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Standard Cost

THEORY
1. Which one of the following terms best describes the rate of output which qualified
workers can achieve as an average over the working day or shift, without over-exertion, provided
they adhere to the specified method of working and are well motivated in their work?
A. Standard time B. Standard hours C. Standard unit D.
Standard performance

2. The best characteristics of a standard cost system is


A. standard can pinpoint responsibility and help motivation
B. all variances from standard should be reviewed
C. all significant unfavorable variances should be reviewed
D. standard cost involves cost control which is cost reduction

3. Standard costs are used for all of the following except:


A. income determination C. measuring efficiencies
B. controlling costs D. forming a basis for price setting

4. Standard costs are least useful for


A. Measuring production efficiency C. Job
order production systems
B. Simplifying costing procedures D.
Determining minimum inventory levels

5. To which of the following is a standard cost nearly like?


A. Estimated cost. B. Budgeted cost. C. Product cost. D.
Period cost.

6. A difference between standard costs used for cost control and budgeted costs
A. Can exist because standard costs must be determined after the budget is completed.
B. Can exist because standard costs represent what costs should be while budgeted costs
represent expected actual costs.
C. Can exist because budgeted costs are historical costs while standard costs are based on
engineering studies.
D. Can exist because establishing budgeted costs involves employee participation and
standard costs do not.

7. Normal costing and standard costing differ in that


A. the two systems can show different overhead budget variances.
B. only normal costing can be used with absorption costing.
C. the two systems show different volume variances if standard hours do not equal actual
hours.
D. normal costing is less appropriate for multiproduct firms

8. When standard costs are used in a process-costing system, how, if at all, are equivalent
units of production (EUP) involved or used in the cost report at standard?
A. Equivalent units are not used.
B. Equivalent units are computed using a special approach.
C. The actual equivalent units are multiplied by the standard cost per unit.
D. The standard equivalent units are multiplied by the actual cost per unit.

9. The type of standard that is intended to represent challenging yet attainable results is:
A. theoretical standard D. normal standard
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B. flexible budget standard E. expected actual standard
C. controllable cost standard

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10. A company using very tight standards in a standard cost system should expect that
A. Most variances will be unfavorable
B. No incentive bonus will be paid
C. Costs will be controlled better than if lower standards were used
D. Employees will be strongly motivated to attain the standard

11. A predetermined overhead rate for fixed costs is unlike a standard fixed cost per unit in
that a predetermined overhead rate is
A. based on an input factor like direct labor hours and a standard cost per unit is based on a
unit of output.
B. based on practical capacity and a standard fixed cost can be based on any level of
activity.
C. used with variable costing while a standard fixed cost is used with absorption costing.
D. likely to be higher than a standard fixed cost per unit.

12. If a company wishes to establish factory overhead budget system in which estimated
costs can be derived directly from estimates of activity levels, it should prepare a
A. Flexible budget. B. Fixed budget. C. Capital budget.
D. Discretionary budget.

13. Lanta Restaurant compares monthly operating results with a static budget. When actual
sales are less than budget, would Lanta usually report favorable variances on variable food costs
and fixed supervisory salaries.
A. B. C. D.
Variable food costs Yes Yes No No
Fixed supervisory salaries Yes No Yes No

14. The primary difference between a fixed (static) budget and a variable (flexible) budget is that
a fixed budget:
A. cannot be changed after the period begins; while a variable budget can be changed after
the period begins
B. is a plan for a single level of sales (or other measure of activity); while a variable budget
consists of several plans, one for each of several levels of sales (or other measure of activity)
C. includes only fixed costs; while variable budget includes only variable costs
D. is concerned only with future acquisitions of fixed assets; while a variable budget is
concerned with expenses that vary with sales

15. Which of the following term is best identified with a system of standard cost?
A. Contribution approach. C. Marginal
costing.
B. Management by exception. D.
Standard accounting system.

16. Which department is typically responsible for a materials price variance?


A. Engineering. B. Production. C. Purchasing. D.
Sales.

17. Under a standard cost system, the materials efficiency variance are the responsibility of
A. Production and industrial engineering. C.
Purchasing and sales.
B. Purchasing and industrial engineering. D.
Sales and industrial engineering.

