Standard Costs
STANDARD COSTS AND VARIANCE ANALYSIS A. No incentive bonus will be paid.
B. Most variances will be unfavorable.
THEORIES: C. Employees will be strongly motivated to attain the standard.
Standard cost system D. Costs will be controlled better than if lower standards were use
1. A primary purpose of using a standard cost system is
A. To make things easier for managers in the production facility. 7. To measure controllable production inefficiencies, which of the follo
B. To provide a distinct measure of cost control. company to use in establishing the standard hours allowed for
C. To minimize the cost per unit of production. product?
D. b and c are correct A. Average historical performance for the last several years
B. Engineering estimates based on ideal performance
2. Which one of the following statements is true concerning standard costs? C. Engineering estimates based on attainable performance
A. Standard costs are estimates of costs attainable only under the most ideal conditions, but D. The hours per unit that would be required for the present wo
rarely practicable. demand over the long run
B. Standard costs are difficult to use with a process-costing system.
C. If properly used, standards can help motivate employees. 8. Which of the following statements about the selection of standards
D. Unfavorable variances, material in amount, should be investigated, but large favorable A. Ideal standards tend to extract higher performance levels s
variances need not be investigated. something to live up to.
B. Currently attainable standards may encourage operating ineffic
3. Which of the following is a purpose of standard costing? C. Currently attainable standards discourage employees
A. Determine “breakeven” production level performance potential.
B. Control costs D. Ideal standards demand maximum efficiency which may lea
C. Eliminate the need for subjective decisions by management causing a decline in performance.
D. Allocate cost with more accuracy
Standard costs vs. budgeted costs
4. When evaluating the operating performance management sometimes uses the difference 9. A difference between standard costs used for cost control
between expected and actual performance. This refers to: representing the same manufacturing effort can exist because
A. Management by Deviation C. Management by Objective A. standard costs must be determined after the budget is complet
B. Management by Control D. Management by Exception B. standard costs represent what costs should be while budgete
actual costs
Standard setting C. budgeted costs are historical costs while standard costs are ba
5. The best basis upon which cost standards should be set to measure controllable production D. budgeted costs include some “slack” or “padding” while standa
inefficiencies is
A. Engineering standards based on ideal performance Process costing
B. Normal capacity 10. When standard costs are used in a process-costing system, how,
C. Engineering standards based on attainable performance involved or used in the cost report at standard?
D. Practical capacity A. Equivalent units are not used.
B. Equivalent units are computed using a “special” approach.
6. A company employing very tight (high) standards in a standard cost system should expect that C. The actual equivalent units are multiplied by the standard cost
203
, Standard Costs
D. The standard equivalent units are multiplied by the actual cost per unit. A. Total overhead application rate
B. Volume of total expenses at various activity levels
Normal costing C. Variable overhead application rate
11. The fixed overhead application rate is a function of a predetermined “normal” activity level. If D. Fixed overhead application rate
standard hours allowed for good output equal this predetermined activity level for a given
period, the volume variance will be 17. Assuming that the standard fixed overhead rate is based on full ca
A. Zero but unused productive capacity is indicated by the:
B. Favorable A. Factory overhead cost volume variance
C. Unfavorable B. Direct labor cost efficiency variance
D. Either favorable or unfavorable, depending on the budgeted overhead. C. Direct labor cost rate variance
D. Factory overhead cost controllable variance
Types of standards
12. The absolute minimum cost possible under the best conceivable operating conditions is a 18. In analyzing manufacturing overhead variances, the volume varianc
description of which type of standard? the:
A. Currently attainable (expected) C. Theoretical A. Amount shown in the flexible budget and the amount show
B. Normal D. Practical overhead control account
B. Predetermined overhead application rate and the flexible bu
13. Standards, which are difficult to achieve due to reasons beyond the individual performing the actual hours worked
task, are the result of firm using which of the following methods to establish standards? C. Budget allowance based on standard hours allowed for actu
A. Ideal Standards C. Practical Standards and the amount budgeted to be applied during the period
B. Lax Standards D. Employee Standards D. Actual amount spent for overhead items during the period
applied to production during the period
14. Standards that represent levels of operation that can be attained with reasonable effort are
called: 19. The variance least significant for purposes of controlling costs is the
A. Theoretical standards C. Variable standards A. Material usage variance
B. Ideal standards D. Normal standards B. Variable overhead efficiency variance
C. Fixed overhead spending variance
Variances D. Fixed overhead volume variance
Generic variances
15. When performing input/output variance analysis in standard costing, “standard hours allowed” 20. The variance most useful in evaluating plant utilization is the:
