Accounting

CHAPTER 25
STANDARD COSTS AND BALANCED SCORECARD
SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S

TAXONOMY
Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT
True-False Statements
sg
1. 1 K 9. 3 C 17. 3 C 25. 5 C 33. 3 K
sg
2. 1 K 10. 3 K 18. 4 K 26. 5 K 34. 4 K
sg
3. 1 C 11. 3 C 19. 4 C 27. 6 C 35. 4 C
sg
4. 1 K 12. 3 K 20. 4 K 28. 9 C 36. 6 K
sg
5. 2 C 13. 3 K 21. 4 C 29. 9 C 37. 7 K
sg
6. 3 C 14. 3 C 22. 4 C 30. 9 C 38. 10 K
sg
7. 3 K 15. 3 K 23. 5 K 31. 1 K
sg
8. 3 C 16. 3 K 24. 5 K 32. 2 K
Multiple Choice Questions
a
39. 1 K 64. 3 C 89. 4 AP 114. 4 AP 139. 10 K
a
40. 1 K 65. 3 K 90. 4 AP 115. 4 AP 140. 10 K
a
41. 1 C 66. 3 C 91. 4 AP 116. 4 AP 141. 10 K
a
42. 1 C 67. 4 AP 92. 4 AP 117. 4 AP 142. 10 K
a
43. 1 C 68. 4 C 93. 4 C 118. 4 AP 143. 10 C
a
44. 1 K 69. 4 C 94. 4 C 119. 4 AP 144. 10 C
a
45. 1 K 70. 4 K 95. 4 C 120. 5 K 145. 10 AP
a
46. 2 C 71. 4 AP 96. 4 C 121. 5 K 146. 10 AP
a
47. 2 C 72. 4 AP 97. 4 C 122. 6 K 147. 10 AP
a
48. 2 C 73. 4 C 98. 4 C 123. 6 K 148. 10 AP
st
49. 2 C 74. 4 AP 99. 4 AP 124. 6 C 149. 2 K
st
50. 2 C 75. 4 AP 100. 4 AP 125. 7 C 150. 3 K
st
51. 3 K 76. 4 AP 101. 4 AP 126. 7 K 151. 3 K
sg
52. 3 K 77. 4 K 102. 4 AP 127. 7 K 152. 4 K
sg
53. 3 K 78. 4 K 103. 4 AP 128. 7 K 153. 4 K
st
54. 3 K 79. 4 C 104. 4 AP 129. 8 K 154. 4 K
sg
55. 3 K 80. 4 K 105. 4 AP 130. 8 K 155. 4 C
sg
56. 3 K 81. 4 AP 106. 4 AP 131. 8 K 156. 6 K
a sg,a
57. 3 K 82. 4 AP 107. 4 AP 132. 9 AP 157. 9 K
a st,a
58. 3 C 83. 4 K 108. 4 AP 133. 9 C 158. 10 K
a sg,a
59. 3 K 84. 4 K 109. 4 AP 134. 10 AP 159. 10 K
a
60. 3 C 85. 4 AP 110. 4 AP 135. 10 AP
a
61. 3 C 86. 4 AP 111. 4 AP 136. 10 K
a
62. 3 K 87. 4 AP 112. 4 AP 137. 10 C
a
63. 3 C 88. 4 AP 113. 4 AP 138. 10 C
Brief Exercises
a a
160. 1 AP 162. 4 AP 164. 5 AP 166. 10 AP 168. 9 AP
a a a
161. 3 AP 163. 4 AP 165. 10 AP 167. 9 AP 169. 10 AP
sg
This question also appears in the Study Guide.
st
This question also appears in a self-test at the student companion website.
25 - 2 Test Bank for Accounting Principles, Tenth Edition
a
This question covers a topic in an appendix to the chapter.
FOR INSTRUCTOR USE ONLY

Standard Costs and Balanced Scorecard 25 - 3
SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S

TAXONOMY
Exercises
a
170. 1,3 AP 176. 4 AP 182. 4,5,10 AN a188. 4,9 AP a
194. 9 AP
a
171. 3 AP 177. 4 AP 183. 4,5,10 AP a189. 5,10 AP a
195. 9,10 AP
172. 3,4 AP 178. 4 AP a
184.. 4,5,10 AP a190. 5,10 AP a
196. 10 AP
173. 4 AP 179. 4 AP a
185.. 4,6,9 AP a191. 5,10 AP a
197. 10 AP
174. 4 AP 180. 5 AP a
186.. 4,9 AP 192. 6 AP
175. 4 AP 181. 4,5 AN a
187.. 4,9 AP 193. 7 AP
.
Completion Statements
a
198. 1 K 200. 4 K 202. 4 K 204. 5 K 206. 10 K
a
199. 3 K 201. 4 K 203. 5 K 205. 6 K 207. 10 K
Matching
208. 1 K
Short-Answer Essay
209. 1 K 211. 4 213. 1 K
210. 4 K 212. 8 214. 4 K
SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE

Item Type Item Type Item Type Item Type Item Type Item Type Item Type
Study Objective 1
1. TF 4. TF 40. MC 43. MC 160. BE 208. Ma
2. TF 31. TF 41. MC 44. MC 170. Ex 209. SA
3. TF 39. MC 42. MC 45. MC 198. C 213. SA
Study Objective 2
5. TF 46. MC 48. MC 50. MC 170. Ex
32. TF 47. MC 49. MC 149. MC
Study Objective 3
6. TF 12. TF 33. TF 56. MC 62. MC 151. MC
7. TF 13. TF 51. MC 57. MC 63. MC 161. BE
8. TF 14. TF 52. MC 58. MC 64. MC 170. Ex
9. TF 15. TF 53. MC 59. MC 65. MC 171. Ex
10. TF 16. TF 54. MC 60. MC 66. MC 172. Ex
11. TF 17. TF 55. MC 61. MC 150. MC 199. C

Study Objective 4
18. TF 71. MC 85. MC 99. MC 113. MC 173. Ex 188. Ex
19. TF 72. MC 86. MC 100. MC 114. MC 174. Ex 200. C
20. TF 73. MC 87. MC 101. MC 115. MC 175. Ex 201. C
21. TF 74. MC 88. MC 102. MC 116. MC 176. Ex 202. C
22. TF 75. MC 89. MC 103. MC 117. MC 177. Ex 210. K
76. MC 90. MC 104. MC 118. MC 178. Ex 211. K
77. MC 91. MC 105. MC 119. MC 179. Ex 214. K
78. MC 92. MC 106. MC 152. MC 181. Ex
34. TF 79. MC 93. MC 107. MC 153. MC 182. Ex
35. TF 80. MC 94. MC 108. MC 154. MC 183. Ex
67. MC 81. MC 95. MC 109. MC 155. MC 184. Ex
68. MC 82. MC 96. MC 110. MC 162. BE 185. Ex
69. MC 83. MC 97. MC 111. MC 163. BE 186. Ex
70. MC 84. MC 98. MC 112. MC 172. Ex 187. Ex
Study Objective 5
26. TF 164. BE 182. Ex 189. Ex 195. Ex 203. C 24. TF
120. MC 180. Ex 183. Ex 190. Ex 196. Ex 204. C 25. TF
121. MC 181. Ex 184. Ex 191. Ex 197. Ex 23. TF
Study Objective 6
27. TF 122. MC 124. MC 185. Ex 205. C
36. TF 123. MC 156. MC 192. Ex
Study Objective 7
37. TF 125. MC 126. MC 127. MC 128. MC 193. Ex
Study Objective 8
129. MC 130. MC 131. MC 212. K
Study Objective 9a
28. TF 30. TF 133. MC 167. BE 185. Ex 187. Ex 194. Ex
29. TF 132. MC 157. MC 168. BE 186. Ex 188. Ex 195. Ex
Study Objective 10a
38. TF 138. MC 143. MC 148. MC 169. BE 190. Ex 206. C
134. MC 139. MC 144. MC 158. MC 182. Ex 191. Ex 207. C
135. MC 140. MC 145. MC 159. MC 183. Ex 195. Ex
136. MC 141. MC 146. MC 165. BE 184. Ex 196. Ex
137. MC 142. MC 147. MC 166. BE 189. Ex 197. Ex
Note: TF = True-False BE = Brief Exercise C = Completion

MC = Multiple Choice Ex = Exercise SA = Short Answer
MA = Matching

CHAPTER STUDY OBJECTIVES

1. Distinguish between a standard and a budget. Both standards and budgets are predeter-
mined costs. The primary difference is that a standard is a unit amount, whereas a budget is a
total amount. A standard may be regarded as the budgeted cost per unit of product.
2. Identify the advantages of standard costs. Standard costs offer a number of advantages.
They (a) facilitate management planning, (b) promote greater economy and efficiency, (c) are
useful in setting selling prices, (d) contribute to management control, (e) permit "management
by exception," and (f) simplify the costing of inventories and reduce clerical costs.
3. Describe how companies set standards. The direct materials price standard should be
based on the delivered cost of raw materials plus an allowance for receiving and handling.
The direct materials quantity standard should establish the required quantity plus an
allowance for waste and spoilage.
The direct labor price standard should be based on current wage rates and anticipated
adjustments such as COLAs. It also generally includes payroll taxes and fringe benefits.
Direct labor quantity standards should be based on required production time plus an
allowance for rest periods, cleanup, machine setup, and machine downtime.
For manufacturing overhead, a standard predetermined overhead rate is used. It is based on
an expected standard activity index such as standard direct labor hours or standard machine
hours.
4. State the formulas for determining direct materials and direct labor variances. The
formulas for direct materials variances are:
(Actual quantity × Actual price) – (Standard quantity × Standard price) = Total materials variance
(Actual quantity × Actual price) – (Actual quantity × Standard price) = Materials price variance
(Actual quantity × Standard price) – (Standard quantity × Standard price) = Materials quantity variance
The formulas for the direct labor variances are:
(Actual hours × Actual rate) – (Standard hours × Standard rate) = Total labor variance
(Actual hours × Actual rate) – (Actual hours × Standard rate) = Labor price variance
(Actual hours × Standard rate) – (Standard hours × Standard rate) = Labor quantity variance
5. State the formula for determining the total manufacturing overhead variance. The
formula for the total manufacturing overhead variance is:
(Actual overhead) – (Overhead applied at standard hours allowed) = Total overhead variance
6. Discuss the reporting of variances. Variances are reported to management in variance
reports. The reports facilitate management by exception by highlighting significant differences.
7. Prepare an income statement for management under a standard costing system. Under
a standard costing system, an income statement prepared for management will report cost of
goods sold at standard cost and then disclose each variance separately,
8. Describe the balanced scorecard approach to performance evaluation. The balanced
scorecard incorporates financial and nonfinancial measures in an integrated system that links
performance measurement and a company’s strategic goals. It employs four perspectives:
financial, customer, internal processes, and learning and growth. Objectives are set within
each of these perspectives that link to objectives within the other perspectives.
a
9. Identify the features of a standard cost accounting system. In a standard cost accounting
system, companies journalize and post standard costs, and they maintain separate variance
accounts in the ledger.

a
10. Compute overhead controllable and volume variance. The total overhead variance is
generally analyzed through a price variance and a quantity variance. The name usually given
to the price variance is the overhead controllable variance. The quantity is referred to as the
overhead volume variance.
TRUE-FALSE STATEMENTS
1. Inventories cannot be valued at standard cost in financial statements.
Ans: F, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
2. Standard cost is the industry average cost for a particular item.

Ans: F, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Cost Management
3. A standard is a unit amount, whereas a budget is a total amount.

Ans: T, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Cost Management
4. Standard costs may be incorporated into the accounts in the general ledger.
Ans: T, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Cost Management
5. An advantage of standard costs is that they simplify costing of inventories and reduce
clerical costs.
Cost Management
6. Setting standard costs is relatively simple because it is done entirely by accountants.

Ans: F, SO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Decision Modeling, AICPA PC: None,
IMA: Cost Management
7. Normal standards should be rigorous but attainable.

Cost Management
8. Actual costs that vary from standard costs always indicate inefficiencies.
Ans: F, SO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Cost Management
9. Ideal standards will generally result in favorable variances for the company.
Cost Management
10. Normal standards incorporate normal contingencies of production into the standards.
Cost Management
11. Once set, normal standards should not be changed during the year.
Cost Management
12. In developing a standard cost for direct materials, a price factor and a quantity factor must
be considered.
Cost Management

13. A direct labor price standard is frequently called the direct labor efficiency standard.
Cost Management
14. The standard predetermined overhead rate must be based on direct labor hours as the
standard activity index.
Cost Management
15. Standard cost cards are the subsidiary ledger for the Work in Process account in a
standard cost system.
Cost Management
16. A variance is the difference between actual costs and standard costs.
Cost Management
17. If actual costs are less than standard costs, the variance is favorable.
Cost Management
18. A materials quantity variance is calculated as the difference between the standard direct
materials price and the actual direct materials price multiplied by the actual quantity of
direct materials used.
Cost Management
19. An unfavorable labor quantity variance indicates that the actual number of direct labor
hours worked was greater than the number of direct labor hours that should have been
worked for the output attained.
Cost Management
20. Standard cost + price variance + quantity variance = Budgeted cost.