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18. Which of the following people is most likely
responsible for an unfavorable variable overhead efficiency variance?
A. production supervisor C. supplier
B. accountant D. purchasing agent

19. Which variance is LEAST likely to be affected by hiring workers with less skill than
those already working?
A. Material use variance. C. Material price
variance.
B. Labor rate variance. D. Variable
overhead efficiency variance.

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20. Which of the following standard costing variances would be least controllable by a
production supervisor?
A. Overhead volume. B. Materials usage. C. Labor efficiency.
D. Overhead efficiency.

21. The variance resulting from obtaining an output different from the one expected on the basis
of input is the:
A. mix variance B. usage variance C. yield variance D. efficiency variance

22. For the doughnuts of McDonut Co. the Purchasing Manager decided to buy 65,000 bags
of flour with a quality rating two grades below that which the company normally purchased.
This purchase covered about 90% of the flour requirement for the period. As to the material
variances, what will be the likely effect?
A. B. C. D.
Price variance Unfavorable Favorable No effect Favorable
Usage variance Favorable Unfavorable Unfavorable Favorable

23. Using the two-variance method for analyzing overhead, which of the following variances
contains both variable and fixed overhead elements?
A. B. C. D.
Controllable (Budget) Variance Yes Yes Yes No
Volume Variance Yes Yes No No
Efficiency Variance Yes No No No

24. Which of the following unfavorable variances is directly affected by the relative position
of a production process on a learning curve?
A. Materials mix. B. Materials price. C. Labor rate. D.
Labor efficiency.

25. A manager prepared the following table by which to analyze labor costs for the month:
Actual Hours at Actual Hours at Standard Hours at
Actual Rate Standard Rate Standard Rate
$10,000 $9,800 $8,820
What variance was $980?
A. Labor efficiency variance. C.
Volume variance.
B. Labor rate variance. D. Labor
spending variance.

26. A credit balance in the labor efficiency variance indicates that:


A. standard hours exceed actual hours
B. actual hours exceed standard hours
C. standard rate and standard hours exceed actual rate and actual hours
D. actual rate and actual hours exceed standard rate and standard hours

27. If the actual labor rate exceeds the standard labor rate and the actual labor hours exceed
the number of hours allowed, the labor rate variance and labor efficiency variance will be
A. B. C. D.
Labor Rate Variance Favorable Favorable Unfavorable Unfavorable
Labor Efficiency Variance Favorable Unfavorable Favorable Unfavorable

28. In the analysis of standard cost variances, the item which receives the most diverse

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treatment in accounting is
A. Direct labor cost C. Direct material cost
B. Factory overhead cost D. Variable cost.

29. When expenses estimated for the capacity attained differ from the actual expenses
incurred, the resulting balance is termed the
A. Activity variance. C. Unfavorable variance.
B. Budget variance. D. Volume variance.

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30. The total overhead variance is
A. The difference between actual overhead costs and budgeted overhead.
B. Based on actual hours worked for the units produced.
C. The difference between actual overhead costs and applied overhead.
D. The difference between budgeted overhead and applied overhead.

31. Management scrutinizes variances because


A. Management desires to detect such variances to be able to plan for promotions.
B. Management needs to determine the benefits foregone by such variances.
C. It is desirable under conventional knowledge on good management.
D. Management recognizes the need to know why variances happen to be able to make
corrective actions and fairly reward good performers.

32. If a company uses a predetermined rate for absorption of manufacturing overhead, the
volume variance is
A. The under- or over-applied fixed cost element of
overhead.
B. The under- or over-applied variable cost element of
overhead.
C. The difference between budgeted cost and actual cost
of fixed overhead items.
D. The difference between budgeted cost and actual cost
of variable overhead items.

33. The production volume variance occurs when using the


A. Absorption costing approach because of production exceeding the sales.
B. Absorption costing approach because production differs from that used in setting the
fixed overhead rate used in applying fixed overhead to production.
C. Variable costing approach because of sales exceeding the production for the period.
D. Variable costing approach because of production exceeding the sales for the period.

34. Henley Company uses a standard cost system in which it applies manufacturing overhead
to units of product on the basis of direct labor hours. For the month of January, the fixed
manufacturing overhead volume variance was $2,220 favorable. The company uses a fixed
manufacturing overhead rate of $1.85 per direct labor hour. During January, the standard direct
labor hours allowed for the month's output:
A. exceeded denominator hours by 1,000. C.
exceeded denominator hours by 1,200.
B. fell short of denominator hours by 1,000. D.
fell short of denominator hour by 1,200.

