Chapter 10Standard Costing: A Managerial Control Tool

TRUE/FALSE
1. Managers develop quantity standards when they decide what amount of input should be used per unit
of output.
2. Managers develop price standards when they determine what amount should be paid for the quantity of
input to be used.
3. The standard cost per unit of output for a particular input is calculated by multiplying the standard
input price by the standard input allowed per unit of output produced.
4. In setting standards historical e!perience should be used with caution because it can perpetuate
operating inefficiencies.
". #ngineering studies are often too rigorous and may not be achievable by operating personnel.
$. Ideal standards can be achieved under efficient operating conditions.
%. Ideal standards can be achieved only if everything operates perfectly meaning that they do not allow
for any machine brea&downs slac& etc.
'. (urrently attainable standards offer the most behavioral benefits because higher performance levels are
attained through challenging yet achievable standards.
). (urrently attainable standards can be achieved under efficient operating conditions.
1*. +ne reason for adopting a standard cost system is to ma&e product costing easier.
11. The benefits of operational control under a standard cost system can e!tend to all manufacturing
environments.
12. ,tandard costs are developed for direct materials direct labor and variable overhead only.
13. The standard quantity of materials allowed can be calculated by multiplying the unit labor standard by
the actual output.
14. To compute the standard direct labor hours allowed multiply the unit labor standard by the actual
output.
1". The quantity of each input that should be used to produce one unit of output is documented on the
standard cost sheet.
1$. The standard cost sheet provides the input standards needed to compute the total amount of inputs
allowed for the actual output an essential component in computing efficiency variances.
1%. The standard unit cost is developed before the standard costs for direct materials direct labor and
overhead can be set.
1'. The unit standard quantity of inputs is vital to the computation of total amount of inputs allowed for
the actual output and efficiency variances.
1). The total budget variance is the difference between the actual cost of the input and its planned cost.
2*. The actual quantity of input at the standard price less than the standard quantity of input at the standard
price equals the usage variance.
21. The actual quantity of input at the actual price less the actual quantity of input at the standard price is
the price variance.
22. -n unfavorable usage variance would occur when the actual usage of inputs is greater than the
standard usage.
23. -n unfavorable price variance occurs whenever the actual prices are greater than the standard prices.
24. -n acceptable range is established in order to determine if whether variances are significant. The
acceptable range is the standard plus or minus an allowable deviation.
2". The sum of the price and usage variances will add up to the total materials variance only if the
materials purchased is equal to the materials used.
2$. The materials price variance is computed using the actual quantity of materials used and the materials
usage variance is computed using the actual quantity of materials purchased.
2%. .or better control the materials price variance is computed using actual quantity of materials
purchased.
2'. The sum of the labor rate and labor efficiency variances will always add up to the total labor variance.
2). /ai0en costing provides fi!ed standards which reflect continuous improvement efforts.
3*. - &ai0en standard reflects the reali0ed improvements for the past periods and a search for more
improvements for the future.
31. .avorable variances are credits and unfavorable variances are debits.
MATCHI!
Match each item with the correct statement below.
a. 1uantity ,tandards
b. Ideal ,tandards
c. 2rice ,tandards
d. ,tandard (ost ,heet
e. 3pper (ontrol 4imit
f. (urrently -ttainable ,tandards
g. /ai0en ,tandards
1. ,tandards of perfection that require absolute efficiency.
2. ,tandards that are rigorous but achievable and reflect reasonable efficiency.
3. These reflect the amount that should be paid for the quantity of input to be used.
4. These reflect the amount of input that should be used per unit of output.
". - tool used to provide the production data needed to calculate the standard unit cost.
$. This is the standard plus the allowable deviation when determining whether variances are significant.
%. This reflects the planned improvement that is set which will help reduce nonvalue5added costs.
Match the variance with its correct calculation.
a. -ctual 1uantity -ctual 2rice
b. 6-ctual 7ours -ctual 8ate9 6,tandard 7ours ,tandard 8ate9
c. 6-ctual 1uantity -ctual 2rice9 6,tandard 1uantity ,tandard 2rice9
d. 6-ctual 7ours ,tandard 7ours9 ,tandard 8ate
e. 6-ctual 2rice ,tandard 2rice9 -ctual 1uantity
f. ,tandard 1uantity ,tandard 2rice
g. 6-ctual 8ate ,tandard 8ate9 -ctual 7ours
h. 6-ctual 1uantity ,tandard 1uantity9 ,tandard 2rice
'. -ctual (osts
). :udgeted (osts
1*. Total Materials ;ariance
11. Materials 2rice ;ariance
12. Materials 3sage ;ariance
13. 4abor 8ate ;ariance
14. 4abor #fficiency ;ariance
1". Total <irect 4abor ;ariance
C"M#LETI"
1. =============== often means the difference between success and failure or between above5average
profits and lesser profits.
2. The amount of input that should be used per unit of output is &nown as the ===============.
3. The amount that should be paid for the quantity of the input to be used is &nown as the
==============.
4. =================== can provide an initial guideline for setting standards but should be used with
caution because they can perpetuate e!isting inefficiencies.
". ,tandards are set by using historical e!periences =================== and input from operating
personnel mar&eting and accounting.
$. ================ demands ma!imum efficiency and can be achieved only if everything operates
perfectly.
%. In a ==================== costs are assigned to products using quantity and price standards for all
three manufacturing costs> direct materials direct labor and overhead.
'. The ================== provides the products data needed to calculate the standard unit cost.
). The ====================== can be used to compute the total amount of inputs allowed for the
actual output.
1*. =================== is calculated by multiplying the unit labor standard by the actual output.
11. The ==================== is the difference between the actual cost of the input and its planned cost.
12. ==================== is the difference between the actual and standard unit price of an input
multiplied by the number of inputs used.
13. ================= occur whenever actual prices or actual usage of inputs are greater than standard
prices or standard usage.
14. The ==================== measures the difference between the actual costs of materials and their
budgeted costs for actual level of activity.
1". The ==================== measures the difference between what should have been paid for raw
materials and what was actually paid.
1$. The ===================== measures the difference between the direct materials actually used and
the direct materials that should have been used for the actual output.
1%. The =============== computes the difference between what was paid to direct laborers and what
should have been paid.
1'. The =================== measures the difference between the labor hours that were actually used
and the labor hours that should have been used.
1). ============== focuses on the continuous reduction of the manufacturing costs of e!isting products
and processes.
2*. - ============== is the difference between the sales price needed to capture a predetermined mar&et
share and the desired per5unit profit.
MULTI#LE CH"ICE
1. ,tandards based on the amount of input that should be used per unit of output are called
a. quantity standards.
b. price standards.
c. ideal standards.
d. currently attainable standards.
e. &ai0en standards.
2. 2rice standards are based on
a. the amount of input that should be used per unit of output.
b. the amount that should be paid for the total quantity of input to be used.
c. the amount that should be paid per unit of output.
d. the amount that should be paid per unit of input purchased.
e$ none of these.
3. The sources of quantitative standards include
a. historical e!perience.
b. engineering studies.
c. input from operating personnel.
d. historical e!perience engineering studies and input from operating personnel.
e$ none of these.