Cost Management
21. There could be instances where the production department is responsible for a direct
materials price variance.
Ans: T, SO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,

22. The starting point for determining the causes of an unfavorable materials price variance is
the purchasing department.
Cost Management
23. The overhead controllable variance relates primarily to fixed overhead costs.
Cost Management
24. The overhead volume variance relates only to fixed overhead costs.
Cost Management
25. If production exceeds normal capacity, the overhead volume variance will be favorable.
Cost Management
26. The total overhead variance is the difference between actual overhead costs and
overhead costs applied based on standard hours allowed.
Cost Management
27. Variance analysis facilitates the principle of "management by exception."

Cost Management
28. A credit to a Materials Quantity Variance account indicates that the actual quantity of
direct materials used was greater than the standard quantity of direct materials allowed.
Cost Management
29. A standard cost system may be used with a job order cost system but not with a process
cost system.
Cost Management
30. A debit to the Overhead Volume Variance account indicates that the standard hours
allowed for the output produced was greater than the standard hours at normal capacity.
Cost Management
31. In concept, standards and budgets are essentially the same.

Cost Management
32. Standards may be useful in setting selling prices for finished goods.
Cost Management
33. The materials price standard is based on the purchasing department's best estimate of
the cost of raw materials.
Cost Management
34. The materials price variance is normally caused by the production department.

Cost Management
35. The use of an inexperienced worker instead of an experienced employee can result in a
favorable labor price variance but probably an unfavorable quantity variance.
Cost Management
36. In using variance reports, top management normally looks carefully at every variance.
Ans: F, SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
37. The use of standard costs in inventory costing is prohibited in financial statements.
Ans: F, SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
a
38. The overhead controllable variance is the difference between the actual overhead costs
incurred and the budgeted costs for the standard hours allowed.
Ans: T, SO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
Answers to True-False Statements

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
1. F 7. T 13. F 19. T 25. T 31. T 37. F
a
2. F 8. F 14. F 20. F 26. T 32. T 38. T
3. T 9. F 15. F 21. T 27. T 33. T
4. T 10. T 16. T 22. T 28. F 34. F
5. T 11. F 17. T 23. F 29. F 35. T
6. F 12. T 18. F 24. T 30. F 36. F
MULTIPLE CHOICE QUESTIONS

39. What is a standard cost?
a. The total number of units times the budgeted amount expected
b. Any amount that appears on a budget
c. The total amount that appears on the budget for product costs
d. The amount management thinks should be incurred to produce a good or service
Ans: D, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Cost Management
40. A standard cost is

a. a cost which is paid for a group of similar products.
b. the average cost in an industry.
c. a predetermined cost.
d. the historical cost of producing a product last year.
Ans: C, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Cost Management

41. The difference between a budget and a standard is that

a. a budget expresses what costs were, while a standard expresses what costs should
be.
b. a budget expresses management's plans, while a standard reflects what actually
happened.
c. a budget expresses a total amount, while a standard expresses a unit amount.
d. standards are excluded from the cost accounting system, whereas budgets are
generally incorporated into the cost accounting system.
Ans: C, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
42. Standard costs may be used by

a. universities.
b. governmental agencies.
c. charitable organizations.
d. all of these.
Ans: D, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
43. Which of the following statements is false?

a. A standard cost is more accurate than a budgeted cost.
b. A standard is a unit amount.
c. In concept, standards and budgets are essentially the same.
d. The standard cost of a product is equivalent to the budgeted cost per unit of product.
Ans: A, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Cost Management
44. Budget data are not journalized in cost accounting systems with the exception of
a. the application of manufacturing overhead.
b. direct labor budgets.
c. direct materials budgets.
d. cash budget data.
Ans: A, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Budget Preparation
45. It is possible that a company's financial statements may report inventories at

a. budgeted costs.
b. standard costs.
c. both budgeted and standard costs.
d. none of these.
Ans: B, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
46. If standard costs are incorporated into the accounting system,

a. it may simplify the costing of inventories and reduce clerical costs.
b. it can eliminate the need for the budgeting process.
c. the accounting system will produce information which is less relevant than the
historical cost accounting system.
d. approval of the shareholders is required.
Cost Management

47. Standard costs

a. may show past cost experience.
b. help establish expected future costs.
c. are the budgeted cost per unit in the present.
d. all of these.
48. Which of the following statements about standard costs is false?

a. Properly set standards should promote efficiency.
b. Standard costs facilitate management planning.
c. Standards should not be used in "management by exception."
d. Standard costs can simplify the costing of inventories.
49. Which of the following is not considered an advantage of using standard costs?
a. Standard costs can reduce clerical costs.
b. Standard costs can be useful in setting prices for finished goods.
c. Standard costs can be used as a means of finding fault with performance.
d. Standard costs can make employees "cost-conscious."
50. If a company is concerned with the potential negative effects of establishing standards, it
should
a. set loose standards that are easy to fulfill.
b. offer wage incentives to those meeting standards.
c. not employ any standards.
d. set tight standards in order to motivate people.
Ans: B, SO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Cost Management
51. A standard which represents an efficient level of performance that is attainable under
expected operating conditions is called a(n)
a. ideal standard.
b. loose standard.
c. tight standard.
d. normal standard.
Cost Management
52. Ideal standards

a. are rigorous but attainable.
b. are the standards generally used in a master budget.
c. reflect optimal performance under perfect operating conditions.
d. will always motivate employees to achieve the maximum output.
Cost Management

53. The final decision as to what standard costs should be is the responsibility of
a. the quality control engineer.
b. the managerial accountants.
c. the purchasing agent.
d. management.
Cost Management
54. The labor time requirements for standards may be determined by the
a. sales manager.
b. product manager.
c. industrial engineers.
d. payroll department manager.
Cost Management
55. The two levels that standards may be set at are

a. normal and fully efficient.
b. normal and ideal.
c. ideal and less efficient.
d. fully efficient and fully effective.
Ans: B, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Cost Management
56. The most rigorous of all standards is the

a. normal standard.
b. realistic standard.
c. ideal standard.
d. conceivable standard.
Cost Management
57. Most companies that use standards set them at

a. the normal level.
b. a conceivable level.
c. the ideal level.
d. last year's level.
Cost Management
58. A managerial accountant

1. does not participate in the standard setting process.
2. provides knowledge of cost behaviors in the standard setting process.
3. provides input of historical costs to the standard setting process.
a. 1
b. 2
c. 3
d. 2 and 3

59. The cost of freight-in

a. is to be included in the standard cost of direct materials.
b. is considered a selling expense.
c. should have a separate standard apart from direct materials.
d. should not be included in a standard cost system.
Cost Management
60. The direct materials quantity standard would not be expressed in

a. pounds.
b. barrels.
c. dollars.
d. board feet.
61. The direct materials quantity standard should

a. exclude unavoidable waste.
b. exclude quality considerations.
c. allow for normal spoilage.
d. always be expressed as an ideal standard.
62. The direct labor quantity standard is sometimes called the direct labor
a. volume standard.
b. effectiveness standard.
c. efficiency standard.
d. quality standard.
Cost Management
63. A manufacturing company would include setup and downtime in their direct
a. materials price standard.
b. materials quantity standard.
c. labor price standard.
d. labor quantity standard.
64. Allowance for spoilage is part of the direct

a. materials price standard.
b. materials quantity standard.
c. labor price standard.
d. labor quantity standard.
Cost Management

65. The total standard cost to produce one unit of product is shown
a. at the bottom of the income statement.
b. at the bottom of the balance sheet.
c. on the standard cost card.
d. in the Work in Process Inventory account.
Cost Management
66. An unfavorable materials quantity variance would occur if

a. more materials were purchased than were used.
b. actual pounds of materials used were less than the standard pounds allowed.
c. actual labor hours used were greater than the standard labor hours allowed.
d. actual pounds of materials used were greater than the standard pounds allowed.
67. Fugate Company planned to use 1 yard of plastic per unit budgeted at $81 a yard.
However, the plastic actually cost $80 per yard. The company actually made 3,900 units,
although it had planned to make only 3,300 units. Total yards used for production were
3,960. How much is the total materials variance?
a. $48,600 U
b. $4,860 U
c. $3,960 F
d. $900 U
Ans: D, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Cost Management
68. If actual direct materials costs are greater than standard direct materials costs, it means that
a. actual costs were calculated incorrectly.
b. the actual unit price of direct materials was greater than the standard unit price of
direct materials.
c. the actual unit price of raw materials or the actual quantities of raw materials used was
greater than the standard unit price or standard quantities of raw materials expected.
d. the purchasing agent or the production foreman is inefficient.
69. If actual costs are greater than standard costs, there is a(n)
a. normal variance.
b. unfavorable variance.
c. favorable variance.
d. error in the accounting system.
Cost Management
70. A total materials variance is analyzed in terms of

a. price and quantity variances.
b. buy and sell variances.
c. quantity and quality variances.
d. tight and loose variances.
Cost Management

71. A company developed the following per-unit standards for its product: 2 pounds of direct
materials at $4 per pound. Last month, 1,500 pounds of direct materials were purchased
for $5,700. The direct materials price variance for last month was
a. $5,700 favorable.
b. $300 favorable.
c. $150 favorable.
d. $300 unfavorable.
Ans: B, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:
72. The per-unit standards for direct materials are 2 gallons at $4 per gallon. Last month,
5,600 gallons of direct materials that actually cost $21,200 were used to produce 3,000
units of product. The direct materials quantity variance for last month was
b. $1,200 favorable.
c. $1,600 unfavorable.
d. $2,800 unfavorable.
Ans: A, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:
73. The purchasing agent of the Aldrich Company ordered materials of lower quality in an
effort to economize on price. What variance will most likely result?
a. Favorable materials quantity variance
b. Favorable total materials variance
b. Unfavorable materials price variance
d. Unfavorable labor quantity variance
74. The per-unit standards for direct labor are 2 direct labor hours at $15 per hour. If in
producing 1,800 units, the actual direct labor cost was $48,000 for 3,000 direct labor
hours worked, the total direct labor variance is
a. $1,800 unfavorable.
75. The standard rate of pay is $20 per direct labor hour. If the actual direct labor payroll was
$117,600 for 6,000 direct labor hours worked, the direct labor price (rate) variance is
d. $3,000 favorable.

76. The standard number of hours that should have been worked for the output attained is
6,000 direct labor hours and the actual number of direct labor hours worked was 6,300. If
the direct labor price variance was $3,150 unfavorable, and the standard rate of pay was
$9 per direct labor hour, what was the actual rate of pay for direct labor?
a. $8.50 per direct labor hour
b. $7.50 per direct labor hour
c. $9.50 per direct labor hour
d. $9.00 per direct labor hour
Ans: C, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:
77. Which one of the following statements is true?

a. If the materials price variance is unfavorable, then the materials quantity variance
must also be unfavorable.
b. If the materials price variance is unfavorable, then the materials quantity variance
must be favorable.
c. Price and quantity variances move in the same direction. If one is favorable, the others
will be as well.
d. There is no correlation of favorable or unfavorable for price and quantity variances.
Cost Management
78. Variances from standards are

a. expressed in total dollars.
b. expressed on a per-unit basis.
c. expressed on a percentage basis.
d. all of these.
Cost Management
79. A favorable variance

a. is an indication that the company is not operating in an optimal manner.
b. implies a positive result if quality control standards are met.
c. implies a positive result if standards are flexible.
d. means that standards are too loosely specified.
Cost Management
80. The total materials variance is equal to the

a. materials price variance.
b. difference between the materials price variance and materials quantity variance.
c. product of the materials price variance and the materials quantity variance.
d. sum of the materials price variance and the materials quantity variance.
Cost Management
81. Information on Francona's direct labor costs for the month of August is as follows:
Actual rate $10
Standard hours 11,000
Actual hours 10,000
Direct labor price variance—unfavorable $4,000
What was the standard rate for August?
a. $9.96 c. $10.40
b. $9.60 d. $10.04
82. The total variance is $35,000. The total materials variance is $14,000. The total labor
variance is twice the total overhead variance. What is the total overhead variance?
a. $3,500
b. $7,000
c. $10,500
d. $14,000
83. The formula for the materials price variance is

a. (AQ × SP) – (SQ × SP).
b. (AQ × AP) – (AQ × SP).
c. (AQ × AP) – (SQ × SP).
d. (AQ × SP) – (SQ × AP).
Ans: B, SO: 4, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:
84. The formula for the materials quantity variance is

a. (SQ × AP) – (SQ × SP).
b. (AQ × AP) – (AQ × SP).
c. (AQ × SP) – (SQ × SP).
d. (AQ × AP) – (SQ × SP).
Ans: C, SO: 4, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:
85. A company uses 8,400 pounds of materials and exceeds the standard by 300 pounds.
The quantity variance is $1,800 unfavorable. What is the standard price?
a. $2
b. $4
c. $6
d. Cannot be determined from the data provided.
86. A company purchases 20,000 pounds of materials. The materials price variance is $4,000
favorable. What is the difference between the standard and actual price paid for the
materials?
a. $1.00
b. $.20
c. $5.00
d. Cannot be determined from the data provided.
87. A company uses 20,000 pounds of materials for which it paid $6.00 a pound. The
materials price variance was $15,000 unfavorable. What is the standard price per pound?
a. $0.75
b. $5.25
c. $6.00
d. $6.75