is a means of measuring A. Variable overhead spending variance
A. Standard output at standard hours C. Actual output at standard hours B. Fixed overhead spending variance.
B. Standard output at actual hours D. Actual output at actual hours C. Variable overhead efficiency variance
D. Fixed overhead volume variance
Two way variances
Volume variance Four way variances
16. A company uses a two-way analysis for overhead variances: budget (controllable) and 21. The choice of production volume as a denominator for calculating it
volume. The volume variance is based on the A. Has no effect on the fixed factory overhead rate for applying co
204
, Standard Costs
B. Has an effect on the variable factory overhead rate for applying costs to production position of a production process on a learning curve?
C. Has no effect on the fixed factory overhead budget variance A. Materials mix C. Labor rate
D. Has no effect on the fixed factory overhead production volume variance B. Materials price D. Labor efficiency
22. The budgeted overhead costs for standard hours allowed and the overhead costs applied to 27. Which of the following is the most probable reason with a com
product are the same amount unfavorable labor rate variance and a favorable labor efficiency var
A. for both variable and fixed overhead costs. A. The mix of workers assigned to the particular job was heavily
B. only when standard hours allowed is less than normal capacity. higherly paid, experienced individuals.
C. for variable overhead costs. B. The mix of workers assigned to the particular job was heavily
D. for fixed overhead costs. new, relatively low paid, unskilled workers.
C. Because of the productive schedule, workers from other prod
Responsibility for variances to assist in this particular process.
23. Which department is customarily held responsible for an unfavorable materials usage D. Defective materials caused more labor to be used in order to p
variance?
A. Quality control C. Purchasing Two-way overhead variance
B. Engineering D. Production 28. The budget for a given cost during a given period was P1,600,00
period was P1,440,000. Considering these facts, it can be said
Variance analysis done a better than expected job in controlling the cost if:
24. Which of the following should be least considered when deciding whether to investigate a A. The cost is variable and actual production was 90% of budgete
variance? B. The cost is variable and actual production equaled budgeted p
A. Whether the variance is favorable or unfavorable C. The cost is variable and actual production was 80% of budgete
B. Significance of the variance D. The cost is discretionary fixed cost and actual production equa
C. Cost of investigating the variance
D. Trend of the variances over time Budget variance
29. The budget variance for fixed factory overhead for the normal-volu
Total materials variance expected-activity levels would be the:
25. If the total materials variance (actual cost of materials used compared with the standard cost A. Same except for normal volume C. Same except fo
of the standard amount of materials required) for a given operation is favorable, why must this B. Same except for practical capacity D. Same for all thr
variance be further evaluated as to price and usage?
A. There is no need to further evaluate the total materials variance if it is favorable Volume variance
B. Generally accepted accounting principles require that all variances be analyzed in three 30. You have leased a 5,000-gallon storage tank for P5,000 per month
stages of liquid in the tank during the month. The cost of storage was P1
C. All variances must appear in the annual report to equity owners for proper disclosure P1.00 per gallon based on 5,000 gallon capacity. Therefore, the c
D. To allow management to evaluate the efficiency of the purchasing and production was P1,000 more (P.25 x 4,000) in total than if you had stored 5
functions tank. Which variance is being described?
A. Variable-overhead efficiency variance
Labor variances B. Fixed-overhead spending variance
26. Which of the following unfavorable cost variances would be directly affected by the relative C. Variable-overhead spending variance
205
, Standard Costs
D. Fixed-overhead volume variance
31. Favorable fixed overhead volume variance occurs if: PROBLEMS:
A. There is a favorable labor efficiency variance Standard setting
B. There is a favorable labor rate variance Raw Materials
C. Production is less than planned 1
. Shampoo Company is a chemical manufacturer that supplies indu
D. Production is greater than planned plans to introduce a new chemical solution and needs to develop
this new solution.