4. ?hich of the following is true regarding historical e!perience in standard setting@
a. It provides very rigorous guidelines.
b. +perating personnel may not be able to achieve operating standards based on historical
e!perience.
c. It should be used with caution because it can perpetuate inefficiencies.
d. ,tandards based on historical e!perience are better than standards based on engineering
studies.
e$ Aone of these.
5. ?hich of the following is not true regarding engineering studies@
a. They can determine the most efficient way to operate.
b. They are often achievable by operating personnel.
c. They provide very rigorous guidelines.
d$ -ll of these statements are true.
e$ More than two of these statements are true.
6. In setting price standards for materials and labor
a. the purchasing department must consider discounts freight and quality.
b. personnel must consider payroll ta!es fringe benefits and qualifications.
c. it is the Boint responsibility of operations purchasing personnel and accounting.
d$ -ll of these.
e$ Aone of these.
7. Ideal standards
a. do not allow for machine brea&downs slac& or lac& of s&ill 6even momentarily9.
b. demand ma!imum efficiency.
c. can be achieved only if everything operates perfectly.
d$ -ll of these.
e$ Aone of these.
8. ?hich of the following is true regarding currently attainable standards@
a. They can be achieved under efficient operating conditions.
b. -llowance is made for normal brea&downs interruptions etc.
c. They are challenging but achievable.
d. They tend to achieve higher performance levels from personnel.
e$ -ll of these.
9. ,tandard cost systems are adopted
a. to improve planning and control.
b. to facilitate product costing.
c. to improve planning and control and to facilitate product costing.
d. to enhance the operational control of firms that emphasi0e continuous improvement.
e$ for all of these reasons.
10. ,tandard cost systems can enhance operational control through the use of
a. efficiency variances which indicate the need for corrective action.
b. price variances which indicate the need for better spending control.
c. standard costs which indicate the desired cost of a unit of input.
d. actual costs which indicate the price received for units sold.
e$ -ll of these.
11. ?hich of the following is true regarding standard cost systems in manufacturing environments that
emphasi0e continuous improvement and Bust5in5time manufacturing and purchasing@
a. The standard cost system enhances the operational control.
b. The materials price variance may encourage the purchasing department to buy in smaller
quantities to reduce inventories.
c. ;ariances can be computed and presented in reports to higher5level managers.
d. The operational level will benefit from the detailed computation of variances.
e$ Aone of these.
11. In a standard cost system costs are assigned to all of the following except for
a. direct materials.
b. direct labor.
c. variable overhead.
d. fi!ed overhead.
e$ none of these.
12. The standard cost system differs from the actual cost system in the assignment of
a. direct materials.
b. direct labor.
c. overhead.
d. all of the manufacturing inputs.
e. none of the manufacturing inputs.
13. ?hich of the following is not true regarding normal costing systems@
a. - normal costing system predetermines overhead costs.
b. - normal costing system assigns direct materials and direct labor to products using a
predetermined rate.
c. In a normal costing system overhead is assigned using a budgeted rate and actual activity.
d. - normal costing system has less capacity for control than a standard costing system.
e$ -ll of these statements are true.
14. ?hich of the following is not an advantage of standard costing over normal costing and actual
costing@
a. - greater capacity for control.
b. -bility to easily distinguish the .I.+ and weighted average methods of accounting for
beginning inventory costs.
c. (omputing a unit cost for each equivalent unit cost category is not necessary.
d. 2roviding for readily available unit cost information.
e$ -ll of these are advantages of standard costing.
15. The production data needed to calculate the standard unit cost as well as the underlying details for the
standard cost per unit are provided in
a. the standard cost sheet.
b. the standard production budget.
c. the balance sheet.
d. the standard wor&5in5process account.
e$ none of these.
16. ,tandard hours allowed are computed using the equation
a. unit labor standard actual output.
b. unit labor standard standard output.
c. unit labor standard actual input.
d. unit labor standard standard input.
e$ not shown here.
17. The standard quantity of materials allowed is computed by the equation
a. unit quantity standard standard output.
b. unit quantity standard actual input.
c. unit quantity standard standard input.
d. unit quantity standard actual output.
e$ not shown here.
18. -n accountant would refer to a cost sheet to perform which of the following actions@
a. (alculate standard cost per unit.
b. (alculate efficiency variances.
c. (alculate the total amount of inputs allowed for the actual output.
d$ -ll of these.
A-88:#CIA> .igure 1*51
Fig%re 10&1$
.lying 7igh (ompany manufactures model airplanes. <uring the month it manufactured 1****
airplanes. #ach one used an average of $." direct labor hours and an average of 1." sheets of
aluminum. It normally manufactures %"** airplanes. Materials and labor standards for ma&ing the
airplanes are>
<irect Materials 61 sheet of aluminum D E1*.**9 E1*.**
<irect Materials 6other accessories D E'.%"9 '.%"
<irect 4abor 6$ hours D E%.**9 42.**
A-88#A<
19. 8efer to .igure 1*51. (ompute the standard hours allowed for a volume of 1**** airplanes.
a. $**** hours
b. 42**** hours
c. %**** hours
d. $"*** hours
20. 8efer to .igure 1*51. (ompute the standard number of sheets of aluminum allowed for a volume of
1**** airplanes.
a. 1"*** sheets
b. 1**** sheets
c. %"** sheets
d. 112"* sheets
21. ;ariances indicate
a. that actual performance is not going according to plan.
b. the cause of the variance.
c. who is responsible for the variance.
d. when the variance should be investigated.
e$ none of these.
22. The difference between the actual cost of the input and its planned cost is
a. the total budget variance.
b. the usage variance.
c. the price variance.
d. the efficiency variance.
e. the budget variance.
23. ?hich of the following is true concerning the materials price variance@
a. It is the difference between the actual and standard unit price of an input multiplied by the
number of inputs used.
b. It is the difference between the actual and standard unit price of an output multiplied by the
number of inputs used.
c. It is the difference between the actual and standard unit price of an input multiplied by the
number of inputs purchased.
d. It is the difference between the actual and standard unit price of an output multiplied by the
number of inputs purchased.
e$ Aone of these.
24. The usage variance is the difference between the actual and standard quantity of inputs
a. multiplied by the standard unit price of the input.
b. budgeted multiplied by the standard unit price of the input.
c. multiplied by the actual unit price of the input.
d. purchased multiplied by the actual unit price of the input.
e$ none of these.
25. ?hich of the following is true regarding variances@
a. 3nfavorable variances occur whenever actual prices or actual usage of inputs are greater
than standard prices or standard usage.
b. .avorable variances occur whenever actual prices or actual usage of inputs are greater than
standard prices or standard usage.
c. 3nfavorable variances are always credits.
d. .avorable variances are always debits.
e$ Aone of these.
26. -ll of the following are true regarding variance investigation except
a. the investigation should be underta&en only if the anticipated benefits are greater than the
e!pected costs.
b. managers must consider whether a variance will recur.
c. it is difficult to assess the costs and benefits of variance analysis on a case5by5case basis.
d. variances are not investigated unless they are large enough to be of a concern.
e. every variance is investigated.
27. ?hich of the following is not true concerning control limits@
a. (ontrol limits are the top and bottom measures of the allowable range.
b. The upper control limit is the standard plus the allowable deviation.
c. The lower control limit is the standard minus the allowable deviation.
d. In current practice control limits are set obBectively using standard formulas.
e. ;ariances that fall outside the control limits are investigated.