88. If the materials price variance is $3,600 F and the materials quantity and labor variances
are each $2,700 U, what is the total materials variance?
a. $3,600 F
b. $2,700 U
c. $900 F
d. $4,050 U
89. Keller Company has a materials price standard of $2.00 per pound. Six thousand pounds
of materials were purchased at $2.20 a pound. The actual quantity of materials used was
6,000 pounds, although the standard quantity allowed for the output was 5,400 pounds.
Keller Company's materials price variance is

a. $120 U.
b. $1,200 U.
c. $1,080 U.
d. $1,200 F.
Keller Company's materials quantity variance is

a. $1,200 U.
b. $1,200 F.
c. $1,320 F.
d. $1,320 U.
Keller Company's total materials variance is

a. $2,400 U.
b. $2,400 F.
c. $2,520 U.
d. $2,520 F.
92. The standard quantity allowed for the units produced was 4,500 pounds, the standard
price was $2.50 per pound, and the materials quantity variance was $375 favorable. Each
unit uses 1 pound of materials. How many units were actually produced?
a. 4,350
b. 4,500
c. 11,625
d. 4,650

93. The matrix approach to variance analysis

a. will yield slightly different variances than the formula approach.
b. is more accurate than the formula approach.
c. does not separate the price and quantity variance calculations.
d. provides a convenient structure for determining each variance.
94. Labor efficiency is measured by the

a. materials quantity variance.
b. total labor variance.
c. labor quantity variance.
d. labor rate variance.
95. An unfavorable labor quantity variance may be caused by

a. paying workers higher wages than expected.
b. misallocation of workers.
c. worker fatigue or carelessness.
d. higher pay rates mandated by union contracts.
96. The investigation of materials price variance usually begins in the

a. first production department.
b. purchasing department.
c. controller's office.
d. accounts payable department.
Cost Management
97. The investigation of a materials quantity variance usually begins in the

a. production department.
b. purchasing department.
c. sales department.
d. controller's department.
Cost Management
98. If the labor quantity variance is unfavorable and the cause is inefficient use of direct labor,
the responsibility rests with the
a. sales department.
b. production department.
c. budget office.
d. controller's department.
Cost Management

99. Kitselman Inc. produces a product requiring 3 direct labor hours at $16 per hour. During
January, 2,000 products are produced using 6,300 direct labor hours. Kitselman’s actual
payroll during January was $98,280. What is the labor quantity variance?
a. $2,280 U
b. $4,800 F
c. $2,520 F
d. $4,800 U
100. A company developed the following per-unit standards for its product: 2 gallons of direct
materials at $8 per gallon. Last month, 3,000 gallons of direct materials were purchased
for $22,800. The direct materials price variance for last month was
b. $600 favorable.
c. $1,200 favorable.
101. The per-unit standards for direct materials are 2 pounds at $5 per pound. Last month,
11,200 pounds of direct materials that actually cost $53,000 were used to produce 6,000
units of product. The direct materials quantity variance for last month was
102. The per-unit standards for direct labor are 1.5 direct labor hours at $15 per hour. If in
producing 2,400 units, the actual direct labor cost was $46,000 for 3,000 direct labor
hours worked, the total direct labor variance is
103. The standard rate of pay is $12 per direct labor hour. If the actual direct labor payroll was
$47,040 for 4,000 direct labor hours worked, the direct labor price (rate) variance is
a. $960 unfavorable.
b. $960 favorable.

104. The standard number of hours that should have been worked for the output attained is
10,000 direct labor hours and the actual number of direct labor hours worked was 10,500.
If the direct labor price variance was $10,500 unfavorable, and the standard rate of pay
was $12 per direct labor hour, what was the actual rate of pay for direct labor?
a. $11 per direct labor hour
b. $9 per direct labor hour
c. $13 per direct labor hour
d. $12 per direct labor hour
105. A company purchases 12,000 pounds of materials. The materials price variance is $6,000
favorable. What is the difference between the standard and actual price paid for the
materials?
a. $1.00
b. $.50
c. $2.00
d. $6.00
106. A company uses 40,000 gallons of materials for which they paid $7 a gallon. The
materials price variance was $80,000 favorable. What is the standard price per gallon?
a. $2
b. $5
c. $7
d. $9
107. LRF, Inc. produces a product requiring 4 pounds of material costing $3.50 per pound.
During December, LRF purchased 4,200 pounds of material for $14,112 and used the
material to produce 500 products. What was the materials price variance for December?
a. $560 F
b. $588 F
c. $112 U
d. $672 U
108. Finney Co. manufactures a product requiring two pounds of direct material. During 2012,
Finney purchases 24,000 pounds of material for $99,200 when the standard price per
pound is $4. During 2012, Finney uses 22,000 pounds to make 12,000 products. The
standard direct material cost per unit of finished product is
a. $8.27.
b. $9.01.
c. $8.00.
d. $8.53.

109. Gant Co. manufactures a product with a standard direct labor cost of two hours at $18.00
per hour. During July, 2,000 units were produced using 4,200 hours at $18.30 per hour.
The labor quantity variance was
a. $3,660 F.
b. $3,600 U.
c. $2,460 U.
d. $3,660 U.
110. Gant Co. manufactures a product with a standard direct labor cost of two hours at $18.00
per hour. During July, 2,000 units were produced using 4,200 hours at $18.30 per hour.
The labor price variance was
a. $1,260 U.
b. $4,860 U.
c. $4,860 F.
d. $3,600 U.
111. A company developed the following per unit materials standards for its product: 3 pounds
of direct materials at $5 per pound. If 12,000 units of product were produced last month
and 37,500 pounds of direct materials were used, the direct materials quantity variance
was
b. $7,500 unfavorable.
112. The standard direct labor cost for producing one unit of product is 5 direct labor hours at a
standard rate of pay of $16. Last month, 15,000 units were produced and 73,500 direct
labor hours were actually worked at a total cost of $1,080,000. The direct labor quantity
variance was
b. $36,000 unfavorable.
113. Herrera Co. produces a product requiring 8 pounds of material at $1.50 per pound.
Herrera produced 10,000 units of this product during 2012 resulting in a $30,000
unfavorable materials quantity variance. How many pounds of direct material did Herrera
use during 2012?
a. 100,000 pounds
b. 80,000 pounds
c. 160,000 pounds
d. 125,000 pounds

114. ToolTime has a standard of 1.5 pounds of materials per unit, at $6 per pound. In
producing 2,000 units, ToolTime used 3,100 pounds of materials at a total cost of $18,135.
ToolTime's total variance is
a. $450 F.
b. $135 U.
c. $465 U.
d. $600 U.
ToolTime's materials price variance is
a. $135 U.
b. $465 F.
c. $600 F.
d. $1,050 F.
ToolTime's materials quantity variance is
a. $135 F.
b. $465 U.
c. $600 U.
d. $1,050 U.
117. ToolTime has a standard of 2 hours of labor per unit, at $18 per hour. In producing 2,000
units, ToolTime used 3,850 hours of labor at a total cost of $70,455. ToolTime's total labor
variance is
a. $1,155 U.
b. $1,200 U.
c. $1,545 F.
d. $2,895 F.
units, ToolTime used 3,850 hours of labor at a total cost of $70,455. ToolTime's labor price
variance is
a. $1,155 U.
b. $1,200 U.
c. $1,545 F.
d. $2,895 F.

units, ToolTime used 3,850 hours of labor at a total cost of $70,455. ToolTime's labor
quantity variance is
a. $1,155 U.
b. $1,545 F.
c. $2,700 F.
d. $2,895 F.
120. Which one of the following describes the total overhead variance?
a. The difference between what was actually incurred and the flexible budget amount
b. The difference between what was actually incurred and overhead applied
c. The difference between the overhead applied and the flexible budget amount
d. The difference between what was actually incurred and the total production budget
Cost Management
121. Manufacturing overhead costs are applied to work in process on the basis of
a. actual hours worked.
b. standard hours allowed.
c. ratio of actual variable to fixed costs.
d. actual overhead costs incurred.
Cost Management
122. When is a variance considered to be 'material'?

a. When it is large compared to the actual cost
b. When it is infrequent
c. When it is unfavorable
d. When it could have been controlled more effectively
Cost Management
123. Variance reports are

a. external financial reports.
b. SEC financial reports.
c. internal reports for management.
d. all of these.
Ans: C, SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
124. In using variance reports, management looks for

a. total assets invested.
b. significant variances.
c. competitors’ costs in comparison to the company's costs.
d. more efficient ways of valuing inventories.
Ans: B, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

125. Parnell Company prepared its income statement for internal use. How would amounts for
cost of goods sold and variances appear?
a. Cost of goods sold would be at actual costs, and variances would be reported
separately.
b. Cost of goods sold would be combined with the variances, and the net amount
reported at standard cost.
c. Cost of goods sold would be at standard costs, and variances would be reported
separately.
d. Cost of goods sold would be combined with the variances, and the net amount
reported at actual cost.
Ans: C, SO: 7, Bloom: C, Difficulty: Easy, Min: 2, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
126. Colt Widgets prepared its income statement for management using a standard cost
accounting system. Which of the following appears at the “standard” amount?
a. Sales
b. Selling expenses
c. Gross profit
d. Cost of goods sold
Ans: D, SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
127. The costing of inventories at standard cost for external financial statement reporting
purposes is
a. not permitted.
b. preferable to reporting at actual costs.
c. in accordance with generally accepted accounting principles if significant differences
exist between actual and standard costs.
d. in accordance with generally accepted accounting principles if significant differences
do not exist between actual and standard costs.
Ans: D, SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
128. Income statements prepared internally for management often show cost of goods sold at
standard cost and variances are
a. separately disclosed.
b. deducted as other expenses and revenues.
c. added to cost of goods sold.
d. closed directly to retained earnings.
Ans: A, SO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
129. The balanced scorecard approach

a. uses only financial measures to evaluate performance.
b. uses rather vague, open statements when setting objectives in order to allow
managers and employees flexibility.
c. normally sets the financial objectives first, and then sets the objectives in the other
perspectives to accomplish the financial objectives.
d. evaluates performance using about 10 different perspectives in order to effectively
incorporate all areas of the organization.
Cost Management

