaced by a newer, faster machine.
D) Under practical standards, large variances are less likely than under ideal standards.
Ans: C Difficulty: Easy
29. If a company follows a practice of isolating variances at the earliest point in time, what
would be the appropriate time to isolate and recognize a direct material price variance?
A) When material is issued. C) When material is used in production.
B) When material is purchased. D) When production is completed.
Ans: B Difficulty: Easy
Page 3
, 30. What does an unfavourable labour efficiency variance indicate?
A) The actual labour rate was higher than the standard labour rate.
B) The labour rate variance must also be unfavourable.
C) Actual labour hours worked exceeded standard labour hours for the production
level achieved.
D) Overtime labour was used during the period.
Ans: C Difficulty: Medium
31. What does a favourable labour rate variance indicate?
A) Actual hours exceed standard hours.
B) Standard hours exceed actual hours.
C) The actual rate exceeds the standard rate.
D) The standard rate exceeds the actual rate.
Ans: D Difficulty: Easy
32. (Appendix 10B) What does a credit balance in a direct labour efficiency variance account
indicate?
A) The average wage rate paid to direct labour employees was less than the standard
rate.
B) The standard hours allowed for the units produced were greater than actual direct
labour hours used.
C) The actual total direct labour costs incurred were less than standard direct labour
costs allowed for the units produced.
D) The number of units produced was less than the number of units budgeted for the
period.
Ans: B Difficulty: Hard
33. If the actual labour hours worked exceed the standard labour hours allowed, what type of
variance will occur?
A) Favourable labour efficiency variance.
B) Favourable labour rate variance.
C) Unfavourable labour efficiency variance.
D) Unfavourable labour rate variance.
Ans: C Difficulty: Easy