32. The unfavorable volume variance may be due to all but which of the following factors?
A. Failure to maintain an even flow of work The new chemical solution is made by combining a chemical
B. Machine breakdowns solution (Salex), boiling the mixture; adding a second compound
C. Unexpected increases in the cost of utilities resulting solution in 20-liter containers. The initial mix, which is 20
D. Failure to obtain enough sales orders 24 kilograms of Nyclyn and 19.2 liters of Salex. A 20% reduction i
boiling process. The solution is then cooled slightly before 10 kilo
33. How will a favorable volume variance affect net income under each of the following the addition of Protet does not affect the total liquid volume.
methods?
Absorption Variable The purchase prices of the raw materials used in the manufac
A. Decrease No effect solution are as follows:
B. Decrease Increase Nyclyn
C. Increase No effect Salex
D. Increase Decrease Protet
The total standard materials cost of 20 liters of the product is:
34. Favorable volume variances may be harmful when: A. P1,043.20 C. P 834.56
A. Machine repairs cause work stoppages B. P1,304.00 D. P1,234.00
B. Supervisors fail to maintain an even flow of work
C. Production in excess of normal capacity cannot be sold .
2
El Andre Co. uses a standard costing system in connection with the
D. There are insufficient sales orders to keep the factory operating at normal capacity shirts. Each unit of finished product contains 2.25 yards of direc
percent direct material spoilage calculated on input quantities occu
Three-way Overhead variance process. The cost of the direct materials is P150 per yard. The s
35. During 2006, a department’s three-variance overhead standard costing system reported per unit of finished product is
unfavorable spending and volume variances. The activity level selected for allocating A. P 253 C. P 450
overhead to the product was based on 80% of practical capacity. It 100% of practical capacity
B. P 422 D. P 405
had been selected instead, how would the reported unfavorable spending and volume
variances be affected? 3
Spending Variance Volume Variance . Each finished unit of Product EM contains 60 pounds of raw ma
A. Increased Unchanged process must provide for a 20% waste allowance. The raw mat
B. Increased Increased P2.50 a pound under terms of 2/10, n/30. The company take
C. Unchanged Increased standard direct material cost for each unit of EM is:
D. Unchanged Unchanged A. P180.00 C. P187.50
206
STANDARD COSTS AND VARIANCE ANALYSIS A. No incentive bonus will be paid.
B. Most variances will be unfavorable.
THEORIES: C. Employees will be strongly motivated to attain the standard.
Standard cost system D. Costs will be controlled better than if lower standards were use
1. A primary purpose of using a standard cost system is
A. To make things easier for managers in the production facility. 7. To measure controllable production inefficiencies, which of the follo
B. To provide a distinct measure of cost control. company to use in establishing the standard hours allowed for
C. To minimize the cost per unit of production. product?
D. b and c are correct A. Average historical performance for the last several years
B. Engineering estimates based on ideal performance
2. Which one of the following statements is true concerning standard costs? C. Engineering estimates based on attainable performance
A. Standard costs are estimates of costs attainable only under the most ideal conditions, but D. The hours per unit that would be required for the present wo
rarely practicable. demand over the long run
B. Standard costs are difficult to use with a process-costing system.
C. If properly used, standards can help motivate employees. 8. Which of the following statements about the selection of standards
D. Unfavorable variances, material in amount, should be investigated, but large favorable A. Ideal standards tend to extract higher performance levels s
variances need not be investigated. something to live up to.
B. Currently attainable standards may encourage operating ineffic
3. Which of the following is a purpose of standard costing? C. Currently attainable standards discourage employees
A. Determine “breakeven” production level performance potential.
B. Control costs D. Ideal standards demand maximum efficiency which may lea
C. Eliminate the need for subjective decisions by management causing a decline in performance.
D. Allocate cost with more accuracy
Standard costs vs. budgeted costs
4. When evaluating the operating performance management sometimes uses the difference 9. A difference between standard costs used for cost control
between expected and actual performance. This refers to: representing the same manufacturing effort can exist because
A. Management by Deviation C. Management by Objective A. standard costs must be determined after the budget is complet
B. Management by Control D. Management by Exception B. standard costs represent what costs should be while budgete
actual costs
Standard setting C. budgeted costs are historical costs while standard costs are ba
5. The best basis upon which cost standards should be set to measure controllable production D. budgeted costs include some “slack” or “padding” while standa