2). -cme (ompanyFs standard cost is E"*****. The allowable deviation is 1*G. Its actual costs for three
months are
Hanuary E"2****
.ebruary E""****
March E"%"***
The upper and lower control limits are respectively
a. E""**** and E4"****
b. E"***** and E4"****
c. E""**** and E"*****
d. E"%"*** and E"2****
A-88:#CIA> .igure 1*52
Fig%re 10&'$
7ighland (ompanyFs standard cost is E2"****. The allowable deviation is 1*G. Its actual costs for
si! months are
Hanuary E23"***
.ebruary 22****
March 24"***
-pril 2$"***
May 2%****
Hune 2'****
A-88#A<
3*. 8efer to .igure 1*52. The upper and lower control limits are respectively
a. E2"**** and E22"***
b. E3*"*** and E1)"***
c. E2%"*** and E2"****
d. E2%"*** and E22"***
31. 8efer to .igure 1*52. The variance that is higher than the upper control limit is
a. E22****
b. E2'****
c. E2$"***
d. E23"***
32. 8efer to .igure 1*52. The variance that is lower than the lower control limit is
a. E22****
b. E2'****
c. E2$"***
d. E23"***
33. ?hich of the following is not true concerning direct materials variances@
a. The sum of the price and usage variances will add up to the total materials variance only if
the materials purchased is equal to the materials used.
b. The materials price variance uses the actual quantity of materials purchased rather than the
actual quantity of materials used.
c. The materials price variance always uses the actual quantity of materials used rather than
the actual quantity of materials purchased.
d. The materials usage variance uses the actual quantity of materials used.
e. ,eparate materials variances can be computed for each type of material used.
34. The materials price variance is computed using the equation
a. 6-ctual 2rice -ctual 1uantity9 6,tandard 2rice ,tandard 1uantity9.
b. 6,tandard 2rice -ctual 1uantity9 6-ctual 2rice -ctual 1uantity9.
c. 6,tandard 2rice ,tandard 1uantity9 6-ctual 2rice -ctual 1uantity9.
d. 6-ctual 2rice -ctual 1uantity9 6,tandard 2rice -ctual 1uantity9.
e$ none of these.
3". The materials usage variance is calculated by the equation
a. 6,tandard 2rice -ctual 1uantity9 6,tandard 2rice ,tandard 1uantity9.
b. 6,tandard 2rice ,tandard 1uantity9 + 6,tandard 2rice -ctual 1uantity9.
c. 6-ctual 2rice -ctual 1uantity9 6,tandard 2rice -ctual 1uantity9.
d. 6-ctual 2rice ,tandard 1uantity9 + 6-ctual 1uantity ,tandard 2rice9.
e$ Aone of these.
3$. ?hich of the following is not true regarding the use of materials variance information@
a. The purchasing agent has the responsibility for controlling the materials price variance.
b. The production manager is generally responsible for materials usage.
c. The production manager is concerned with minimi0ing scrap waste and rewor&.
d. The purchasing department is responsible for acquiring quality materials.
e$ -ll of these are true.
3%. <uring the month of March :a&erFs #!press purchased 1**** pounds of flour at E1 per pound. -t the
end of March :a&erFs #!press found that it had an unfavorable materials price variance of E"**. The
standard cost per pound must be
a. E1.)"
b. E1.**
c. E1.*"
d. E*.)"
3'. <uring the month of March :a&erFs #!press purchased 1**** pounds of flour at E1 per pound. -t the
end of March :a&erFs #!press found that it had a favorable materials price variance of E"**. The
standard cost per pound must be
a. E*.)"
b. E1.**
c. E1.*"
d. E1.)"
3). <uring Hune (isco (ompany produced 12*** chainsaw blades. The standard quantity of material
allowed per unit was 1." pounds of steel per blade at a standard cost of E' per pound. (isco
determined that it had a favorable materials usage variance of E1*** for Hune. (alculate the actual
quantity of materials (isco used.
a. 1%'%" pounds
b. 1212" pounds
c. 11'%" pounds
d. 1'12" pounds
4*. <uring Hune (isco (ompany produced 12*** chainsaw blades. The standard quantity of material
allowed per unit was 1." pounds of steel per blade at a standard cost of E' per pound. The actual cost
was E% per pound. The actual pounds of steel that (isco purchased were 1)"** pounds. -ll materials
purchased were used. (alculate (iscoFs materials usage variance.
a. E1*"** 3
b. E12*** .
c. E12*** 3
d. E1*"** .
41. 2erfect :uilders ma&es all sorts of moldings. Its standard quantity of material allowed is 1 foot of
wood per 1 foot of molding at a standard price of E2.** per foot. <uring -ugust it purchased "*****
feet of wood at a cost of E1.)* per foot which produced only 4))*** feet of molding. (alculate the
materials price variance and the materials usage variance respectively.
a. E"**** . and E2*** 3
b. E4))** 3 and E2*** .
c. E"**** . and E1)** 3
d. E4))** . and E1)** 3
42. Mover (ompany has developed the following standards for one of its products>
<irect materials> %." pounds E' per pound
<irect labor> 2 hours E12 per hour
The following activity occurred during March>
Materials purchased> "*** pounds costing E42"**
Materials used> 3$** pounds
3nits produced> "** units
<irect labor> 11"* hours at E11.'*Ihour
The company records materials price variances at the time of purchase. The variable standard cost per
unit for materials and labor is
a. E)'.
b. E'4.
c. E%4.
d. E3'.
43. 8oberts (ompany uses a standard costing system. The following information pertains to direct
materials for the Huly>
,tandard price per lb. E1'.**
-ctual purchase price per lb. E1$."*
1uantity purchased 31** lbs.
1uantity used 2)"* lbs.
,tandard quantity allowed for actual output 3*** lbs.
-ctual output 1*** units
8oberts (ompany reports its material price variances at the time of purchase. ?hat is the material
usage variance for 8oberts (ompany@
a. E)** .
b. E1)"* .
c. E2'"* .
d. E)** 3
44. <uring -ugust 1**** units were produced. The standard quantity of material allowed per unit was 1*
pounds at a standard cost of E3 per pound. If there was an unfavorable usage variance of E1'%"* for
-ugust the actual quantity of materials used must be
a. 1*$2"* pounds.
b. )3%"* pounds.
c. 31'%" pounds.
d. 2343' pounds.
4". <uring ,eptember 4**** units were produced. The standard quantity of material allowed per unit was
" pounds at a standard cost of E2."* per pound. If there was a favorable usage variance of E2"*** for
,eptember the actual quantity of materials used must have been
a. 21**** pounds.
b. 1)**** pounds.
c. 1*"*** pounds.
d. )"*** pounds.
4$. Ma! (ompany has developed the following standards for one of its products.
<irect materials> 1" pounds E1$ per pound
<irect labor> 4 hours E24 per hour
;ariable overhead> 4 hours E14 per hour
The following activity occurred during the month of +ctober>
Materials purchased> 1**** pounds costing E1%****
Materials used> %2** pounds
3nits produced> "** units
<irect labor> 23** hours at E23.$*Ihour
The company records materials price variances at the time of purchase. The direct materials price
variance is
a. E"**** ..
b. E"**** 3.
c. E1**** 3.
d. E1**** ..