35. A spending variance for variable factory O/H based on direct labor hours is the difference
between actual variable factory O/H and the variable factory O/H that should have been incurred
for the actual hours worked. This variance results from
A. Price and quantity differences for overhead costs.
B. Price differences for overhead costs
C. Quantity differences for overhead costs
D. Differences caused by production volume variation

36. Which of the following is the most probable reason a company would experience an
unfavorable labor rate variance and a favorable efficiency variance?
A. The mix of workers assigned to the particular job was heavily weighted toward the use of
higher-paid, experienced individuals.
B. The mix of workers assigned to the particular job was heavily weighted toward the use of
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new, relatively low-paid unskilled workers.
C. Because of the production schedule, workers from other production areas were assigned
to assist in this particular process.
D. Defective materials caused more labor to be used to product a standard unit.

37. The variable factory overhead rate under the normal volume, practical capacity, and
expected activity levels would be the
A. Same except for practical capacity C.
Same except for normal volume
B. Same except for expected capacity D.
Same for all three activity levels

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38. A company reported a significant materials efficiency variance for the month of January.
All of the following are possible explanations for this variance except
A. Cutting back preventive maintenance.
B. Inadequately training and supervising the labor force.
C. Processing a large number of rush orders.
D. Producing more units than
planned for in the master budget.

39. A debit balance in the labor efficiency variance indicates that


A. Standard hours exceed actual hours. C.
Standard rate exceeds actual rate.
B. Actual hours exceed standard hours. D.
Actual rate exceeds standard rate.

40. What type of direct material variances for price and usage will arise if the actual number of
pounds of materials used was less than standard pounds allowed but actual cost exceeds standard
cost?
A. B. C. D.
Usage Unfavorable Favorable Favorable Unfavorable
Price Favorable Favorable Unfavorable Unfavorable

41. Which one of the following would not explain an adverse direct labor efficiency
variance?
A. Poor scheduling of direct labor hours
B. Setting standard efficiency at a level that is too low
C. Unusually lengthy machine breakdowns
D. A reduction in direct labor training

42. You used predetermined overhead rates and the resulting variances when compared with
the results using the actual rates were substantial. Production data indicated that volumes were
lower than the plan by a large difference. This situation can be due to
A. Overhead being substantially composed of fixed costs.
B. Overhead being substantially composed of variable costs.
C. Overhead costs being recorded as planned.
D. Products being simultaneously manufactured in single runs.
43. During 1990, a department’s three-variance factory O/H standard costing system reported
unfavorable spending and volume variances. The activity level selected for allocating factory
O/H to the product was based on 80% of practical capacity. If 100% of practical capacity had
been selected instead, how would the reported unfavorable spending and volume variances have
been affected?
A. B. C. D.
Spending Variance Increased Increased Unchanged Unchanged
Volume Variance Unchanged Increased Increased Unchanged
44. The journal entry to record the direct materials quantity variance may be recorded
A. Only when direct materials are purchased
B. Only when direct materials are issued to production
C. Either (a) or (b)
D. When inventory is taken at the end of the year.
45. Overapplied factory overhead results when
A. A plant is operated at less than its normal capacity.
B. Factory overhead costs incurred are greater than the costs charged to production.

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C. Factory overhead costs incurred are less than the costs charged to production.
D. Factory overhead costs incurred are unreasonably large in relation to the number of units
produced.
46. Standard costing will produce the same results as actual or conventional costing when
standard cost variances are distributed to
A. Cost of goods sold and inventories C.
An income or expense account
B. A balance sheet account D. Cost

ANSWER KEY
Theory
1. D 26. A
2. A 27. D
3. A 28. B
4. D 29. B
5. B 30. C
6. B 31. D
7. C 32. A
8. C 33. B
9. D 34. C
10. A 35. A
11. A 36. A
12. A 37. D
13. B 38. D
14. B 39. B
15. B 40. C
16. C 41. B
17. A 42. A
18. A 43. C
19. C 44. B
20. A 45. C
21. C 46. A
22. B
23. C
24. D
25. A

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