inefficiencies is
A. Engineering standards based on ideal performance Process costing
B. Normal capacity 10. When standard costs are used in a process-costing system, how,
C. Engineering standards based on attainable performance involved or used in the cost report at standard?
D. Practical capacity A. Equivalent units are not used.
B. Equivalent units are computed using a “special” approach.
6. A company employing very tight (high) standards in a standard cost system should expect that C. The actual equivalent units are multiplied by the standard cost
203
, Standard Costs
D. The standard equivalent units are multiplied by the actual cost per unit. A. Total overhead application rate
B. Volume of total expenses at various activity levels
Normal costing C. Variable overhead application rate
11. The fixed overhead application rate is a function of a predetermined “normal” activity level. If D. Fixed overhead application rate
standard hours allowed for good output equal this predetermined activity level for a given
period, the volume variance will be 17. Assuming that the standard fixed overhead rate is based on full ca
A. Zero but unused productive capacity is indicated by the:
B. Favorable A. Factory overhead cost volume variance
C. Unfavorable B. Direct labor cost efficiency variance
D. Either favorable or unfavorable, depending on the budgeted overhead. C. Direct labor cost rate variance
D. Factory overhead cost controllable variance
Types of standards
12. The absolute minimum cost possible under the best conceivable operating conditions is a 18. In analyzing manufacturing overhead variances, the volume varianc
description of which type of standard? the:
A. Currently attainable (expected) C. Theoretical A. Amount shown in the flexible budget and the amount show
B. Normal D. Practical overhead control account
B. Predetermined overhead application rate and the flexible bu
13. Standards, which are difficult to achieve due to reasons beyond the individual performing the actual hours worked
task, are the result of firm using which of the following methods to establish standards? C. Budget allowance based on standard hours allowed for actu
A. Ideal Standards C. Practical Standards and the amount budgeted to be applied during the period
B. Lax Standards D. Employee Standards D. Actual amount spent for overhead items during the period
applied to production during the period
14. Standards that represent levels of operation that can be attained with reasonable effort are
called: 19. The variance least significant for purposes of controlling costs is the
A. Theoretical standards C. Variable standards A. Material usage variance
B. Ideal standards D. Normal standards B. Variable overhead efficiency variance
C. Fixed overhead spending variance
Variances D. Fixed overhead volume variance
Generic variances
15. When performing input/output variance analysis in standard costing, “standard hours allowed” 20. The variance most useful in evaluating plant utilization is the:
is a means of measuring A. Variable overhead spending variance
A. Standard output at standard hours C. Actual output at standard hours B. Fixed overhead spending variance.
B. Standard output at actual hours D. Actual output at actual hours C. Variable overhead efficiency variance
D. Fixed overhead volume variance
Two way variances
Volume variance Four way variances
16. A company uses a two-way analysis for overhead variances: budget (controllable) and 21. The choice of production volume as a denominator for calculating it
volume. The volume variance is based on the A. Has no effect on the fixed factory overhead rate for applying co
204
, Standard Costs
B. Has an effect on the variable factory overhead rate for applying costs to production position of a production process on a learning curve?
C. Has no effect on the fixed factory overhead budget variance A. Materials mix C. Labor rate
D. Has no effect on the fixed factory overhead production volume variance B. Materials price D. Labor efficiency
22. The budgeted overhead costs for standard hours allowed and the overhead costs applied to 27. Which of the following is the most probable reason with a com
product are the same amount unfavorable labor rate variance and a favorable labor efficiency var
A. for both variable and fixed overhead costs. A. The mix of workers assigned to the particular job was heavily
B. only when standard hours allowed is less than normal capacity. higherly paid, experienced individuals.
C. for variable overhead costs. B. The mix of workers assigned to the particular job was heavily
D. for fixed overhead costs. new, relatively low paid, unskilled workers.
C. Because of the productive schedule, workers from other prod
Responsibility for variances to assist in this particular process.
23. Which department is customarily held responsible for an unfavorable materials usage D. Defective materials caused more labor to be used in order to p
variance?