4%. -ll of the following are true except
a. - favorable labor efficiency variance could result from using higher quality materials that
result in fewer inspections.
b. - favorable labor rate variance could result from lower wage wor&ers quitting.
c. - favorable materials price variance could result from purchasing identical materials from
another supplier at a lower price.
d. -n unfavorable materials usage variance could result from not efficiently utili0ing raw
materials thus causing waste.
e$ -n unfavorable labor efficiency variance can be caused by machine downtime and poor
quality materials.
A-88:#CIA> .igure 1*53
Fig%re 10&($
:ortello (orporation produces high5quality leather boots. The company has a standard cost system and
has set the following standards for materials and labor>
4eather 612 strips D E2*9 E24*
<irect labor 61* hours D E129 E12*
Total prime cost E3$*
<uring the year :ortello produced 12" boots. -ctual leather purchased was 1%** strips at E1$ per
strip. There were no beginning or ending inventories of leather. -ctual direct labor was 1"** hours at
E1" per hour.
A-88#A<
4'. 8efer to .igure 1*53. (ompute the materials price variance and the materials usage variance
respectively.
a. E)*** . and E12** 3
b. E)3** 3 and E1"** .
c. E$'** . and E4*** 3
d. E$'** 3 and E4*** .
4). 8efer to .igure 1*53. (alculate the labor rate variance and the labor efficiency variance respectively.
a. E4"** 3 and E3*** 3
b. E4"** . and E3*** .
c. E4"** 3 and E3*** .
d. E4"** . and E3*** 3
"*. 8efer to .igure 1*53. (ompute the total budget variances for materials and labor respectively.
a. E2'** . and E%"** .
b. E2'** . and E%"** 3
c. E2'** 3 and E%"** 3
d. E2'** 3 and E%"** .
"1. 8efer to .igure 1*53. (ompute the costs of leather and direct labor that should have been incurred for
the production of 12" boots.
a. E3$*** and E3$***
b. E4$"** and E3%"**
c. E3%2** and E2****
d. E3**** and E1"***
A-88:#CIA> .igure 1*5"
Fig%re 10&)$
,easide (ompany produces picture frames. <uring the year 1)**** picture
frames were produced. Materials and labor standards for producing the picture
frames are as follows>
<irect materials 62 pieces of wood D E2.2"9 E4."*
<irect labor 62 hours D E1*9 E2*.**
,easide purchased and used 4***** pieces of wood at E2.** each and its actual
labor hours were 3$**** hours at a wage rate of E1*."*.
A-88#A<
"2. 8efer to .igure 1*5". ?hat is the materials price variance@
a. E1***** .
b. E112"** 3
c. E13"*** .
d. E1%**** 3
"3. 8efer to .igure 1*5". ?hat is the materials usage variance@
a. E112"** .
b. E112"** 3
c. E4"*** .
d. E4"*** 3
"4. 8efer to .igure 1*5". ?hat is ,easideFs labor rate variance@
a. E1'**** .
b. E1'**** 3
c. E22"*** 3
d. E21%"** .
"". 8efer to .igure 1*5". ?hat is ,easideFs total labor variance@
a. E2**** .
b. E2**** 3
c. E112"** .
d. E12**** 3
"$. ?hich of the following is true regarding direct labor variances@
a. The labor efficiency variance measures the difference between what was paid to direct
laborers and what should have been paid.
b. The labor rate and labor efficiency variances will always add up to the total labor variance.
c. The labor rate variance measures the difference between the labor hours that were actually
used and the labor hours that should have been used.
d. The labor rate variance measures the difference between the labor hours that were
originally budgeted and the labor hours that should have been used.
e. The labor rate variance measures the difference between the labor hours that were actually
used and the labor hours that were originally budgeted.
"%. The labor rate variance is computed by
a. 6-ctual 8ate -ctual 7ours9 6,tandard 8ate ,tandard 7ours9.
b. 6,tandard 8ate -ctual 8ate9 6-ctual 8ate -ctual 7ours9.
c. 6-ctual 8ate ,tandard 7ours9 6,tandard 8ate -ctual 7ours9.
d. 6-ctual 8ate -ctual 7ours9 6,tandard 8ate -ctual 7ours9.
e$ none of these.
"'. The labor efficiency variance is calculated by the equation
a. 6,tandard 7ours -ctual 7ours9 6-ctual 7ours ,tandard 8ate9.
b. 6-ctual 8ate -ctual 7ours9 6,tandard 8ate -ctual 7ours9.
c. 6-ctual 7ours ,tandard 8ate9 6,tandard 7ours ,tandard 8ate9.
d. 6,tandard 7ours -ctual 8ate9 6-ctual 7ours -ctual 8ate9.
e$ none of these.
"). ?hich of the following is not true regarding the use of labor variance information@
a. The actual wage rate is almost always different from the standard rate.
b. 3ne!pected overtime can cause variation in the labor rate.
c. -n average wage rate is chosen as the labor rate standard.
d. The production manager controls the use of labor.
e. The actual wage rate is used in determining the labor rate variance.
$*. /ai0en costing involves>
a. changing the standards frequently.
b. changing management.
c. outsourcing processes.
d. maBor ad campaigns.
$1. ?hich of the following is not true about /ai0en ,tandards@
a. /ai0en standards are the standards used for continuous improvement.
b. /ai0en standards are a currently attainable standard that reflects planned improvement.
c. /ai0en standards are constantly changing.
d. /ai0en standards are the standards used in traditional costing systems.
$2. (laire (ompany uses a standard costing system. The following information pertains to direct labor
costs for .ebruary>
,tandard direct labor rate per hour E1".**
-ctual direct labor rate per hour E13."*
4abor rate variance E1'*** .
-ctual output 1*** units
,tandard hours allowed for actual production 1**** hours
?hat is the total labor budget variance for (laire (ompany@
a. E1'*** .
b. E12*** .
c. E1'*** 3
d. E12*** 3
$3. (laire (ompany uses a standard costing system. The following information pertains to direct labor
costs for .ebruary>
,tandard direct labor rate per hour E1".**
-ctual direct labor rate per hour E13."*
4abor rate variance E1'*** .
-ctual output 1*** units
,tandard hours allowed for actual production 1**** hours
7ow many actual labor hours were wor&ed during .ebruary for (laire (ompany@
a. 1**** hours
b. 2*** hours
c. 12** hours
d. 12*** hours
$4. If the actual labor rate e!ceeds the standard labor rate and the actual labor hours e!ceed the number of
hours allowed the labor rate variance and labor efficiency variance will be
Labor Rate Labor Efficiency
Variance Variance
a.
Favorable Favorable
b.
Favorable Unfavorable
c.
Unfavorable Favorable
d.
Unfavorable Unfavorable
$". <uring Hanuary %*** direct labor hours were wor&ed at a standard cost of E2* per hour. If the direct
labor rate variance for Hanuary was E1%"** favorable the actual cost per direct labor hour must be
a. E1%."*.
b. E2*.**.
c. E22."*.
d. E2".**.
$$. <uring +ctober 1**** direct labor hours were wor&ed at a standard cost of E1* per hour. If the direct
labor rate variance for +ctober was E4*** unfavorable the actual cost per direct labor hour must be
a. E1*.4*.
b. E1*.**.
c. E).$*.
d. E).2*.
