Chapter 8
Standard Costs
True/False
1. A direct material quantity standard generally includes an allowance for waste.
Level: Easy LO: 1 Ans: T
2. Practical standards allow for normal machine downtime and employee rest periods.
Level: Easy LO: 1 Ans: T
3. Ideal standards can be used in forecasting and planning whereas practical standards cannot be used for
such purposes.
Level: Easy LO: 1 Ans: F
4. Most companies compute the materials price variance when materials are placed into production.
Level: Easy LO: 2 Ans: F
5. A materials price variance is favorable if the actual price exceeds the standard price.
Level: Easy LO: 2 Ans: F
6. An unfavorable materials quantity variance occurs when the actual quantity used in production is less
than the standard quantity allowed for the actual output of the period.
Level: Easy LO: 2 Ans: F
7. An unfavorable labor rate variance can occur if workers with high hourly wage rates are assigned to
work on products whose standards assume workers with low hourly wage rates.
Level: Easy LO: 3 Ans: T
8. If variable manufacturing overhead is applied based on direct labor-hours, it is impossible to have a
favorable labor efficiency variance and unfavorable variable overhead efficiency variance for the same
period.
Level: Medium LO: 4 Ans: T
9. (Appendix) A favorable materials quantity variance would appear as a debit in a journal entry.
Level: Medium LO: 7 Ans: F
Brewer, Introduction to Managerial Accounting, 3/e 400
,10. (Appendix) Although formal entry of standard costs and variances into the accounting records is not
required, some organizations make such entries in order to emphasize the importance of variances as well
as to simplify the bookkeeping process.
Level: Easy LO: 7 Ans: T
11. A standard can be regarded as the budgeted cost for one unit of product.
Level: Easy LO: 8 Ans: T
12. In using a statistical control chart, observation points plotted between the upper and lower limits are
considered to be random or chance occurrences and would not typically result in an investigation.
Level: Easy LO: 8 Ans: T
Multiple Choice
13. Which of the following statements concerning ideal standards is incorrect?
A) Ideal standards generally do not provide the best motivation for workers.
B) Ideal standards do not make allowances for waste, spoilage, and machine breakdowns.
C) Ideal standards are better suited for cash budgeting than practical standards.
D) Ideal standards may be better than practical standards when managers seek continual improvement.
Source: CMA, adapted
Level: Medium LO: 1 Ans: C
14. Under traditional standard costing, which of the following would commonly be included when setting
a standard quantity for direct material?
A) A above
B) B above
C) C above
D) D above
Level: Medium LO: 1 Ans: A
401 Brewer, Introduction to Managerial Accounting, 3/e
,15. When computing standard cost variances, the difference between actual and standard price multiplied
by actual quantity yields a(n):
A) combined price and quantity variance.
B) efficiency variance.
C) price variance.
D) quantity variance.
Source: CMA, adapted
Level: Easy LO: 2,3 Ans: C
16. Poor quality materials could have an unfavorable effect on which of the following variances?
A) A above
B) B above
C) C above
D) D above
Level: Medium LO: 2,3 Ans: A
17. (Appendix) When the actual price paid on credit for a raw material exceeds its standard price, the
journal entry would include:
A) Debit to Raw Materials; Credit to Materials Price Variance
B) Debit to Accounts Payable; Credit to Materials Price Variance
C) Debit to Raw Materials; Debit to Materials Price Variance
D) Debit to Accounts Payable; Debit to Materials Price Variance
Level: Medium LO: 2,7 Ans: C
18. (Appendix) When the actual price paid on credit for a raw material is less than its standard price, the
journal entry would include:
A) Credit to Raw Materials; Credit to Materials Price Variance
B) Credit to Accounts Payable; Credit to Materials Price Variance
C) Credit to Raw Materials; Debit to Materials Price Variance
D) Credit to Accounts Payable; Debit to Materials Price Variance
Level: Medium LO: 2,7 Ans: B
Brewer, Introduction to Managerial Accounting, 3/e 402
, 19. (Appendix) When the actual amount of a raw material used in production is less than the standard
amount allowed for the actual output, the journal entry would include:
A) Credit to Raw Materials; Credit to Materials Quantity Variance
B) Credit to Work-In-Process; Credit to Materials Quantity Variance
C) Credit to Raw Materials; Debit to Materials Quantity Variance
D) Credit to Work-In-Process; Debit to Materials Quantity Variance
Level: Medium LO: 2,7 Ans: A
20. (Appendix) When the actual amount of a raw material used in production is greater than the standard
amount allowed for the actual output, the journal entry would include:
A) Credit to Raw Materials; Credit to Materials Quantity Variance
B) Credit to Work-In-Process; Credit to Materials Quantity Variance
C) Credit to Raw Materials; Debit to Materials Quantity Variance
D) Credit to Work-In-Process; Debit to Materials Quantity Variance
Level: Medium LO: 2,7 Ans: C
21. Which of the following would produce a materials price variance?
A) an excess quantity of materials used.
B) an excess number of direct labor-hours worked in completing a job.
C) shipping materials to the plant by air freight rather than by truck.
D) breakage of materials in production.
Level: Easy LO: 2 Ans: C
22. The standard price per unit of materials is used in the calculation of which of the following variances?
A) A above
B) B above
C) C above
D) D above
Source: CPA, adapted
Level: Medium LO: 2 Ans: D
23. (Appendix) A labor efficiency debit balance indicates that:
A) The wage rate paid to production workers was less the standard.
B) The wage rate paid to production workers was above the standard.
C) Less labor time was spent on production than was called for by the standard.
D) More labor time was spent on production than was called for by the standard.