A. Quality control C. Purchasing Two-way overhead variance
B. Engineering D. Production 28. The budget for a given cost during a given period was P1,600,00
period was P1,440,000. Considering these facts, it can be said
Variance analysis done a better than expected job in controlling the cost if:
24. Which of the following should be least considered when deciding whether to investigate a A. The cost is variable and actual production was 90% of budgete
variance? B. The cost is variable and actual production equaled budgeted p
A. Whether the variance is favorable or unfavorable C. The cost is variable and actual production was 80% of budgete
B. Significance of the variance D. The cost is discretionary fixed cost and actual production equa
C. Cost of investigating the variance
D. Trend of the variances over time Budget variance
29. The budget variance for fixed factory overhead for the normal-volu
Total materials variance expected-activity levels would be the:
25. If the total materials variance (actual cost of materials used compared with the standard cost A. Same except for normal volume C. Same except fo
of the standard amount of materials required) for a given operation is favorable, why must this B. Same except for practical capacity D. Same for all thr
variance be further evaluated as to price and usage?
A. There is no need to further evaluate the total materials variance if it is favorable Volume variance
B. Generally accepted accounting principles require that all variances be analyzed in three 30. You have leased a 5,000-gallon storage tank for P5,000 per month
stages of liquid in the tank during the month. The cost of storage was P1
C. All variances must appear in the annual report to equity owners for proper disclosure P1.00 per gallon based on 5,000 gallon capacity. Therefore, the c
D. To allow management to evaluate the efficiency of the purchasing and production was P1,000 more (P.25 x 4,000) in total than if you had stored 5
functions tank. Which variance is being described?
A. Variable-overhead efficiency variance
Labor variances B. Fixed-overhead spending variance
26. Which of the following unfavorable cost variances would be directly affected by the relative C. Variable-overhead spending variance
205
, Standard Costs
D. Fixed-overhead volume variance
31. Favorable fixed overhead volume variance occurs if: PROBLEMS:
A. There is a favorable labor efficiency variance Standard setting
B. There is a favorable labor rate variance Raw Materials
C. Production is less than planned 1
. Shampoo Company is a chemical manufacturer that supplies indu
D. Production is greater than planned plans to introduce a new chemical solution and needs to develop
this new solution.
32. The unfavorable volume variance may be due to all but which of the following factors?
A. Failure to maintain an even flow of work The new chemical solution is made by combining a chemical
B. Machine breakdowns solution (Salex), boiling the mixture; adding a second compound
C. Unexpected increases in the cost of utilities resulting solution in 20-liter containers. The initial mix, which is 20
D. Failure to obtain enough sales orders 24 kilograms of Nyclyn and 19.2 liters of Salex. A 20% reduction i
boiling process. The solution is then cooled slightly before 10 kilo
33. How will a favorable volume variance affect net income under each of the following the addition of Protet does not affect the total liquid volume.
methods?
Absorption Variable The purchase prices of the raw materials used in the manufac
A. Decrease No effect solution are as follows:
B. Decrease Increase Nyclyn
C. Increase No effect Salex
D. Increase Decrease Protet
The total standard materials cost of 20 liters of the product is:
34. Favorable volume variances may be harmful when: A. P1,043.20 C. P 834.56
A. Machine repairs cause work stoppages B. P1,304.00 D. P1,234.00
B. Supervisors fail to maintain an even flow of work
C. Production in excess of normal capacity cannot be sold .
2
El Andre Co. uses a standard costing system in connection with the
D. There are insufficient sales orders to keep the factory operating at normal capacity shirts. Each unit of finished product contains 2.25 yards of direc
percent direct material spoilage calculated on input quantities occu
Three-way Overhead variance process. The cost of the direct materials is P150 per yard. The s
35. During 2006, a department’s three-variance overhead standard costing system reported per unit of finished product is
unfavorable spending and volume variances. The activity level selected for allocating A. P 253 C. P 450
overhead to the product was based on 80% of practical capacity. It 100% of practical capacity
B. P 422 D. P 405
had been selected instead, how would the reported unfavorable spending and volume
variances be affected? 3
Spending Variance Volume Variance . Each finished unit of Product EM contains 60 pounds of raw ma
A. Increased Unchanged process must provide for a 20% waste allowance. The raw mat
B. Increased Increased P2.50 a pound under terms of 2/10, n/30. The company take
C. Unchanged Increased standard direct material cost for each unit of EM is:
D. Unchanged Unchanged A. P180.00 C. P187.50
206