$%. :ender (orporation produced 1** units of 2roduct --. The total standard and actual costs for
materials and direct labor for the 1** units of 2roduct -- are as follows>
Materials> ,tandard -ctual
,tandard> 2** pounds at E3.** per pound E$**
-ctual> 22* pounds at E2.'" per pound E$2%
<irect labor>
,tandard> 4** hours at E1".** per hour $***
-ctual> 3$' hours at E1$."* per hour $*%2
?hat is the labor efficiency variance for :ender (orporation@
a. E4'* 3
b. E""2 .
c. E""2 3
d. E4'* .
A-88:#CIA> .igure 1*54
Fig%re 10&*$
7igh .liers (ompany produces model airplanes. <uring the month of Aovember it produced 2***
planes. The actual labor hours were % hours per plane. Its standard labor hours are 1* hours per plane.
The standard labor rate is E11 per hour. -t the end of Aovember 7igh .liers found that it had a
favorable labor rate variance of E1*"**.
A-88#A<
$'. 8efer to .igure 1*54. ?hat was 7igh .liersF actual cost per labor hour@
a. E12.%"
b. E11."*
c. E1*."*
d. E1*.2"
$). 8efer to .igure 1*54. ?hat was 7igh .liersF total labor variance@
a. E$1"** .
b. E%$"** .
c. E%$"** 3
d. E$1"** 3
A-88:#CIA> .igure 1*5$
Fig%re 10&+$
#!treme :uilders constructs houses. The standard labor rate is E2" per hour and the standard number
of hours is 1"*** hours per home. <uring the year it constructed 12 homes using 1'*** labor hours
per home and a rate of E2' per hour.
A-88#A<
%*. 8efer to .igure 1*5$. (alculate the #!treme :uildersF labor rate variance.
a. E"4**** 3
b. E"4**** .
c. E$4'*** 3
d. E$4'*** .
%1. 8efer to .igure 1*5$. (alculate the labor efficiency variance.
a. E1**'*** .
b. E)***** 3
c. E1**'*** 3
d. E)***** .
%2. -ssume that ,1 J ,tandard 1uantity ,2 J ,tandard 2rice -1 J -ctual 1uantity and -2 J -ctual
2rice. The correct entry along with the equation to record the issuance and usage of materials
assuming a favorable materials usage variance is as follows
a. Work in Process SQ SP
Materials Usage Variance (AQ SQ)SP
Materials AQ SP
b. Work in Process SQ SP
Materials Usage Variance (AQ SQ)SP
Materials AQ SP
c. Work in Process AQ AP
Materials Usage Variance (AQ SQ)SP
Materials AQ SP
d. Work in Process AQ AP
Materials Usage Variance (AQ SQ)SP
Materials AQ SP
e$ Aone of these.
%3. ?hich of the following is true regarding the disposition of materials and labor variances@
a. The variances for materials and labor are closed directly to (ost of Coods ,old regardless
of materiality.
b. If the materials price variance is material it is prorated among Materials Inventory
Materials 3sage ;ariance ?or& in 2rocess and .inished Coods.
c. The materials usage variance and the labor variances if material are prorated among ?or&
in 2rocess .inished Coods and (ost of Coods ,old.
d. The materials usage variance and the labor variances are always prorated among ?or& in
2rocess .inished Coods and (ost of Coods ,old.
e. The materials usage variance and the labor variances are always closed to (ost of Coods
,old.
%4. <uring ,eptember a small roofing company purchased "** bundles of a certain type of shingle at a
price of E3" per bundle E" less than the standard price. Its standard quantity of this type of shingle is
""* bundles. ?hat is the Bournal entry to record the purchase of materials@
a.
Materials !"!!!
Materials Price Variance "#!!
Acco$nts Payable %&"#!!
b.
Materials !"!!!
Materials Price Variance "#!!
Acco$nts Payable "#!!
c.
Materials %&"#!!
Materials Price Variance "#!!
Acco$nts Payable %#"!!!
d.
Materials !"!!!
Materials Price Variance "&#!
Acco$nts Payable %&"#!
%". <uring Hune (isco (ompany produced 1"*** chainsaw blades. The standard quantity of material
allowed per unit was 1." pounds of steel per blade at a standard cost of E" per pound. The actual
purchase price was E$.2" per pound. (isco determined that it had a favorable materials usage variance
of E2"** for Hune. ?hat is the Bournal entry to record the issuance and usage of materials@
a.
Work in Process %%"#!!
Materials Usage Variance "#!!
Materials %%!"!!!
b.
Work in Process %%!"!!!
Materials Usage Variance "#!!
Materials %%"!!!
c.
Work in Process %%"#!!
Materials Usage Variance "#!!
Materials %%#"!!!
d.
Work in Process %'!"(#
Materials Usage Variance "#!!
Materials %)*"%#
A-88:#CIA> .igure 1*5%
Fig%re 10&,$
<uring -pril a small roofing company purchased %** bundles of a certain type of shingle at a price of
E3" per bundle E' more than the standard price. Its standard quantity of this type of shingle is %2"
bundles.
A-88#A<
%$. 8efer to .igure 1*5%. ?hat is the Bournal entry to record the issuance and usage of materials assuming
that the roofing company purchased and used %** bundles@
a.
Work in Process %*"+!!
Materials Usage Variance (&#
Materials %+"#&#
b.
Work in Process %+"#&#
Materials Usage Variance (&#
Materials %*"+!!
c.
Work in Process '"#!!
Materials Usage Variance *&#
Materials #")&#
d.
Work in Process #")&#
Materials Usage Variance *&#
Materials '"#!!
%%. 8efer to .igure 1*5%. ?hat is the Bournal entry to record the purchase of materials@
a.
Materials %+"#&#
Materials Price Variance #"*!!
Acco$nts Payable #")&#
b.
Materials '"#!!
Materials Price Variance #"(!!
Acco$nts Payable %*"+!!
c.
Materials %*"+!!
Materials Price Variance #"(!!
Acco$nts Payable '"#!!
d.
Materials #")&#
Materials Price Variance #"*!!
Acco$nts Payable %+"#&#
A-88:#CIA> .igure 1*5'
Fig%re 10&-$
The 2erfect Tool (ompany 6,outh -merica <ivision9 produced '**** saw blades during the year. It
too& 1." hours of labor per blade at a rate of E'."* per hour. 7owever its standard labor rate is E'.**.
Its labor efficiency variance was an unfavorable E4****.
A-88#A<
%'. 8efer to .igure 1*5'. ?hat is 2erfectFs standard hours allowed for a volume of '**** blades@
a. 21**** hours
b. 1')*** hours
c. 11"*** hours
d. 12"*** hours
%). 8efer to .igure 1*5'. ?hat is 2erfectFs labor rate variance@
a. E"%"** 3
b. E"%"** .
c. E$**** 3
d. E$**** .
'*. 8efer to .igure 1*5'. ?hat is the Bournal entry to record both labor variances@
a.
Work ,n Process +!"!!!
Labor Rate Variance (!"!!!
Labor Efficiency Variance '!-!!!
Accr$e. Payroll %"!!"!!!
b.
Work ,n Process +(!"!!!
Labor Rate Variance #&"#!!
Labor Efficiency Variance '!"!!!
Accr$e. Payroll %"!#&"#!!
c.
Work ,n Process +!"!!!
Labor Rate Variance (!"!!!
Labor Efficiency Variance '!"!!!
Accr$e. Payroll +'!"!!!
d.