130. The customer perspective of the balanced scorecard approach

a. is the most traditional view of the company.
b. evaluates the internal operating processes critical to the success of the organization.
c. evaluates how well the company develops and retains its employees.
d. evaluates how well the company is performing from the viewpoint of those people who
buy its products and services.
Cost Management
131. The perspectives included in the balanced scorecard approach include all of the following
except the
a. internal process perspective.
b. capacity utilization perspective.
c. learning and growth perspective.
d. customer perspective.
Cost Management
a
132. If 10,000 pounds of direct materials are purchased for $9,300 on account and the
standard cost is $.90 per pound, the journal entry to record the purchase is
a. Raw Materials Inventory...................................................... 9,300
Accounts Payable....................................................... 9,300
b. Work In Process Inventory................................................... 9,300
Materials Quantity Variance........................................ 300
c. Raw Materials Inventory...................................................... 9,200
Materials Price Variance.............................................. 300
d. Raw Materials Inventory...................................................... 9,000
Materials Price Variance...................................................... 300
a
133. Debit balances in variance accounts represent
a. unfavorable variances.
b. favorable variances.
c. favorable for price variances; unfavorable for quantity variances.
d. favorable for quantity variances; unfavorable for price variances.
Cost Management
a
134. Budgeted overhead for Mengotti Company at normal capacity of 30,000 direct labor hours
is $6 per hour variable and $4 per hour fixed. In May, $310,000 of overhead was incurred
in working 31,500 hours when 32,000 standard hours were allowed. The overhead
controllable variance is

a
135. Budgeted overhead for Mengotti Company at normal capacity of 30,000 direct labor hours
is $6 per hour variable and $4 per hour fixed. In May, $310,000 of overhead was incurred
in working 31,500 hours when 32,000 standard hours were allowed. The overhead volume
variance is
a
136. An overhead volume variance is calculated as the difference between normal capacity
hours and standard hours allowed
a. times the total predetermined overhead rate.
b. times the predetermined variable overhead rate.
c. times the predetermined fixed overhead rate.
d. divided by actual number of hours worked.
Ans: C, SO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
a
137. Which of the following statements is false?
a. The overhead volume variance indicates whether plant facilities were used efficiently
during the period.
b. The costs that cause the overhead volume variance are usually controllable costs.
c. The overhead volume variance relates solely to fixed costs.
d. The overhead volume variance is favorable if standard hours allowed for output are
greater than the standard hours at normal capacity.
Ans: B, SO: 10, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
a
138. If the standard hours allowed are less than the standard hours at normal capacity,
a. the overhead volume variance will be unfavorable.
b. variable overhead costs will be underapplied.
c. the overhead controllable variance will be favorable.
d. variable overhead costs will be overapplied.
Ans: A, SO: 10, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
a
139. Which of the following statements about overhead variances is false?
a. Standard hours allowed are used in calculating the controllable variance.
b. Standard hours allowed are used in calculating the volume variance.
c. The controllable variance pertains solely to fixed costs.
d. The total overhead variance pertains to both variable and fixed costs.
a
140. The overhead volume variance relates only to
a. variable overhead costs.
b. fixed overhead costs.
c. both variable and fixed overhead costs.
d. all manufacturing costs.
Ans: B, SO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,

a
141. What does the controllable variance measure?
a. Whether a company incurred more or less fixed overhead costs compared to the
amount of overhead applied
b. Whether a company incurred more or less overhead costs than allowed
c. The efficiency of using variable overhead resources
d. Whether the production manager is able to control the production facility
Ans: B, SO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
a
142. The overhead controllable variance is calculated as the difference between actual
overhead costs incurred and the budgeted
a. overhead costs for the standard hours allowed.
b. overhead costs applied to the product.
c. overhead costs at the normal level of activity.
d. fixed overhead costs.
Ans: A, SO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
a
143. If the standard hours allowed are less than the standard hours at normal capacity, the
volume variance
a. cannot be calculated.
b. will be favorable.
c. will be unfavorable.
d. will be greater than the controllable variance.
a
144. The budgeted overhead costs for standard hours allowed and the overhead costs applied
to the product are the same amount
a. for both variable and fixed overhead costs.
b. only when standard hours allowed are less than normal capacity.
c. for variable overhead costs.
d. for fixed overhead costs.
a
145. The following information was taken from the annual manufacturing overhead cost budget
of Coen Company.
Variable manufacturing overhead costs $69,300
Fixed manufacturing overhead costs $41,580
Normal production level in labor hours 23,100
Normal production level in units 5,775
Standard labor hours per unit 4
During the year, 5,600 units were produced, 18,340 hours were worked, and the actual
manufacturing overhead was $113,400. Actual fixed manufacturing overhead costs
equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis
of direct labor hours. Coen's total overhead rate is
a. $1.80.
b. $3.00.
c. $4.80.
d. $4.91.

a
of Coen Company.
of direct labor hours. Coen's total overhead variance is
a. $1,260 U.
b. $4,620 U.
c. $5,880 U.
d. $16,800 U.
a
of Coen Company.
of direct labor hours. Coen's controllable overhead variance is
a. $1,260 U.
b. $4,620 U.
c. $5,880 U.
d. $16,800 U.

a
of Coen Company.
of direct labor hours. Coen's volume overhead variance is
a. $1,260 U.
b. $4,620 U.
c. $5,880 U.
d. $16,800 U.
149. All of the following are advantages of standard costs except they
a. facilitate management planning.
b. are useful in setting selling prices.
c. simplify costing in inventories.
d. increase net income.
Cost Management
150. Standards based on the optimum level of performance under perfect operating conditions
are
a. attainable standards.
b. ideal standards.
c. normal standards.
d. practical standards.
Cost Management
151. The direct materials price standard should include an amount for all of the following
except
a. receiving costs.
b. storing costs.
c. handling costs.
d. normal spoilage costs.
Cost Management
152. The standard unit cost is used in the calculation of which of the following variances?
Materials Price Variance Materials Quantity Variance
a. No No
b. No Yes
c. Yes No
d. Yes Yes
Cost Management

153. The difference between the actual labor rate multiplied by the actual labor hours worked
and the standard labor rate multiplied by the standard labor hours is the
a. total labor variance.
b. labor price variance.
c. labor quantity variance.
d. labor efficiency variance.
Cost Management
154. The formula for the labor price variance is

a. (AH) x (SR) less (SH) x (SR).
b. (AH) x (AR) less (AH) x (SR).
c. (AH) x (AR) less (SH) x (SR).
d. (AH) x (SR) less (AH) x (SR).
Cost Management
155. Which department is usually responsible for a labor price variance attributable to
misallocation of workers?
a. Quality control
b. Purchasing
c. Engineering
d. Production
156. In reporting variances,

a. promptness is relatively unimportant.
b. management normally investigates all variances.
c. the reports should facilitate management by exception.
d. the reports are not departmentalized.
Cost Management
a
157. A standard cost system may be used in
Job Order Costing Process Costing
a. No No
b. Yes No
c. No Yes
d. Yes Yes
Cost Management
a
158. The formula for computing the overhead volume variance is
a. fixed overhead rate times (actual hours less standard hours allowed).
b. variable overhead rate times (actual hours less standard hours allowed).
c. fixed overhead rate times (normal capacity hours less standard hours allowed).
d. variable overhead rate times (normal capacity hours less standard hours allowed).

a
159. The overhead controllable variance is the difference between the
a. budgeted overhead based on standard hours allowed and the overhead applied to
production.
b. budgeted overhead based on standard hours allowed and budgeted overhead based
on actual hours worked.
c. actual overhead and the overhead applied to production.
d. actual overhead and budgeted overhead based on standard hours allowed.
Ans: D, SO: 10, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
Answers to Multiple Choice Questions

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
a
39. d 57. a 75. b 93. d 111. b 129. c 147. b
a
40. c 58. d 76. c 94. c 112. d 130. d 148. a
41. c 59. a 77. d 95. c 113. a 131. b 149. d
a
42. d 60. c 78. a 96. b 114. b 132. d 150. b
a
43. a 61. c 79. b 97. a 115. b 133. a 151. d
a
44. a 62. c 80. d 98. b 116. c 134. b 152. d
a
45. b 63. d 81. b 99. d 117. c 135. a 153. a
a
46. a 64. b 82. b 100. c 118. a 136. c 154. b
a
47. d 65. c 83. b 101. a 119. c 137. b 155. d
a
48. c 66. d 84. c 102. b 120. b 138. a 156. c
a a
49. c 67. d 85. c 103. b 121. b 139. c 157. d
a a
50. b 68. c 86. b 104. c 122. a 140. b 158. c
a a
51. d 69. b 87. b 105. b 123. c 141. b 159. d
a
52. c 70. a 88. c 106. d 124. b 142. a
a
53. d 71. b 89. b 107. b 125. c 143. c
a
54. c 72. a 90. a 108. c 126. d 144. c
a
55. b 73. d 91. a 109. b 127. d 145. c
a
56. c 74. b 92. a 110. a 128. a 146. c
BRIEF EXERCISES
BE 160
Loomis Company uses both standards and budgets. The company estimates that production for
the year will be 200,000 units of Product Fast. To produce these units of Product Fast, the
company expects to spend $600,000 for materials and $800,000 for labor.
Instructions
Compute the estimates for (a) a standard cost and (b) a budgeted cost.
Ans: N/A, SO: 1, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:

Solution 160 (5 min.)

(a) Standards are stated as a per unit amount. Thus, the standards are materials $3,
($600,000 ÷ 200,000), and labor $4, ($800,000 ÷ 200,000).
(b) Budgets are stated as a total amount. Thus, the budgeted costs for the year are materials
$600,000 and labor $800,000.
BE 161
Labor data for making one pound of finished product in Ortiz Company are as follows: (1) Price—
hourly wage rate $11.00, payroll taxes $1.80, and fringe benefits $1.20. (2) Quantity—actual
production time 1.1 hours, rest periods and clean up 0.25 hours, and setup and downtime 0.15
hours.
Instructions
Compute the following.
(a) Standard direct labor rate per hour.
(b) Standard direct labor hours per pound.
(c) Standard labor cost per pound.

Standard direct labor rate per hour = $14.00 ($11.00 + $1.80 + $1.20).
Standard direct labor hours per pound = 1.5 hours (1.1 +.25 +.15).
Standard labor cost per pound = $21.00 ($14.00 × 1.5).
BE 162
During March, Odle Company purchases and uses 8,800 pounds of materials costing $35,640 to
make 4,000 tiles. Odle Company’s standard material cost per tile is $8 (2 pounds of material ×
$4.00).
Instructions
Compute the total, price, and quantity material variances for Odle Company for March.

Total materials variance = $3,640 U, (8,800 × $4.05) – (8,000 × $4.00).
Materials price variance = $440 U, (8,800 × $4.05) – (8,800 × $4.00).
Materials quantity variance = $3,200 U, (8,800 × $4.00) – (8,000 × $4.00).
BE 163
During January, HPA Company incurs 1,850 hours of direct labor at an hourly cost of $11.80 in
producing 1,000 units of its finished product. HPA standard labor cost per unit of output is $22 (2
hours x $11.00).
Instructions
Compute the total, price, and quantity labor variances for HPA Company for January.


Total labor variance = $170 F, (1,850 × $11.80) – (2,000 × $11.00).
Labor price variance = $1,480 U, (1,850 × $11.80) – (1,850 × $11.00).
Labor quantity variance = $1,650 F, (1,850 × $11.00) – (2,000 × $11.00
BE 164
In October, Falk Inc. reports 42,000 actual direct labor hours, and it incurs $194,000 of
manufacturing overhead costs. Standard hours allowed for the work done is 40,000 hours. Falk’s
predetermined overhead rate is $5.00 per direct labor hour.
Instructions
Compute the total manufacturing overhead variance.

Actual Overhead – Overhead Applied = Total overhead Variance
$194,000 – $200,000* = $6,000 F
*40,000 × $5 = $200,000
a
BE 165
predetermined overhead rate is $5.00 per direct labor hour. In addition, the flexible manufacturing
overhead budget shows that budgeted costs are $3.80 variable per direct labor hour and $60,000
fixed.
Instructions
Compute the manufacturing overhead controllable variance.
a
Actual overhead – Overhead Budgeted = Overhead Controllable Variance
$194,000 – $212,000* = $18,000 F
*(40,000 × $3.80) + $60,000 = $212,000
a
BE 166
predetermined overhead rate is $5.00 per direct labor hour. In addition, the flexible manufacturing
overhead budget shows that budgeted costs are $3.80 variable per direct labor hour and $60,000
fixed. Normal capacity was 50,000 direct labor hours.
Instructions
Compute the manufacturing overhead volume variance.

a
Fixed Overhead Rate × (Normal Capacity Hours – Standard Hours Allowed) = Overhead Volume Variance
$1.20/hr. × (50,000 – 40,000) = $12,000 U
a
BE 167
Cinelli Company purchased 6,000 units of raw material on account for $17,600, when the
standard cost was $12,800. Later in the month, Cinelli Company issued 5,600 units of raw
materials for production, when the standard units were 5,800.
Instructions
Journalize the transactions for Cinelli Company to account for this activity.
a
(a) Raw Materials Inventory.............................................................. 18,000
Materials Price Variance.................................................... 400
Accounts Payable.............................................................. 17,600
(b) Work in Process Inventory (5,800 × $3*)..................................... 17,400

Materials Quantity Variance............................................... 600
Raw Materials Inventory (5,600 × $3)................................ 16,800
*$3 = $18,000 ÷ 6,000 units
a
BE 168
Griffith Co. incurred direct labor costs of $54,000 for 6,000 hours. The standard labor cost was
$55,200. During the month, Griffith assigned 6,000 direct labor hours costing $54,000 to
production. The standard hours were 6,200.
Instructions
Journalize the transactions for Griffith Co. to account for this activity.
a
(a) Factory Labor............................................................................. 55,200
Labor Price Variance........................................................ 1,200
Wages Payable................................................................ 54,000
(b) Work in Process Inventory (6,200 × $9.20*)............................... 57,040

