Ch. 16 Cost

Which of the following statements are true?

Standards provide information for measuring performance.
When actual results depart significantly from the standard, the reasons why should be investigated.

A planning budget called for 500 units to be produced and total direct labor cost of $7,500. Actual production was 600 units and actual direct labor cost was $9,300. The spending variance is:

300 U
$7,500/500 = $15 standard rate per unit x 600 = $9,000 flexible budget - $9,300 actual = $300 U

A planning budget called for 500 units to be produced and total direct labor cost of $7,500. Actual production was 600 units and actual direct labor cost was $9,300. The activity variance is:

1,500 U
$7,500/500 = $15 standard rate per hour x 600 = $9,000 flexible budget - $7,500 planning budget = $1,500 U

A price variance is the difference between the:

actual price and the standard price multiplied by the actual amount of the input

The difference between the amount of an input used and the amount that should have been used, all evaluated at the standard price for the input, is called a(n) ____________ variance.

quantity

Standards are:

Set for each major production input or task
Compared to the actual quantities and costs of inputs
Benchmarks for measuring performance

When the actual cost incurred exceeds the standard cost allowed for the actual level of output, the spending variance is:

unfavorable

If the actual level of activity is greater than the planned level of activity, the activity variances will be:

unfavorable

The materials price variance is calculated using the ____________ quantity of the input purchased.

actual

True or false: All materials variances are generally the responsibility of the production manager.

False

A quantity variance is:

calculated using the standard price of the input

To calculate a price variance, multiply the ____________ quantity times the actual price and compare it to the actual quantity times the ____________ price.

actual; standard

The purchasing manager is generally responsible for the material ____________ variance, and the production manager is generally responsible for the material ____________ variance.

price; quantity

Which of the following statements is true?

A labor efficiency variance is a quantity variance.

The difference between the amount of an input used and the amount that should have been used, all evaluated at the standard price for the input, is called a(n) ____________ variance.

quantity

True or false: The standard hours or quantity allowed for an input is the amount of the input that should have been used to produce the standard output for the period.

False

The spending variance is:

(AQ x AP) - (SQ x SP)

The difference between the actual price paid for the material and what should have been paid according to the standard is reflected in the direct materials ____________ variance.

price

A materials price variance is equivalent to a labor ____________ variance and a materials quantity variance is equivalent to a labor ____________ variance.

rate; efficiency

A materials price variance is ____________ when the standard price is higher than the actual price.

favorable

The amount of an input that should have been used to produce the actual output is known as the ____________ quantity or hours allowed.

standard

The materials price variance is the difference between the actual price of materials:

and the standard price for materials with the difference multiplied by the actual quantity of materials

The materials price variance is:

Impacted by the delivery method chosen
Charged to the production manager when production problems occur
Generally the responsibility of the purchasing manager

When the standard purchase price is less than the actual price paid for materials, the material price variance is ____________.

unfavorable

The difference between the actual materials used in production and the standard amount allowed for the actual output is reflected in the materials ____________ variance.

quantity

An unfavorable materials quantity variance occurs when:

the actual amount of material used is greater than the standard amount of material allowed for the actual output

The materials price variance is generally the responsibility of the ____________ department manager.

purchasing

The standard price of the material is used in the calculation of the material quantity variance because:

using actual prices would hold the production manager responsible for the inefficiencies of the purchasing manager

The material quantity variance reflects the difference between the ____________ quantity of materials used in production and the ____________ quantity allowed for the actual output.

actual; standard

The standard price of materials is $3.50 per pound and the standard quantity allowed for actual output is 7,000 pounds. If the actual quantity purchased and used was 6,700 pounds, and the actual price per pound was $3.40, the direct materials price varian

670 F

When the actual quantity of materials used is less than the standard quantity allowed, the material quantity variance is labeled as ____________.

favorable

The material variance terms price and quantity are replaced with the terms ____________ and ____________ when computing direct labor variances.

rate; hours

True or false: The labor rate variance measures the productivity of direct labor.

False

The materials quantity variance is generally the responsibility of the ____________ department manager.

production

A labor rate variance is ____________ when the standard hourly rate is lower than the actual rate.

unfavorable

The materials price variance is calculated using the:

Actual price of the input
Actual quantity of the input purchased
Standard price of the input

The standard price of materials is $3.50 per pound and the standard quantity allowed for actual output is 7,000 pounds. If the actual quantity purchased and used was 6,700 pounds, and the actual price per pound was $3.40, the direct materials quantity var

1,050 F

The difference between the standard and the actual direct labor hourly rates is reflected in the ____________ ____________ variance.

labor rate

True or false: A favorable labor rate variance is always favorable for a company.

False

When the actual hourly rate is lower than the standard hourly rate, the labor rate variance is ____________.

favorable

The labor efficiency variance is the difference between actual hours used and standard hours allowed multiplied by the ____________ hourly rate.

standard

Poor supervision is one possible cause of an unfavorable ____________ variance.

labor efficiency

Which of the following statements are true?

How production supervisors use direct labor workers can lead to labor rate variances.
Overtime premiums can cause an unfavorable labor rate variance.

The difference between the actual hours used and the standard hours allowed for the actual output is used in the calculation of the labor ____________ variance.

efficiency

When demand for a product is insufficient to keep all of the production workers busy and no layoffs occur, an unfavorable ____________ ____________ variance may occur.

labor efficiency

If managers consider it unwise to adjust the workforce in response to changes in workload:

the direct labor workforce is really fixed in the short run

SP(AQ-SQ) is the formula for the materials ____________ variance

quantity

The labor efficiency variance is generally the responsibility of the ____________ manager.

production

Which of the following statements are correct?

Excessive inventories contribute to inefficient operations.
Building inventories can reduce unfavorable labor efficiency variances.

Select all that apply
Unfavorable labor rate variances may occur as a result of:

Skilled workers being assigned to jobs requiring little skill.
Overtime premiums being charged to the direct labor account.

Which of the following statements is true?

The variable part of manufacturing overhead is analyzed using the same basic formulas used for materials and labor.

The difference between the actual level of activity and the standard activity allowed for the actual output x the variable part of the predetermined overhead rate is the variable overhead ____________ variance.

efficiency

Excessive inventory on hand, especially in the work in process inventory account, may lead to:

Inefficient operations
High defect rates
Obsolete goods

Which statement regarding variable overhead variance analysis is true?

The variable overhead efficiency variance may depend on the efficiency of direct labor.

The difference between the standard and the actual variable overhead cost is reflected in the

variable overhead rate variance

When direct labor is used as the overhead allocation base, the variable overhead efficiency variance:

will be favorable when the direct labor efficiency variance is favorable

The variable overhead ____________ variance measures activity differences and the variable overhead ____________ variance measures cost differences.

efficiency; rate