Source: CPA, adapted
Level: Hard LO: 3,7 Ans: D
403 Brewer, Introduction to Managerial Accounting, 3/e
Standard Costs
True/False
1. A direct material quantity standard generally includes an allowance for waste.
Level: Easy LO: 1 Ans: T
2. Practical standards allow for normal machine downtime and employee rest periods.
Level: Easy LO: 1 Ans: T
3. Ideal standards can be used in forecasting and planning whereas practical standards cannot be used for
such purposes.
Level: Easy LO: 1 Ans: F
4. Most companies compute the materials price variance when materials are placed into production.
Level: Easy LO: 2 Ans: F
5. A materials price variance is favorable if the actual price exceeds the standard price.
Level: Easy LO: 2 Ans: F
6. An unfavorable materials quantity variance occurs when the actual quantity used in production is less
than the standard quantity allowed for the actual output of the period.
Level: Easy LO: 2 Ans: F
7. An unfavorable labor rate variance can occur if workers with high hourly wage rates are assigned to
work on products whose standards assume workers with low hourly wage rates.
Level: Easy LO: 3 Ans: T
8. If variable manufacturing overhead is applied based on direct labor-hours, it is impossible to have a
favorable labor efficiency variance and unfavorable variable overhead efficiency variance for the same
period.
Level: Medium LO: 4 Ans: T
9. (Appendix) A favorable materials quantity variance would appear as a debit in a journal entry.
Level: Medium LO: 7 Ans: F
Brewer, Introduction to Managerial Accounting, 3/e 400
,10. (Appendix) Although formal entry of standard costs and variances into the accounting records is not
required, some organizations make such entries in order to emphasize the importance of variances as well
as to simplify the bookkeeping process.
Level: Easy LO: 7 Ans: T
11. A standard can be regarded as the budgeted cost for one unit of product.
Level: Easy LO: 8 Ans: T
12. In using a statistical control chart, observation points plotted between the upper and lower limits are
considered to be random or chance occurrences and would not typically result in an investigation.
Level: Easy LO: 8 Ans: T
Multiple Choice
13. Which of the following statements concerning ideal standards is incorrect?
A) Ideal standards generally do not provide the best motivation for workers.
B) Ideal standards do not make allowances for waste, spoilage, and machine breakdowns.
C) Ideal standards are better suited for cash budgeting than practical standards.
D) Ideal standards may be better than practical standards when managers seek continual improvement.
Source: CMA, adapted
Level: Medium LO: 1 Ans: C
14. Under traditional standard costing, which of the following would commonly be included when setting
a standard quantity for direct material?
A) A above
B) B above
C) C above
D) D above
Level: Medium LO: 1 Ans: A
401 Brewer, Introduction to Managerial Accounting, 3/e
,15. When computing standard cost variances, the difference between actual and standard price multiplied
by actual quantity yields a(n):
A) combined price and quantity variance.
B) efficiency variance.
C) price variance.
D) quantity variance.
Source: CMA, adapted
Level: Easy LO: 2,3 Ans: C
16. Poor quality materials could have an unfavorable effect on which of the following variances?
A) A above
B) B above
C) C above
D) D above
Level: Medium LO: 2,3 Ans: A
17. (Appendix) When the actual price paid on credit for a raw material exceeds its standard price, the
journal entry would include:
A) Debit to Raw Materials; Credit to Materials Price Variance
B) Debit to Accounts Payable; Credit to Materials Price Variance
C) Debit to Raw Materials; Debit to Materials Price Variance
D) Debit to Accounts Payable; Debit to Materials Price Variance
Level: Medium LO: 2,7 Ans: C
18. (Appendix) When the actual price paid on credit for a raw material is less than its standard price, the
journal entry would include:
A) Credit to Raw Materials; Credit to Materials Price Variance
B) Credit to Accounts Payable; Credit to Materials Price Variance
C) Credit to Raw Materials; Debit to Materials Price Variance
D) Credit to Accounts Payable; Debit to Materials Price Variance
Level: Medium LO: 2,7 Ans: B
Brewer, Introduction to Managerial Accounting, 3/e 402
, 19. (Appendix) When the actual amount of a raw material used in production is less than the standard
amount allowed for the actual output, the journal entry would include:
A) Credit to Raw Materials; Credit to Materials Quantity Variance
B) Credit to Work-In-Process; Credit to Materials Quantity Variance
C) Credit to Raw Materials; Debit to Materials Quantity Variance
D) Credit to Work-In-Process; Debit to Materials Quantity Variance
Level: Medium LO: 2,7 Ans: A
20. (Appendix) When the actual amount of a raw material used in production is greater than the standard
amount allowed for the actual output, the journal entry would include:
A) Credit to Raw Materials; Credit to Materials Quantity Variance
B) Credit to Work-In-Process; Credit to Materials Quantity Variance
C) Credit to Raw Materials; Debit to Materials Quantity Variance
D) Credit to Work-In-Process; Debit to Materials Quantity Variance
Level: Medium LO: 2,7 Ans: C
21. Which of the following would produce a materials price variance?
A) an excess quantity of materials used.
B) an excess number of direct labor-hours worked in completing a job.
C) shipping materials to the plant by air freight rather than by truck.
D) breakage of materials in production.
Level: Easy LO: 2 Ans: C
22. The standard price per unit of materials is used in the calculation of which of the following variances?
A) A above
B) B above
C) C above
D) D above
Source: CPA, adapted
Level: Medium LO: 2 Ans: D
23. (Appendix) A labor efficiency debit balance indicates that:
A) The wage rate paid to production workers was less the standard.
B) The wage rate paid to production workers was above the standard.
C) Less labor time was spent on production than was called for by the standard.
D) More labor time was spent on production than was called for by the standard.
Source: CPA, adapted
Level: Hard LO: 3,7 Ans: D
403 Brewer, Introduction to Managerial Accounting, 3/e