Labor Quantity Variance................................................... 1,840
Factory Labor................................................................... 55,200
*$9.20 = $55,200 ÷ 6,000 hours

a
BE 169
Manufacturing overhead data for the production of Product B by Elliott Company are as follows.
Overhead incurred for 69,000 actual direct labor hours worked $206,000
Overhead rate (variable $2.00; fixed $1.00) at normal capacity of
72,000 direct labor hours $3.00
Standard hours allowed for work done 69,000
Instructions
Compute the controllable and volume overhead variances.
a
Overhead controllable variance:
Actual Overhead – Overhead Budgeted
$206,000 – $210,000 = $4,000 F
[(69,000 × $2) + $72,000]
Overhead volume variance:

Fixed Overhead Rate × Normal Capacity Hours = Standard Hours Allowed
$1.00 × (72,000 – 69,000) = $3,000 U
EXERCISES
Ex 170
Greinke Company is planning to produce 2,500 units of product in 2012. Each unit requires
3 pounds of materials at $6 per pound and a half hour of labor at $16 per hour. The overhead rate
is 75% of direct labor.
Instructions
(a) Compute the budgeted amounts for 2012 for direct materials to be used, direct labor, and
applied overhead.
(b) Compute the standard cost of one unit of product.
Ans: N/A, SO: 1,3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:

(a) Direct materials: (2,500  3)  $6 = $45,000
Direct labor: (2,500  1/2)  $16 = $20,000
Overhead: $20,000  75% = $15,000
(b) Direct materials: 3  $6 = $18
Direct labor: 1/2  $16 = 8
Overhead: $8  75% = 6
Standard cost: $32

Ex. 171
Lloyd Inc. manufactures and sells a nutrition drink for children. It wants to develop a standard cost
per gallon. The following are required for production of a 100 gallon batch:
1,960 ounces of lime Kool-Drink at $.12 per ounce
40 pounds of granulated sugar at $.60 per pound
63 kiwi fruit at $.50 each
100 protein tablets at $.90 each
4,000 ounces of water at $.003 per ounce
Lloyd estimates that 2% of the lime Kool-Drink is wasted, 20% of the sugar is lost, and 10% of the
kiwis cannot be used.
Instructions
Compute the standard cost of the ingredients for one gallon of the nutrition drink.
Ans: N/A, SO: 3, Bloom: AP, Difficulty: Hard, Min: 15, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:
Solution 171 (15–20 min.)

Ingredient Amount Per Gallon Standard Waste
Lime Kool-Drink 19.6 oz. 2%
Sugar .40 lb. 20%
Kiwis .63 10%
Protein Tablets 1 0%
Water 40 oz. 0%
Standard Usage Standard Price Standard Cost

Lime Kool-Drink (a) 20.00 oz. $ .12 $2.40
Sugar (b) .50 lb. .60 .30
Kiwis (c) .70 .50 .35
Protein Tablets 1 .90 .90
Water 40 oz. .003 .12
Standard Cost per Gallon $4.07
(a) .98X = 19.6 ounces X = 20.00

(b) .80X = .40 pounds X= .50
(c) .90X = .63 kiwis X= .70

Ex. 172
Kwik Repair Service, Inc. is trying to establish the standard labor cost of a typical engine tune-up.
The following data have been collected from time and motion studies conducted over the past
month.
Actual time spent on the tune-up 1.0 hour
Hourly wage rate $16
Payroll taxes 10% of wage rate
Setup and downtime 10% of actual labor time
Cleanup and rest periods 20% of actual labor time
Fringe benefits 25% of wage rate
Instructions
(a) Determine the standard direct labor hours per tune-up
(b) Determine the standard direct labor hourly rate.
(c) Determine the standard direct labor cost per tune-up.
(d) If a tune-up took 1.5 hours at the standard hourly rate, what was the direct labor quantity
variance?
Ans: N/A, SO: 3,4, Bloom: AP, Difficulty: Hard, Min: 15, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:

(a) Actual service time 1.0 hours
Setup and downtime 0.1 hours
Cleanup and rest periods 0.2 hours
Standard direct labor hours per tune-up 1.3 hours
(b) Hourly wage rate $16.00

Payroll taxes ($16  10%) 1.60
Fringe benefits ($16  25%) 4.00
Standard direct labor hourly rate 21.60
(c) Standard direct labor cost per oil change = 1.30 hours  $21.60 per hour
= $28.08
(d) Direct labor quantity variance = (1.50 hours  $21.60) – (1.30 hours  $21.60)
= $32.40 – $28.08
= $4.32 U
Ex. 173
Malone, Inc. manufactures one product called tybos. The company uses a standard cost system
and sells each tybo for $8. At the start of monthly production, Malone estimated 9,500 tybos
would be produced in March. Malone has established the following material and labor standards
to produce one tybo:
Standard Quantity Standard Price

Direct materials 2.5 pounds $3 per pound
Direct labor 0.6 hours $10 per hour

Ex. 173 (Cont)

During March 2012, the following activity was recorded by the company relating to the production
of tybos:
1. The company produced 9,000 units during the month.

2. A total of 24,000 pounds of materials were purchased at a cost of $66,000.
3. A total of 24,000 pounds of materials were used in production.
4. 5,000 hours of labor were incurred during the month at a total wage cost of $55,000.
Instructions
Calculate the following variances for March for Malone, Inc.
(a) Materials price variance
(b) Materials quantity variance
(c) Labor price variance
(d) Labor quantity variance

(a) Materials price variance
= (Actual quantity purchased × Actual price) – (Actual quantity purchased × Standard price)
= (24,000 × $2.75) – (24,000 × $3) = $6,000 favorable
(b) Materials quantity variance

= (Actual quantity used × Standard price) – (Standard quantity × Standard price)
= (24,000 × $3) – [(9,000 × 2.5) × $3] = $4,500 unfavorable
(c) Labor price variance

= (Actual hours x Actual rate) – (Actual hours × Standard rate)
= (5,000 × $11) – (5,000 × $10) = $5,000 unfavorable
(d) Labor quantity variance = (Actual hours × Standard rate) – (Standard hours × Standard rate)
= (5,000 × $10) – [(0.6 × 9,000) × $10] = $4,000 favorable
Ex. 174
The following direct labor data pertain to the operations of Nagel Manufacturing Company for the
month of November:
Actual labor rate $12.25 per hr.
Actual hours used 18,000
Standard labor rate $12.00 per hr.
Standard hours allowed 17,100

Ex. 174 (Cont.)

Instructions
Prepare a matrix and calculate the labor variances.
Price Variance Quantity Variance
Total
Labor Variance
Actual Hours Actual Hours Standard Hours

× Actual Rate × Standard Rate × Standard Rate
18,000 × $12.25 = 18,000 × $12.00 = 17,100 × $12.00 =
$220,500 $216,000 $205,200
$4,500 U $10,800 U
Total
Labor Variance
$15,300 U
Ex. 175
The following direct materials data pertain to the operations of Osborn Manufacturing Company
for the month of December.
Standard materials price $5.00 per pound
Actual quantity of materials purchased and used 16,500 pounds

Ex. 175 (Cont.)
The standard cost card shows that a finished product contains 4 pounds of materials. The 16,500
pounds were purchased in December at a discount of 4% from the standard price. In December,
4,000 units of finished product were manufactured.
Instructions
Prepare a matrix for materials and calculate the materials variances.
Total
Materials Variance
Actual Quantity Actual Quantity Standard Quantity

× Actual Rate × Standard Rate × Standard Price
16,500 × $4.80 = 16,500 × $5.00 = 16,000 × $5.00 =
$79,200 $82,500 $80,000
$3,300 F $2,500 U
Total
Materials Variance
$800 F

Ex. 176
Ratliff Industries provided the following information about its standard costing system for 2012:
Standard Data Actual Data
Materials 10 lbs. @ $4 per lbs. Produced 4,000 units
Labor 3 hrs. @ $21 per hr. Materials purchased 50,000 lbs. for $210,000
Budgeted production 3,500 units Materials used 41,000 lbs.
Labor worked 11,000 hrs. costing $220,000
Instructions
Calculate the labor price variance and the labor quantity variance.

Labor price (rate) variance = (Actual hours x Actual rate) – (Actual hours x Standard rate)
= (11,000 × $20) – (11,000 × $21) = $11,000 favorable
Labor quantity (efficiency) variance

= (Actual hours × Standard rate) – (Standard hours × Standard rate)
= (11,000 × $21) – (3 × 4,000 × $21) = $21,000 favorable
Ex. 177
Ratliff Industries provided the following information about its standard costing system for 2012:
Materials 10 lbs. @ $4 per lbs. Produced 4,000 units
Labor 3 hrs. @ $21 per hr. Materials purchased 50,000 lbs. for $210,000
Budgeted production $3,500 units Materials used 41,000 lbs.
Labor worked 11,000 hrs. costing $220,000
Instructions
Determine the amount of the materials price variance. By how much will the materials price
variances differ if the price variance is determined at the time of production?

Identification of price variances at the time of purchase:
Materials price variance = (Actual quantity purchased × Actual price) – (Actual quantity
purchased x Standard price)
= (50,000 × $4.20) – (50,000 × $4) = $10,000 Unfavorable
Identification of price variances at the time of production:

Materials price variance = (Actual quantity used × Actual price) – (Actual quantity used ×
Standard price)
= (41,000 × $4.20) – (41,000 × $4) = $8,200 Unfavorable
Difference = $10,000 – $8,200 = $1,800 Unfavorable

Ex. 178
Tebbetts Company estimated it would produce 6,200 buckets, though actual production was
6,000 during August. The standard labor cost is 2 buckets per hour at $18.00 per hour. Actual
cost per hour was $18.40 with a total labor cost of $53,360.
Instructions
Determine the amounts of the labor price and the labor quantity variances for August.

Labor price (rate) variance = (Actual hours × Actual rate) – (Actual hours × Standard rate)
= (2,900 × $18.40) – (2,900 × $18) = $1,160 Unfavorable
Labor quantity (efficiency) variance

= (Actual hours × Standard rate) – (Standard hours × Standard rate)
= (2,900 × $18) – [(6,000 × 1/2 × $18) = $1,800 Favorable
Ex. 179
Stumfoll Inc., which produces a single product, has prepared the following standard cost sheet for
one unit of the product.
Direct materials (6 pounds at $2 per pound) $12
Direct labor (2 hours at $12 per hour) $24
During the month of April, the company manufactures 300 units and incurs the following actual
costs.
Direct materials purchased and used (1,850 pounds) $4,070
Direct labor (620 hours) $7,130
Instructions
Compute the total, price, and quantity variances for materials and labor.

Total materials variance:
(AQ  AP ) – (SQ  SP)
(1,850  $2.20*) (1,800**  $2)
$4,070 – $3,600 = $470 U
Materials price variance:

(AQ  AP ) – (AQ  SP)
(1,850  $2.20) (1,850  $2)
$4,070 – $3,700 = $370 U
*$4,070  1,850 **300  6

Solution 179 (Cont.)
Materials quantity variance:

(AQ  SP) – (SQ  SP)
(1,850  $2) (1,800  $2)
$3,700 – $3,600 = $100 U
Total labor variance:

(AH  AR ) – (SH  SR)
(620  $11.50*) (600**  $12)
$7,130 – $7,200 = $70 F
*$7,130  620
**300  2
Labor price variance:

(AH  AR) – (AH  SR)
(620  $11.50) (620  $12)
$7,130 – $7,440 = $310 F
Labor quantity variance:

(AH  SR) – (AH  SR)
(620  $12) (600  $12)
$7,440 – $7,200 = $240 U
Ex. 180
Benton Company produces one product, a putter called PAR-putter. Benton uses a standard cost
system and determines that it should take one hour of direct labor to produce one PAR-putter.
The normal production capacity for this putter is 100,000 units per year. The total budgeted
overhead at normal capacity is $500,000 comprised of $200,000 of variable costs and $300,000
of fixed costs. Benton applies overhead on the basis of direct labor hours.
During the current year, Benton produced 85,000 putters, worked 89,000 direct labor hours, and
incurred variable overhead costs of $160,000 and fixed overhead costs of $300,000.
Instructions
(a) Compute the predetermined variable overhead rate and the predetermined fixed overhead
rate.
(b) Compute the applied overhead for Benton for the year.
(c) Compute the total overhead variance.