Work ,n Process +(!"!!!
Labor Rate Variance #&"#!!
Labor Efficiency Variance '!"!!!
Accr$e. Payroll +&&"#!!
A-88:#CIA> .igure 1*5)
Fig%re 10&.$
Hames (ompany manufactures t5shirts. <uring the year it manufactured 2"**** t5shirts using 2 hours
of direct labor at a rate of E'."* per hour. The materials and labor standards for manufacturing the t5
shirts are>
<irect materials 6$ yards of fabric D E3 per yard9 E1'
<irect labor 62.4 hours D E'.** per hour9 1%
It too& Hames 14***** yards at E2."* per yard to ma&e the 2"**** t5shirts.
A-88#A<
'1. 8efer to .igure 1*5). ?hat is HamesK materials price variance assuming that materials purchased
equals materials used@
a. E%"**** .
b. E%***** .
c. E%***** 3
d. E%"*** 3
'2. 8efer to .igure 1*5). ?hat is HamesK materials usage variance@
a. E2"**** .
b. E3***** .
c. E3***** 3
d. E2"**** 3
'3. 8efer to .igure 1*5). ?hat is HamesK labor rate variance@
a. E1)*$2" .
b. E2"**** .
c. E2"**** 3
d. E1)3%"* 3
'4. 8efer to .igure 1*5). ?hat is HamesK labor efficiency variance@
a. E'***** 3
b. E'"**** .
c. E'***** .
d. E'"**** 3
'". 8efer to .igure 1*5). ?hat is the entry to record the purchase of materials@
a. Materials 3"*****
Materials 2rice ;ariance %"****
-ccounts 2ayable 42"****
b. Materials 42*****
Materials 2rice ;ariance %"****
-ccounts 2ayable 4)"****
c. Materials 42*****
Materials 2rice ;ariance %*****
-ccounts 2ayable 3"*****
d. Materials 3"*****
Materials 2rice ;ariance %*****
-ccounts 2ayable 42*****
'$. 8efer to .igure 1*5). ?hat is the entry to record the issuance and usage of materials@
a.
Work in Process '"#!!"!!!
Materials Usage Variance )!!"!!!
Materials '"*!!"!!!
b.
Work in Process '"!!"!!!
Materials Usage Variance )!!"!!!
Materials '"#!!"!!!
c.
Work in Process '"!!"!!!
Materials Usage Variance )!!"!!!
Materials )"+!!"!!!
d.
Work in Process '"#!!"!!!
Materials Usage Variance )!!"!!!
Materials '"!!"!!!
'%. 8efer to .igure 1*5). ?hat is the entry to close the variances of labor and materials@
a.
Materials Price Variance &!!"!!!
Materials Usage Variance )!!"!!!
Labor Efficiency Variance *!!"!!!
/ost of 0oo.s Sol. %"*!!"!!!
/ost of 0oo.s Sol. #!"!!!
Labor Rate Variance #!"!!!
b.
Materials Price Variance &#!"!!!
Materials Usage Variance #!"!!!
Labor Efficiency Variance *#!"!!!
/ost of 0oo.s Sol. %"*#!"!!!
/ost of 0oo.s Sol. )!!"!!!
Labor Rate Variance )!!"!!!
c.
/ost of 0oo.s Sol. %"*!!"!!!
Materials Price Variance &!!"!!!
Materials Usage Variance )!!"!!!
Labor Efficiency Variance *!!"!!!
Labor Rate Variance #!"!!!
/ost of 0oo.s Sol. #!"!!!
d.
/ost of 0oo.s Sol. %"*#!"!!!
Materials Price Variance &#!"!!!
Materials Usage Variance #!"!!!
Labor Efficiency Variance *#!"!!!
Labor Rate Variance )!!"!!!
/ost of 0oo.s Sol. )!!"!!!
#R"/LEM
1. Top Aotch Music Inc. produces car stereos. <uring the year Top Aotch Music produced %*** stereos.
Materials and labor standards for producing these units are as follows>
<irect materials 61 electronic component &it D E1'"9 1'"
<irect materials 62 plastic casing D E4"9 )*
<irect labor 6' hours D E1"9 12*
Re0%ired:
-. (ompute the standards hours allowed for a volume of %*** stereos and the planned
cost.
:. (ompute the standard number of &its and casings allowed for a value of %*** units
and the planned cost for each direct material.
(. (ompute the total budget variances for materials and labor assuming that actual
number of electronic &its purchased and used were %3** at a price of E1%) and actual
plastic casings purchased were 144** at a price of E43. -ctual labor was "%2** hours at
E1".%" per hour.
2. 4eeds (ompany uses the following rule to determine whether labor efficiency variances should be
investigated>
- labor efficiency variance will be investigated when the variance is greater than either E1** or 1*
percent of the standard labor cost.
<uring ,eptember the company used "** direct labor hours at a rate of E1" per hour. Its standard rate
is 4%" direct labor hours at a rate of E14."* per hour.
-. <etermine the companyFs labor efficiency variance and whether it is favorable or
unfavorable.
:. ,hould the variance be investigated@
3. -cme :ric& (ompany uses the following rule to determine whether materials usage variances should
be investigated>
- materials usage variance will be investigated when the variance is greater than either E"*** or 1*
percent of the standard cost.
<uring Hune the company purchased and used )"** pounds of concrete for E" per pound. It was able
to ma&e 2**** bric&s. Its standard quantity of materials allowed is *.4" pound of concrete per bric& at
a standard price of E$ per pound.
-. <etermine -cmeFs material usage variance and whether it is favorable or unfavorable.
:. ,hould the variance be investigated@
4. ?estminster (ompany has the following information concerning its direct materials>
<irect Materials>
,tandard 1uantity 1*****
-ctual 1uantity '****
,tandard 2rice E3
-ctual 2rice E4
-. <etermine the materials price variance and whether it is favorable or unfavorable.
:. <etermine the materials usage variance and whether it is favorable or unfavorable.
(. ?estminster has set control limits stating that actual costs should be investigated if they
fall outside the acceptable range of the standard materials cost L1*G.
i. ?hat is the standard materials cost@
ii. ?hat are the upper and lower control limits@
iii. ?hat is the actual materials cost@
iv. ,hould the actual materials cost be investigated@
". 238# Inc. produces flavored waters sold in gallons. 8ecently the company adopted the following
materials standard for one gallon of its raspberry flavored water>
<irect materials 6)* o0. D E*.*'9 E %.2*
<uring the first month of operations the company e!perienced the following results>
-. Callon units produced> '****
:. +unces of materials purchased and used> %32**** ounces at E*.*%
(. Ao beginning or ending inventories of raw materials
Re0%ired:
-. (ompute the materials price variance indicating if it is favorable or unfavorable.
:. (ompute the materials usage variance indicating if it is favorable or unfavorable.
$. Mc<aniel (ompany manufactures 1**5pound bags of fertili0er that have the following unit standard
costs for direct materials and direct labor>
<irect materials 61** lbs. D E1.** per lb.9 E1**.**
<irect labor 6*." hours at E24 per hour9 12.**
Total standard prime cost per 1** lb. bag E112.**
The following activities were recorded for +ctober>
1*** bags were manufactured.
)"*** lbs. of materials costing E%$*** were purchased.
1*2"** lbs. of materials were used.
E12*** was paid for 4%" hours of direct labor.
There were no beginning or ending wor&5in5process inventories.
Re0%ired:
-. (ompute the direct materials variances.
:. (ompute the direct labor variances.
(. Cive possible reasons for the occurrence of each of the preceding variances.
%. <u8oss (ompany produces coats. The company uses a standard costing system and has set the
following standards for materials and labor>
.abric 6' yards D E$9 E4'
<irect labor 62 hours D E1'9 E3$
Total prime cost E'4
<uring the year <u8oss produced ""*** coats. -ctual fabric purchased was 4$**** yards at E".%"
per yard. There were no beginning or ending inventories of fabric. -ctual direct labor was 12****
hours at E1).2" per hour.
Re0%ired:
-. (ompute the cost of leather and direct labor that should be incurred for the production of ""***
coats.
:. (ompute the total budget variances for materials and labor.
(. (ompute the materials price variance.
<. (ompute the materials usage variance.
#. (ompute the labor rate variance.
.. (ompute the labor efficiency variance.
'. Moving :aby (ompany produces baby strollers. <uring the year )**** strollers were produced. The
actual labor used was 22"*** hours at E12.%" per hour. Moving :aby has the following labor
standards> 2 hours at E13.** per hour.
Re0%ired:
-. (ompute the labor rate variance indicating if it is favorable or unfavorable.
:. (ompute the labor efficiency variance indicating if it is favorable or unfavorable.
Materials> " yards E$ per yard E3*
<irect labor> 2 hours E' per hour 1$
The company records materials price variances at the time of purchase.
The following activity occurred during <ecember>
Materials purchased> "2** yards costing E2))**
Materials used> 4%"* yards
3nits produced> 1*** units
<irect labor> 21** hours costing E1%'"*
Re0%ired:
-. (alculate the direct materials price variance.
:. (alculate the direct materials usage variance.
(. (alculate the direct labor rate variance.
<. (alculate the direct labor efficiency variance.
1*. #astminster (ompany has the following information>
<irect Materials> <irect 4abor>
,tandard 1uantity 1**** ,tandard 7ours 2***
-ctual 1uantity 12*** -ctual 7ours 1'%"
,tandard 2rice E14 ,tandard 8ate E1*
-ctual 2rice E12 -ctual 8ate E11
-. <etermine the materials price variance and whether it is favorable or unfavorable.
:. <etermine the materials usage variance and whether it is favorable or unfavorable.
(. <etermine the labor rate variance and whether it is favorable or unfavorable.
<. <etermine the labor efficiency variance and whether it is favorable or unfavorable.
11. (rawford (orporation has the following information>
<irect Materials> <irect 4abor>
,tandard 1uantity 1"** ,tandard 7ours "**
-ctual 1uantity 14** -ctual 7ours "2"
,tandard 2rice E2* ,tandard 8ate E14
-ctual 2rice E1%."* -ctual 8ate E14
-. <etermine the materials price variance and whether it is favorable or unfavorable.
:. <etermine the materials usage variance and whether it is favorable or unfavorable.
(. <etermine the labor rate variance and whether it is favorable or unfavorable.
<. <etermine the labor efficiency variance and whether it is favorable or unfavorable.
12. -llison (ompany adopted a standard cost system several years ago. The standard costs for the prime
costs of its single product follow>
Material> 1* &ilograms D E4."* per &ilogram E4".**
4abor> $ hours D E'."* per hour E"1.**
The following operating data were ta&en from the records for Aovember>
1. 3nits completed> "'** units
2. :udgeted output> $*** units
3. Materials purchased> $**** &ilograms
4. Total actual labor costs> E3*$$**
". -ctual hours of labor> 3$"** hours
$. Material usage variance> E22"* 3
%. Total material variance> E4"* 3
(ompute the following>
-. 4abor rate variance
:. 4abor efficiency variance
(. -ctual &ilograms of material used in the production process
<. -ctual cost paid per &ilogram of material
13. CardenerFs Mar&et manufactures hedgers. <uring the year it manufactured "*** hedgers using 4.2
hours of direct labor per hedger at a rate of E'. The materials and labor standards for manufacturing
the hedgers are>
<irect materials 61* units D E29 E2*
<irect labor 64 hours D E%."* per hour9 3*
CardenerFs Mar&et actually purchased and used "3*** units of direct materials at a price of E2.2" per
unit.
Re0%ired:
-. <etermine the materials price variance and whether it is favorable or unfavorable.
:. <etermine the materials usage variance and whether it is favorable or unfavorable.
(. <etermine the labor rate variance and whether it is favorable or unfavorable.
<. <etermine the labor efficiency variance and whether it is favorable or unfavorable.
14. 8hodes (orporation manufactures a product with the following standard costs>
<irect materials 62* yards D E1.'" per yard9 E3%.**
<irect labor 64 hours D E12.** per hour9 4'.**
,tandards are based on normal monthly production involving 2*** direct labor hours 6"** units of
output9.
The following information pertains to Huly>
<irect materials purchased 61$*** yards D E1.'* per yard9 E2''**
<irect materials used 6)4** yards9
<irect labor 61''* hours D E12.2* per hour9 22)3$
-ctual production in Huly> 4$* units
Re0%ired:
-. (ompute the following variances for the month of Huly indicating whether each
variance is favorable or unfavorable>
1. Materials purchase price variance
2. Materials usage variance
3. 4abor rate variance
4. 4abor efficiency variance
:. Cive potential reasons for each of the variances. :e sure to consider inter5relationships
among variances.
1". <ogFs :est .riend manufactures dog food. <uring the month it manufactured 3*** bags of &ibble
using *.2" hour of direct labor per bag at a rate of E).** per hour. The materials and labor standards
for manufacturing the bags of &ibble are>
<irect materials 61 pound of beef D E1.** per pound9 E1.**
<irect materials 61 bag D E*.2"9 *.2"
<irect labor 6*.3* hour D E).**9 2.%*
The company actually used 33** pounds of beef at a price of E1.1* per pound. It also purchased 3***
bags at a price of E*.1" per bag.
-. <etermine the total materials price variance and whether it is favorable or unfavorable.
:. <etermine the materials usage variance for beef and whether it is favorable or
unfavorable.
(. <etermine the labor rate variance and whether it is favorable or unfavorable.
<. <etermine the labor efficiency variance and whether it is favorable or unfavorable.
1$. Mersey (ompany produced 1*** trash cans during March using 4"* direct labor hours and purchased
and used 31** pounds of rubber. Its materials and labor standards are>
<irect materials 63 pounds of rubber D E*."*9 E1."*
<irect labor 6*." hours D E1$.**9 3.**
Its materials price variance was a favorable E$2* and its labor rate variance was an unfavorable E)**.
-. (alculate the actual price per unit.
:. (alculate the actual labor rate.
(. <etermine the materials usage variance and whether it is favorable or unfavorable.
<. <etermine the labor efficiency variance and whether it is favorable or unfavorable.
1%. 2ontefract (ompany produced 2"** widgets during Aovember using 4*** units of materials at a cost
of E".** each. It also used "*** direct labor hours at a rate of E%.**. Its direct materials standard is 2
units per widget. Its direct labor standard is 2." hours per widget.
Its materials price variance was a favorable E'*** and its labor rate variance was an unfavorable
E1***.
-. (alculate the standard materials price per unit.