(a) Overhead Budget Direct Labor Hours Predetermined
 
(at normal capacity) (at normal capacity) Overhead Rate
Variable $200,000 100,000 $2
Fixed 300,000 100,000 $3
(b) Standard Hours Predetermined Overhead

Allowed  Overhead Rate  Applied
85,000 $5 $425,000
(c) Total Overhead

Actual Overhead – Overhead Applied  Variance
$460,000 – $425,000  $35,000 U
($160,000 + $300,000) (85,000  $5)
Ex. 181
Vega Company has developed the following standard costs for its product for 2012:
VEGA COMPANY
Standard Cost Card
Product A
Cost Element Standard Quantity × Standard Price = Standard Cost
Direct materials 4 pounds $3 $12
Direct labor 3 hours 8 24
Manufacturing overhead 3 hours 4 12
$48
The company expected to produce 30,000 units of Product A in 2012 and work 90,000 direct
labor hours.
Actual results for 2012 are as follows:

 31,000 units of Product A were produced.
 Actual direct labor costs were $746,200 for 91,000 direct labor hours worked.
 Actual direct materials purchased and used during the year cost $346,500 for 126,000 pounds.
 Actual variable overhead incurred was $155,000 and actual fixed overhead incurred was
$205,000.
Instructions
Compute the following variances showing all computations to support your answers. Indicate
whether the variances are favorable or unfavorable.
(a) Materials quantity variance.
(b) Total direct labor variance.
(c) Direct labor quantity variance.
(d) Direct materials price variance.
(e) Total overhead variance.
Ans: N/A, SO: 4,5, Bloom: AN, Difficulty: Hard, Min: 20, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:


(a) Materials quantity variance = $6,000 unfavorable.
(AQ × SP) – (SQ × SP) = Materials quantity variance
(126,000 × $3) – (124,000 × $3) = $378,000 – $372,000 = $6,000 unfavorable
SQ = 31,000 × 4 = 124,000 pounds
(b) Total direct labor variance = $2,200 unfavorable.

(AH × AR) – (SH × SR) = Total direct labor variance
(91,000 × $8.20) – (93,000 × $8) = $746,200 – $744,000 = $2,200 unfavorable
SH = 31,000 × 3 = 93,000 direct labor hours
(c) Direct labor quantity variance = $16,000 favorable.

(AH × SR) – (SH × SR) = Direct labor quantity variance
(91,000 × $8) – (93,000 × $8) = $728,000 – $744,000 = $16,000 favorable
(d) Direct materials price variance = $31,500 favorable.

(AQ × AP) – (AQ × SP) = Direct materials price variance
(126,000 × $2.75) – (126,000 × $3) = $346,500 – $378,000 = $31,500 favorable
(e) Total overhead variance = $12,000 favorable.

(Actual overhead) – (Overhead applied) = Total overhead variance
($155,000 + $205,000) – (93,000 × $4) = $360,000 – $372,000 = $12,000 favorable
Standard hours = 31,000 × 3 = 93,000 direct labor hours
Ex. 182
Wagner Company developed the following standard costs for its product for 2012:
WAGNER COMPANY
Standard Cost Card
Cost Elements Standard Quantity × Standard Price = Standard Cost

Direct materials 4 pounds $ 5 $20
Direct labor 2 hours 10 20
Variable overhead 2 hours 4 8
Fixed overhead 2 hours 2 4
$52
The company expected to work at the 120,000 direct labor hours level of activity and produce
60,000 units of product.
Actual results for 2012 were as follows:

 56,800 units of product were actually produced.
 Direct labor costs were $1,092,000 for 112,000 direct labor hours actually worked.
 Actual direct materials purchased and used during the year cost $1,108,800 for 231,000
pounds.
 Total actual manufacturing overhead costs were $680,000.

Ex. 182 (cont.)

Instructions
Compute the following variances for Wagner Company for 2012 and indicate whether the
variance is favorable or unfavorable.
1. Direct materials price variance.
2. Direct materials quantity variance.
3. Direct labor price variance.
4. Direct labor quantity variance.
a
5. Overhead controllable variance.
a
6. Overhead volume variance.
Ans: N/A, SO: 4,5,10, Bloom: AN, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Cost Management

1. Direct materials price variance = $46,200 favorable.
(AQ × AP) – (AQ × SP) = Materials price variance
(231,000 × $4.80) – (231,000 × $5) = $1,108,800 – $1,155,000 = $46,200 favorable
2. Direct materials quantity variance = $19,000 unfavorable.

(AQ × SP) – (SQ × SP) = Materials quantity variance
(231,000 × $5) – (227,200 × $5) = $1,115,000 – $1,136,000 = $19,000 unfavorable
SQ = 56,800 products × 4 lbs = 227,200 lbs.
3. Direct labor price variance = $28,000 favorable.

(AH × AR) – (AH × SR) = Labor price variance
(112,000 × $9.75) – (112,000 × $10) = $1,092,000 – $1,120,000 = $28,000 favorable
4. Direct labor quantity variance = $16,000 favorable.

(AH × SR) – (SH × SR) = Labor quantity variance
(112,000 × $10) – (113,600 × $10) = $1,120,000 – $1,136,000 = $16,000 favorable
SH = 56,800 units × 2 hrs = 113,600 direct labor hours
a
5. Overhead controllable variance = $14,400 favorable.
Actual overhead – Budgeted overhead for = Controllable overhead variance
standard hours allowed
$680,000 – $694,400 = $14,400 favorable
Budgeted overhead for 113,600 direct labor hours allowed.

Variable overhead (113,600 × $4) = $454,400
Fixed overhead = 240,000
$694,400
a
6. Overhead volume variance = $12,800 unfavorable.
Volume variance: (120,000 – 113,600) × $2/SH = $12,800 unfavorable

Ex. 183
Humphreys, Inc. uses standard costing for its one product, baseball bats. The standards call for 3
board-feet of wood at $1.40 per board-foot, and 45 minutes of work at $12 per hour per bat. Total
manufacturing overhead costs were estimated at $9,450, of which the variable portion was $0.50
per bat and the fixed portion was $1.00 per bat with an estimate of 6,300 bats to be produced.
Humphreys identifies price variances at the earliest possible point in time.
During March, the company had the following results:

Direct labor used = 4,800 hours at a cost of $56,400
Actual manufacturing overhead fixed costs = $6,000
Actual manufacturing overhead variable costs = $3,100
Bats produced = 6,000
Instructions
Compute the following variances for March.
1. Labor quantity variance
2. Total labor variance
a
3. Overhead controllable variance
a
4. Overhead volume variance
Ans: N/A, SO: 4,5,10, Bloom: AP, Difficulty: Medium, Min: 12, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA

1. Labor quantity variance = (Actual hours × Standard rate) – (Standard hours × Standard rate)
= (4,800 × $12) – [(3/4 × 6,000) × $12] = $3,600 Unfavorable
2. Total labor variance = (Actual hours × Actual rate) – (Standard hours × Standard rate)
= (4,800 × $11.75) – [(3/4 × 6,000) × $12] = $2,400 Unfavorable
a
3. Overhead controllable variance = Actual overhead – Overhead budgeted
= ($3,100 + $6,000) – [($0.50 × 6,000) + $6,300]
= $200 Favorable
a
4. Overhead volume variance = (Normal hours – Standard hours) × Fixed overhead rate
= [(6,300 × 3/4) – 4,500] × $1.00* = $225 Unfavorable
*$.75 ÷ 3/4 hr./bat
Ex. 184
Hurley, Inc. manufactures widgets for distribution. The standard costs for the manufacture of
widgets follow:
Standard Costs Actual Costs
Direct materials 3 lbs. per widget at 31,000 lbs. at $34
$35 per pound per pound
Direct labor 2.5 hours per widget 22,500 hours at

at $11 per hour $11.80 per hour
Factory overhead Variable cost, $24/widget $241,500 variable cost

Fixed cost, $40/widget $381,250 fixed cost

Ex. 184 (Cont.)

Budgeted factory overhead was $640,000. Overhead applied is based on widgets produced. The
company estimated that 10,000 widgets would be produced; however, only 9,600 were produced.
Instructions
Calculate the following amounts.
1. Rate at which total factory overhead is applied
2. Materials price variance
3. Total materials variance
a
4. Overhead volume variance
a
5. Overhead controllable variance
Ans: N/A, SO: 4,5,10, Bloom: AP, Difficulty: Hard, Min: 12, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC:

1. Budgeted overhead cost/budgeted activity = $640,000 ÷ 10,000 = $64 per widget
2. Materials price variance = (Actual quantity × Actual price) – (Actual quantity × Standard price)
= (31,000 × $34) – (31,000 × $35)
= $31,000 Favorable
3. Total materials variance = (Actual quantity × Actual price ) – (Standard quantity × Standard
price)
= (31,000 × $34) – [(3 × 9,600) × $35] = $46,000 Unfavorable
a
4. Overhead volume variance = (Normal hours – Standard hours) × Fixed overhead rate
= (25,000 – 24,000) × $16*
= $16,000 Unfavorable
*$40 ÷ 2.5
a
5. Overhead controllable variance = Actual overhead – Overhead budgeted
= [$241,500 + $381,250] – [($24 × 9,600) + ($40 × 10,000)]
= $7,650 Favorable
Ex. 185
National Sporting Goods Company manufactures aluminum baseball bats that it sells to university
athletic departments. It has developed the following per unit standard costs for 2012 for each
baseball bat:
Manufacturing
Direct Materials Direct Labor Overhead
Standard Quantity 2 Pounds (Aluminum) 1/2 hour 1/2 hour
Standard Price $4.00 $10.00 $6.00
Unit Standard Cost $8.00 $5.00 $3.00
In 2012, the company planned to produce 120,000 baseball bats at a level of 60,000 hours of
direct labor.

Ex. 185 (Cont.)

Actual results for 2012 are presented below:
1. Direct materials purchases were 246,000 pounds of aluminum which cost $1,020,900.
2. Direct materials used were 220,000 pounds of aluminum.
3. Direct labor costs were $575,260 for 58,700 direct labor hours actually worked.
4. Total manufacturing overhead was $352,000.
5. Actual production was 114,000 baseball bats.
Instructions
(a) Compute the following variances:
1. Direct materials price.
2. Direct materials quantity.
3. Direct labor price.
4. Direct labor quantity.
5. Total overhead variance.
a
(b) Prepare the journal entries to record the transactions and events in 2012.
Ans: N/A, SO: 4,6,9, Bloom: AP, Difficulty: Medium, Min: 40, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA

(a) 1. Direct materials price variance = $36,900 Unfavorable.
(AQ × AP) – (AQ × SP)
(246,000 × $4.15) – (246,000 × $4.00) = $1,020,900 – $984,000 = $36,900
2. Direct materials quantity variance = $32,000 Favorable.
(AQ × SP) – (SQ × SP)
(220,000 × $4.00) – (228,000* × $4.00) = $880,000 – $912,000 = $32,000
*SQ = 114,000 × 2 pounds = 228,000 pounds
3. Direct labor price variance = $11,740 Favorable.
(AH × AR) – (AH × SR)
(58,700 × $9.80) – (58,700 × $10.00) = $575,260 – $587,000 = $11,740
4. Direct labor quantity variance = $17,000 Unfavorable.
(AH × SR) – (SH × SR)
(58,700 × $10.00) – (57,000* × $10.00) = $587,000 – $570,000 = $17,000
*SH = 114,000 × 1/2 hour = 57,000 hours
5. Actual overhead – Overhead applied = Total overhead variance.
$352,000 – $342,000* = $10,000 Unfavorable
*SH = 57,000 × $6.00 = $342,000
a
(b) 1. Raw Materials Inventory........................................................... 984,000
Materials Price Variance........................................................... 36,900
Accounts Payable............................................................. 1,020,900
(To record purchase of materials)
2. Work in Process Inventory....................................................... 912,000

Materials Quantity Variance.............................................. 32,000
Raw Materials Inventory................................................... 880,000
(To record issuance of direct materials)


3. Factory Labor........................................................................... 587,000
Labor Price Variance......................................................... 11,740
Factory Wages Payable.................................................... 575,260
(To record direct labor costs)

Labor Quantity Variance .......................................................... 17,000
Factory Labor ................................................................... 587,000
(To assign factory labor to jobs)
5. Manufacturing Overhead.......................................................... 352,000

Accounts Payable/Cash etc.............................................. 352,000
(To record overhead incurred)

Manufacturing Overhead.................................................. 342,000
(To assign overhead to jobs)
7. Finished Goods Inventory (114,000 × $16.00).......................... 1,824,000

Work in Process Inventory................................................ 1,824,000
(To record transfer of completed work to finished goods)
Ex. 186
The standard cost of Product 245 manufactured by Essex Company includes 2 pounds of direct
materials at $4.00 per pound. During September, 40,000 pounds of direct materials are
purchased at a cost of $3.85 per pound, and all of the direct materials are used to produce
19,000 units of Product 245.
Instructions
(a) Compute the materials price and quantity variances.
a
(b) Journalize the purchase of the materials and the issuance of the materials, assuming a
standard cost system is used.