:. (alculate the standard labor rate.
(. <etermine the materials usage variance and whether it is favorable or unfavorable.
<. <etermine the labor efficiency variance and whether it is favorable or unfavorable.
1'. Hust 8ight Inc. produces Beans. The following standards have been established>
<irect materials 64 yards of denim D E1.2*9 E4.'*
<irect labor 61." hours D E)9 E13."*
,tandard prime cost E1'.3*
<uring the year 2"*** pairs of Beans were produced. 1"**** yards of denim were purchased and
used at E1.23 per yard. -ctual direct labor hours were 3$'** at E).2" per hour.
Re0%ired:
-. (ompute the materials variances and indicate if they are favorable or
unfavorable.
:. (ompute the labor variances and indicate if they are favorable or unfavorable.
(. 2repare the Bournal entries for the following>
2urchase of raw materials
Issuance of raw materials
-ddition of labor to ?or& in 2rocess
(losing of variances to (ost of Coods ,old
1). <uring -pril 8ain Cear 3nlimited produced ""** umbrellas from nylon that costs E*.4" per yard
which is E*.*" cheaper than the standard cost. It also used 3*** direct labor hours at a rate of E$."*.
Its direct materials standard is 1 yard per umbrella. Its direct labor standard is *." hour per umbrella.
Its materials usage variance was a favorable E"** and its labor rate variance was a favorable E)**.
-. (alculate the actual quantity of materials.
:. (alculate the standard labor rate.
(. <etermine the materials price variance and whether it is favorable or unfavorable.
<. <etermine the labor efficiency variance and whether it is favorable or unfavorable.
#. 8ecord the entries for the materials purchase the issuance and usage of materials and
the labor variances.
.. 2rovide the closing entries.
2*. #ider (ompany has the following information>
<irect Materials> <irect 4abor>
,tandard 1uantity 1***** ,tandard 7ours 1***
-ctual 1uantity ))"** -ctual 7ours 1*"*
,tandard 2rice E" ,tandard 8ate E12
-ctual 2rice E4 -ctual 8ate E13
-. <etermine the materials price variance and whether it is favorable or unfavorable.
:. <etermine the materials usage variance and whether it is favorable or unfavorable.
(. <etermine the labor rate variance and whether it is favorable or unfavorable.
<. <etermine the labor efficiency variance and whether it is favorable or unfavorable.
#. 2rovide the Bournal entries to record the purchase of materials the issuance and usage of
materials and direct labor variances.
.. 2rovide the closing entries for the immaterial variances.
21. The (atFs Meow manufactures gourmet cat food. <uring the month it manufactured "*** cans of
tuna using *.1* hour of direct labor per can at a rate of E'.** per hour. The materials and labor
standards for manufacturing the cans of tuna are as follows>
<irect materials 61 pound of tuna D E*."* per pound9 E*."*
<irect materials 61 can D E*.3"9 *.3"
<irect labor 6*.2* hour D E%.**9 1.4*
The company actually used 4)** pounds of tuna at a price of E*.$" per pound. It also purchased "***
cans at a price of E*.4" per can.
-. <etermine the total materials price variance and whether it is favorable or unfavorable.
:. <etermine the materials usage variance for tuna and whether it is favorable or
unfavorable.
(. <etermine the labor rate variance and whether it is favorable or unfavorable.
<. <etermine the labor efficiency variance and whether it is favorable or unfavorable.
#. Ma&e all necessary Bournal entries to record the purchase of materials the issuance and
usage of materials and the direct labor variances.
.. 2rovide the closing entries.
22. CrandmaFs -ttic (ompany produces soft pillows made from goose down. The company uses a
standard cost system and has set the following standards for materials and labor for each pillow>
.eathers from " large white geese 6" geese D E"9 E2"
.abric to ma&e pillow cases 63 yards D E29 $
<irect labor 6" hours D E'9 4*
Total prime cost E%1
<uring the month the company produced 1*** goose down pillows. -ctual geese purchased were
"1** at E4 per goose. -ctual fabric purchased was 2)** yards at E2.1* per yard. There were no
beginning or ending inventories of geese or fabric. -ctual direct labor was "2** hours at E%.%" per
hour.
-. <etermine the total materials price variance and whether it is favorable or unfavorable.
:. <etermine the total materials usage variance and whether it is favorable or unfavorable.
(. <etermine the labor rate variance and whether it is favorable or unfavorable.
<. <etermine the labor efficiency variance and whether it is favorable or unfavorable.
#. Ma&e all necessary Bournal entries to record the purchase of materials the issuance and
usage of materials and the direct labor variances.
.. 2rovide the closing entries.
23. ,tratford (ompany inspects every steam iron it manufactures for safety issues. The standard labor cost
is E12 per hour. The maintenance standard at the beginning of the first quarter is 2* minutes per iron.
,tratford is implementing a new production process that will aid in reducing any potential electrical
defects in the irons. This will decrease the inspection time to 1" minutes per iron. -fter the end of the
first quarter the new process had reduced the inspection time per iron from 2* minutes to 14 minutes.
-. Identify the &ai0en and maintenance labor standards in place at the beginning of the first
quarter. #!press the standards in both physical and financial terms.
:. (alculate the e!pected cost reduction and actual cost reduction.
24. ?iltshire 4imited produces woolen blan&ets and clothing. <uring Mear 1 ?iltshire produced 1****
items of blan&ets and clothing using 42"* bundles of wool at a price of E1* per bundle.
,tandard bundles of wool 4***
,tandard price E2* per bundle
The difference between the actual quantity of materials and the standard quantity of materials is due to
waste. -t the end of Mear 1 ?iltshire developed a new process that would cut down on the waste by
$* percent. :y the end of Mear 2 the company had actually cut down its waste by "* percent.
-. Identify the &ai0en and materials standards in place at the beginning of Mear 2. #!press
the standards in both physical and financial terms.
:. (alculate the e!pected cost reduction.
(. (alculate the actual cost reduction.
2". +verland -utomotive (ompany is considering on manufacturing a new brand of car. Civen the current
product and process designs the cost data are>
<irect materials costs 6per car9 E1****
<irect labor costs 6per car9 E 3***
+verhead costs 6per car9 E 4***
The company e!pects the selling price to be E2**** and has set a target profit of E"***.
- supplier told +verland that it could purchase a couple of similar components under a different brand
name at a lower price. This would result in cost savings of E2*** per car. .urthermore the company
found that it could redesign its manufacturing process to cut down on both inspection labor and wor&er
labor which would result in cost savings of E1*** per car.
-. (alculate +verlandFs target cost.
:. (alculate the total costs per car after +verland redesigns its processes and schedules to
buy cost5saving components.
(. ,hould +verland manufacture the car@ (alculate the e!pected profit after the cost
savings are ta&en into account.
2$. ?arwic& (ompany has the following information concerning its direct labor>
<irect 4abor>
,tandard 7ours $"**
-ctual 7ours $3"*
,tandard 8ate E1"
-ctual 8ate E1'
-. <etermine the labor rate variance and whether it is favorable or unfavorable.
:. <etermine the labor efficiency variance and whether it is favorable or unfavorable.
(. 2rovide the Bournal entry for the labor variances.
ESSA1
A-88:#CIA> Mou decide
Mou decide
A-88#A<
1. #!plain the three potential sources of quantitative standards.