(a) Materials Price Variance:
$154,000 – $160,000 = $6,000 F
(40,000 × $3.85) (40,000 × $4.00)
Materials Quantity Variance:

$160,000 – $152,000 = $8,000 U
(40,000 × $4.00) *(38,000 × $4.00)
*19,000 × 2 pounds = 38,000


a
(b) Raw Materials Inventory................................................................. 160,000
Materials Price Variance........................................................ 6,000
Accounts Payable................................................................. 154,000
Work in Process Inventory............................................................. 152,000

Materials Quantity Variance........................................................... 8,000
Raw Materials Inventory........................................................ 160,000
Ex. 187
Gamblian Company's standard labor cost of producing one unit of product is 2 hours at the rate of
$14.00 per hour. During February, 52,000 hours of labor are incurred at a cost of $13.80 per hour
to produce 25,000 units of product.
Instructions
(a) Compute the labor price and labor quantity variances.
a
(b) Journalize the incurrence of the labor costs and the assignment of direct labor to production,
assuming a standard cost system is used.

(a) Labor Price Variance:
$717,600 – $728,000 = $10,400 F
(52,000 × $13.80) (52,000 × $14.00)
Labor Quantity Variance:

$728,000 – $700,000 = $28,000 U
(52,000 × $14.00) (50,000 × $14.00)
a
(b) Factory Labor................................................................................. 728,000
Labor Price Variance............................................................. 10,400
Factory Wages Payable........................................................ 717,600

Labor Quantity Variance................................................................. 28,000
Factory Labor........................................................................ 728,000
Ex. 188
The following direct labor data pertain to the operations of Hainey Manufacturing Company for the
month of November:
Standard labor rate $10.00 per hr.
Actual hours incurred and used 9,000
The standard cost card shows that 2.5 hours are required to complete one unit of product. The
actual labor rate incurred exceeded the standard rate by 10%. Four thousand units were manu-
factured in November.

Ex. 188 (Cont.)
Instructions
(a) Calculate the price, quantity, and total labor variances.
a
(b) Journalize the entries to record the labor variances.
Actual Hours Actual Hours Standard Hours

× Actual Rate × Standard Rate × Standard Rate
9,000 × $11.00 = 9,000 × $10.00 = 10,000 × $10.00 =
$99,000 $90,000 $100,000
$9,000 U $10,000 F
Total
Labor Variance
$1,000 F
a
(b) Factory Labor................................................................................. 90,000
Labor Price Variance...................................................................... 9,000
Wages Payable..................................................................... 99,000

Labor Quantity Variance........................................................ 10,000
Factory Labor........................................................................ 90,000
a
Ex. 189
Jamison Industries provided the following information about its standard costing system for 2012:

Labor 2 hrs. @ $21 per hr. Produced 9,000 units
Budgeted fixed overhead $100,000 Labor worked 17,000 hrs. costing $340,000
Budgeted variable overhead $30 per unit Actual overhead $375,000
Budgeted production 10,000 units
Jamison applies fixed overhead at $10 per unit produced.
Instructions
Determine the amounts of the overhead variances.

a
Overhead controllable variance = Actual overhead - Overhead budgeted
= $375,000 – [($100,000 + (9,000 × $30)]
Overhead volume variance = (Normal hours – Standard hours) × Fixed overhead rate
= [(10,000 × 2) – (9,000 × 2)] × $5/hr.
Total overhead variance = Actual overhead – Overhead applied

= $5,000 U + $10,000 U
Ex. 190
Landis Company planned to produce 20,000 units of product and work 100,000 direct labor hours
in 2012. Manufacturing overhead at the 100,000 direct labor hours level of activity was estimated
to be:
Variable manufacturing overhead $ 700,000
Fixed manufacturing overhead 300,000
Total manufacturing overhead $1,000,000
At the end of 2012, 19,000 units of product were actually produced and 98,000 actual direct labor
hours were worked. Total actual overhead costs for 2012 were $935,000.
Instructions
(a) Compute the total overhead variance.
a
(b) Compute the overhead controllable variance.
a
(c) Compute the overhead volume variance.
Ans: N/A, SO: 5,10, Bloom: AP, Difficulty: Medium, Min: 11, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA

(a) Actual overhead – Overhead applied = Total overhead variance
$935,000 – $950,000 = $15,000 favorable
Overhead applied = 19,000 units × 5 hrs = 95,000 standard hours allowed
95,000 × $10 = $950,000
a
(b) Actual overhead – Overhead budgeted = Overhead controllable variance
$935,000 – $965,000 = $30,000 favorable
Overhead budgeted at 95,000 actual direct labor hours allowed.
Variable overhead (95,000 × $7) $ 665,000
Fixed overhead 300,000
$965,000
a
(c) (Normal hours – Standard hours) × Fixed overhead rate = Overhead volume variance
(100,000 – 95,000) × $3/hour = $15,000 unfavorable

a
Ex. 191
Dains Company planned to produce 20,000 units of product and work at the 60,000 direct labor
hours level of activity for 2012. Manufacturing overhead at this level of activity and the
predetermined overhead rate are as follows:
Predetermined
Overhead Rate per
Direct Labor Hour
Variable manufacturing overhead $300,000 $5
Fixed manufacturing overhead 120,000 2
Total manufacturing overhead $420,000 $7
At the end of 2012, 21,000 units were actually produced and 61,500 direct labor hours were
actually worked. Total actual manufacturing overhead costs were $430,000.
Instructions
Using a two-variance analysis of manufacturing overhead, calculate the following variances and
indicate whether they are favorable or unfavorable:
(a) Overhead controllable variance.
(b) Overhead volume variance.
a
(a) Overhead controllable variance = $5,000 unfavorable.
Overhead budgeted for standard hours allowed
Variable overhead (63,000 × $5) = $315,000
Fixed overhead = 120,000
435,000
Actual overhead incurred 430,000
Overhead controllable variance $ 5,000 favorable
(b) Overhead volume variance = $6,000 favorable.

Overhead volume variance: (Normal hours – Standard hours) × Fixed overhead rate
(60,000 – 63,000) × $2/hr = $6,000 favorable
Ex. 192
Markowitz Corporation prepared the following variance report.
MARKOWITZ CORPORATION
Variance Report—Purchasing Department
for Week Ended January 9, 2012
Type of Quantity Actual Standard Price

Materials Purchased Price Price Variance Explanation
Brown ? lbs. $5.25 $5.00 $6,000 ? Price increase
Green 8,000 oz. ? 3.25 1,600 U Rush order
White 22,000 units $0.45 ? 660 F Bought larger quantity

Ex. 192 (Cont.)

Instructions
Fill in the appropriate amounts or letters for the question marks in the report.

MARKOWITZ CORPORATION
Variance Report – Purchasing Department
For Week Ended January 9, 2012
_____________________________________________________________________________
Type of Quantity Actual Standard Price
Materials Purchased Price Price Variance Explanation
Brown 24,000 lbs. $5.25 $5.00 $6,000 U Price increase

Green 8,000 oz. $3.45 $3.25 $1,600 U Rush order
White 22,000 units $0.45 $0.48 $ 660 F Bought larger quantity
24,000 = $6,000/($5.25 – $5.00).

$6,000 U because the actual price ($5.25) exceeds the standard price ($5.00).
$1,600/8,000 = $0.20; $3.25 + $0.20 = $3.45
$660/22,000 = $0.03; $0.45 + $0.03 = $0.48
Ex. 193
Lake Company uses a standard cost accounting system. During March, 2012, the company
reported the following manufacturing variances:
Materials price variance $1,600 F

Materials quantity variance 2,400 U
Labor price variance 600 U
Labor quantity variance 2,200 U
Overhead controllable 500 F
Overhead volume 3,000 U
In addition, 15,000 units of product were sold at $18 per unit. Each unit sold had a standard cost
of $14. Selling and administrative expenses for the month were $15,000.
Instructions
Prepare an income statement for management for the month ending March 31, 2012.
Ans: N/A, SO: 7, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting


LAKE COMPANY
Income Statement
For the Month Ended March 31, 2012
Sales (15,000 × $18)............................................................................. $270,000

Cost of goods sold (15,000 × $14)........................................................ 210,000
Gross profit (at standard)...................................................................... 60,000
Variances:
Materials price.............................................................................. $(1,600)
Materials quantity......................................................................... 2,400
Labor price................................................................................... 600
Labor quantity............................................................................... 2,200
Overhead controllable.................................................................. (500)
Overhead volume......................................................................... 3,000
Total variances (unfavorable)............................................... 6,100
Gross profit (actual)............................................................................... 53,900
Selling and administrative expenses..................................................... 15,000
Net income............................................................................................ $ 38,900
a
Ex. 194
Newell Company developed the following standards for 2012:
NEWELL COMPANY
Standard Cost Card
Cost Elements Standard Quantity × Standard Price = Standard Cost

Direct materials 5 pounds $ 5 $25
Direct labor 1 hour $18 18
Manufacturing overhead 1 hour $10 10
$53
The company planned to produce 120,000 units of product and work at the 120,000 direct labor
level of activity in 2012. The company uses a standard cost accounting system which records
standard costs in the accounts and recognizes variances in the accounts at the earliest
opportunity. During 2012, 116,000 actual units of product were produced.
Instructions
Prepare the journal entries to record the following transactions for Newell Company during 2012.
(a) Purchased 588,000 pounds of raw materials for $4.90 per pound on account.
(b) Actual direct labor payroll amounted to $2,108,000 for 114,000 actual direct labor hours
worked. Factory labor cost is to be recorded and distributed to production.
(c) Direct materials issued for production amounted to 588,000 pounds which actually cost
$4.90 per pound.
(d) Actual manufacturing overhead costs incurred were $1,152,000 in 2012.
(e) Manufacturing overhead was applied when the 116,000 units were completed.
(f) Transferred the 116,000 completed units to finished goods.

a
(a) Raw Materials Inventory................................................................. 2,940,000
Materials Price Variance...................................................... 58,800
Accounts Payable................................................................ 2,881,200
(To record purchase of materials)
(b) Factory Labor................................................................................. 2,052,000

Labor Price Variance...................................................................... 56,000
Factory Wages Payable....................................................... 2,108,000
(To record direct labor costs)
Work in Process Inventory............................................................. 2,088,000

Labor Quantity Variance...................................................... 36,000
Factory Labor....................................................................... 2,052,000
(To assign factory labor to jobs)
(c) Work In Process Inventory............................................................. 2,900,000

Materials Quantity Variance........................................................... 40,000
Raw Materials Inventory...................................................... 2,940,000
(To record issuance of raw materials)
(d) Manufacturing Overhead................................................................ 1,152,000

Accounts Payable/Cash/Acc. Depreciation.......................... 1,152,000
(e) Work In Process Inventory............................................................. 1,160,000

Manufacturing Overhead..................................................... 1,160,000
(To assign overhead to jobs)
(f) Finished Goods Inventory.............................................................. 6,148,000

Work In Process Inventory................................................... 6,148,000
(To record transfer of completed units to finished goods)
a
Ex. 195
Presented below is a flexible manufacturing budget for Jacob Company, which manufactures fine
timepieces:
Activity Index:
Standard direct labor hours 2,800 3,200 3,600 4,000
Variable costs
Indirect materials $ 5,600 $ 6,400 $ 7,200 $ 8,000
Indirect labor 3,220 3,680 4,140 4,600
Utilities 7,280 8,320 9,360 10,400
Total variable 16,100 18,400 20,700 23,000
Fixed costs
Supervisory salaries 1,000 1,000 1,000 1,000
Rent 3,000 3,000 3,000 3,000
Total fixed 4,000 4,000 4,000 4,000
Total costs $20,100 $22,400 $24,700 $27,000

a
Ex. 195 (Cont.)
The company applies the overhead on the basis of direct labor hours at $7.00 per direct labor
hour and the standard hours per timepiece is 1/2 hour each. The company's actual production
was 5,400 timepieces with 2,700 actual hours of direct labor. Actual overhead was $20,200.
Instructions
(a) Compute the controllable and volume overhead variances.
a
(b) Prepare the entries for manufacturing overhead during the period and the entry to recognize
the overhead variances at the end of the period.
a
(a) Computation of variances:
Actual overhead – Budgeted overhead = Controllable overhead variance
$20,200 – [(5,400 × 1/2 × $5.75) + $4,000] = $675 Unfavorable

(Normal hours – Standard hours) × Fixed overhead rate
(3,200 – 2,700) × ($4,000  3,200) = $625 Unfavorable
(b) 1. Manufacturing Overhead.......................................................... 20,200

Accounts Payable, Cash, Etc. .......................................... 20,200
2. Work in Process Inventory ...................................................... 18,900

Manufacturing Overhead ................................................. 18,900
(To assign overhead to production)
3. Overhead Controllable Variance .............................................. 675

Overhead Volume Variance ..................................................... 625
Manufacturing Overhead ................................................. 1,300
(To recognize overhead variances)
Ex. 196
The following information was taken from the annual manufacturing overhead cost budget of Flint
Company:

Normal production level in direct labor hours 31,000
manufacturing overhead costs were $155,000. The actual fixed manufacturing overhead costs did
not deviate from the budgeted fixed manufacturing overhead costs. Overhead is applied on the
basis of direct labor hours.

Ex. 196 (Cont.)

Instructions
(a) Compute the total, fixed, and variable predetermined manufacturing overhead rates.
a
(b) Compute the total, controllable, and volume overhead variances.

(a) Item Amount Hours Rate
Variable Overhead $93,000 31,000 $3
Fixed Overhead 62,000 31,000 2
Total Overhead $155,000 31,000 $5
a
(b) Total overhead variance:
Overhead incurred – Overhead applied = $5,000 U
($155,000) (30,000 hours × $5.00)
Overhead controllable variance:

Overhead incurred – Overhead budgeted = $3,000 U
($155,000) [(30,000 × 3.00) + $62,000]

(Normal hours – Standard hours) × Fixed overhead rate
(31,000 – 30,000) × $2.00/hr = $2,000 U
Ex. 197
George Company has a standard costing system. The following data are available for July:
a. Actual manufacturing overhead cost incurred: $22,000
b. Actual machine hours worked: 1,600
c. Overhead volume variance: $3,600 Unfavorable
d. Total overhead variance: $2,000 Unfavorable
e. Overhead is assigned to production on the basis of machine hours
Instructions
Determine the amount of (1) the controllable overhead variance and (2) the overhead applied.

(1) Volume variance plus controllable variance = total overhead variance
$3,600 U + X = $2,000 U; so controllable variance = $1,600 F
(2) Overhead applied = $20,000 ($22,000 – $2,000)
COMPLETION STATEMENTS
198. A ________________ is expressed as a unit amount, whereas a _________________ is
expressed as a total amount.
Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,

199. Standards which represent optimum performance under perfect operating conditions are
called _______________ standards, but most companies use _________________
standards which are rigorous but attainable.
200. In developing a standard cost for direct materials used in making a product, consideration
should be given to two factors: (1) __________________ per unit of direct materials and
(2) the __________________ of direct materials to produce one unit of product.
201. The difference between actual hours times the actual pay rate and actual hours times the
standard pay rate is the labor _________________ variance.
202. The standard number of hours allowed times the predetermined overhead rate is the
amount of ________________ to the products produced.
203. The difference between actual quantity of materials times the standard price and standard
quantity times the standard price is the materials ________________ variance.
204. If the actual direct labor hours worked is greater than the standard hours, the labor
quantity variance will be ___________________, and the labor rate variance will be
____________________ if the standard rate of pay is greater than the actual rate of pay.
205. In using variance reports, top management normally looks for _________________
variances.
a
206. A two-variance approach to analyzing overhead variances requires the calculation of the
overhead _________________ variance and the overhead ________________ variance.
a
207. The overhead ______________ variance is the difference between normal capacity hours
and standard hours allowed times the fixed overhead rate.

Answers to Completion Statements

198. standard, budget
199. ideal, normal
200. price, quantity
201. price
202. overhead applied
203. quantity
204. unfavorable, favorable
205. significant
a
206. controllable, volume
a
207. volume
MATCHING
208. Match the items in the two columns below by entering the appropriate code letter in the
space provided.
A. Variances F. Materials price variance

B. Standard costs G. Labor quantity variance
a
C. Standard cost accounting system H. Overhead controllable variance
a
D. Normal standards I. Overhead volume variance
E. Ideal standards J. Standard hours allowed
____ 1. The difference between actual overhead incurred and overhead budgeted for the
standard hours allowed.
____ 2. The hours that should have been worked for the units produced.
____ 3. The difference between the actual quantity times the actual price and the actual
quantity times the standard price.
____ 4. The difference between total actual costs and total standard costs.
____ 5. The difference between actual hours times the standard rate and standard hours times
the standard rate.
____ 6. Predetermined unit costs that are measures of performance.
____ 7. The difference between normal capacity hours and standard hours allowed times the
fixed overhead rate.
____ 8. Standards based on an efficient level of performance that are attainable under
expected operating conditions.
____ 9. Standards based on the optimum level of performance under perfect operating
conditions.
____ 10. A double-entry system of accounting in which standard costs are used in making
entries and variances are recognized in the accounts.

Answers to Matching
a
1. H 6. B
a
2. J 7. I
3. F 8. D
4. A 9. E
5. G 10. C
SHORT-ANSWER ESSAY QUESTIONS

S-A E 209
(a) Explain the similarities and differences between standards and budgets.
(b) Contrast the accounting for standard and budgets.
Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 5, AACSB: Communications, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA
PC: None, IMA: Cost Management
Solution 209
(a) Standards and budgets are similar in that both are predetermined costs and both contribute
significantly to management planning and control. The two terms differ in that a standard is a
unit amount and a budget is a total amount.
(b) There are important accounting differences between budgets and standards. Except in the
application of manufacturing overhead to jobs and processes, budget data are not
journalized in cost accounting systems. In contrast, standard costs may be incorporated into
cost accounting systems. It is possible for a company to report inventories at standard costs
in its financial statements, but it is not possible to report inventories at budgeted costs.
S-A E 210
Moon Company computes variances as a basis for evaluating the performance of managers
responsible for controlling costs. For several months, the labor quantity variance has been
unfavorable. Briefly explain what could be causing the unfavorable labor quantity variance and
indicate what type of corrective action, if any, might be taken.
Solution 210
Since labor quantity variances relate to the efficiency of labor, the cause of an unfavorable
variance could be poor training, poor maintenance of machinery, fatigue, carelessness, or similar
problems that affect efficiency.
The management of Moon Company would need to identify the likely causes of the variance and
correct the situation with additional training, improved maintenance, better scheduling or similar
appropriate actions.

S-A E 211
In reviewing the activities of the Mixing Department for the month of June, the manager of the
department notices that there was an unfavorable materials price variance for the month and
there was an unfavorable materials quantity variance. Under what circumstances, if any, can the
responsibility for each variance be placed on (a) the purchasing department and (b) the
production department?
Solution 211
(a) Purchasing department. The investigation of a materials price variance usually begins with
this department. If the price standard has been properly set, purchasing is responsible.
However, it should be recognized that in a period of inflation, prices may rise faster than
expected. Also, there may be extenuating circumstances such as oil cartel price increases.
The purchasing department may be responsible for an unfavorable quantity variance if it

purchased raw materials of inferior quality.
(b) Production department. Ordinarily, responsibility for an unfavorable quantity variance rests
with this department. For example, production is responsible if the variance is caused by
inexperienced workers, faulty machinery, or carelessness.
The production department may be responsible for an unfavorable price variance when the
materials must be ordered on a rush basis at a higher price than planned.
S-A E 212
What are the four perspectives used in the balanced scorecard? Discuss the nature of each, and
how the perspectives are linked.
Solution 212
The four perspectives of the balanced scorecard are: financial, customer, internal process, and
learning and growth. The financial perspective employs financial measures of performance used
by most firms. The customer perspective evaluates how well the company is performing from the
viewpoint of those people who buy and use its product in terms of price, quality, product
innovation, customer service, and other dimensions. The internal process perspective evaluates
the value chain—product development, production, delivery and after-sale service—to ensure
that the company is operating effectively and efficiently. The learning and growth perspective
evaluates how well the company develops and retains its employees. The four perspectives are
linked in that the results in one perspective influence the results in the next.
S-A E 213 (Ethics)

Detwiler, Inc. is the manufacturer of miniature models, especially of automobiles with historical
interest. The company is developing new standard costs. Jerry Hancock suggests that the new
standards for materials should not include any waste for liquid plastics that spill out of the molds.
"After all," he says, "we're trying to be a world class company. When we build in waste, we tell the
workers it's okay to waste some." Nancy Kirkham, another manager, disagrees. "If we don't allow
for some normal human error," she says, "we'll have a mighty unhappy work force. Also, I think
that these kinds of perfection standards exploit the workers. I certainly wouldn't want to be held
up to perfection every day—what could I do but fail?"
S-A E 213 (Cont.)
The argument continued. Finally, the standards were prepared. All standards were prepared
according to normal expected performance, except that for materials, an ideal standard was
used. Nancy, still maintaining the unfairness of the system, refused to hold her workers
accountable for materials quantity variances.
Required:
1. Are ideal standards unethical? Explain briefly.
2. Is it unethical for Nancy to refuse to support the standards? Explain.
Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 5, AACSB: Ethics, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
Solution 213
1. Ideal standards are not necessarily unethical. They may be used unethically, such as in the
case in which employees are denied bonuses or other rewards because of not meeting a
standard which was out of their reach. If they are used as a guide to maximum attainable
performance, however, and not tied directly to the reward system, they may be ethical.
2. It is unethical for Nancy simply to refuse to accept a particular standard. However, if the
company intends to use the standard unethically, she may refuse to hold her workers
accountable while she pursues a permanent disposition of the matter. If she simply refuses to
accept it, she may be indirectly sabotaging the company by hindering it from accomplishing its
legitimate objectives. This would be unethical.
S-A E 214 (Communication)

Mark Irwin has come to the accounting department for help in interpreting his variance report. He
says that he understands that last month was not a very good one for output, but he really
thought everyone put forth good effort, so he is confused about the existence of an unfavorable
labor efficiency variance. He cites as an example of the workers' effort their willingness to work
extra hours to get full output, even when a whole week's worth of production had to be scrapped.
He knew that his materials costs would be higher, and that overtime would make his rate variance
unfavorable, but he certainly didn't think his workers had been inefficient.
Required:
Write a short note to Mark explaining the probable cause of the unfavorable labor efficiency
variance.

Solution 214
Mark,
Last month was a tough one for all of us, wasn't it? Your workers certainly did go
the extra mile, no doubt about it.
You asked about your efficiency variance. When we calculate it, we count the
number of hours it took to get good output. Since we had such high spoilage, we
got fewer units, but used more hours. That is why your efficiency variance was
negative. It does not imply that you didn't do your best. It just means that we
should investigate to see what happened.
Good luck, and I hope this month is a better one for all of us.
(signed)

Accounting

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Accounting

Uploaded by

Copyright:

Available Formats

CHAPTER 25

STANDARD COSTS AND BALANCED SCORECARD

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S

FOR INSTRUCTOR USE ONLY

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE

FOR INSTRUCTOR USE ONLY

Note: TF = True-False BE = Brief Exercise C = Completion

FOR INSTRUCTOR USE ONLY

CHAPTER STUDY OBJECTIVES

FOR INSTRUCTOR USE ONLY

2. Standard cost is the industry average cost for a particular item.

3. A standard is a unit amount, whereas a budget is a total amount.

6. Setting standard costs is relatively simple because it is done entirely by accountants.

7. Normal standards should be rigorous but attainable.

FOR INSTRUCTOR USE ONLY

20. Standard cost + price variance + quantity variance = Budgeted cost.

FOR INSTRUCTOR USE ONLY

27. Variance analysis facilitates the principle of "management by exception."

31. In concept, standards and budgets are essentially the same.

FOR INSTRUCTOR USE ONLY

Answers to True-False Statements

MULTIPLE CHOICE QUESTIONS

40. A standard cost is

FOR INSTRUCTOR USE ONLY

41. The difference between a budget and a standard is that

42. Standard costs may be used by

43. Which of the following statements is false?

45. It is possible that a company's financial statements may report inventories at

46. If standard costs are incorporated into the accounting system,

FOR INSTRUCTOR USE ONLY

47. Standard costs

48. Which of the following statements about standard costs is false?

52. Ideal standards

FOR INSTRUCTOR USE ONLY

55. The two levels that standards may be set at are

56. The most rigorous of all standards is the

57. Most companies that use standards set them at

58. A managerial accountant

FOR INSTRUCTOR USE ONLY

59. The cost of freight-in

60. The direct materials quantity standard would not be expressed in

61. The direct materials quantity standard should

64. Allowance for spoilage is part of the direct

FOR INSTRUCTOR USE ONLY

66. An unfavorable materials quantity variance would occur if

70. A total materials variance is analyzed in terms of

FOR INSTRUCTOR USE ONLY

FOR INSTRUCTOR USE ONLY

77. Which one of the following statements is true?

78. Variances from standards are

79. A favorable variance

80. The total materials variance is equal to the

83. The formula for the materials price variance is

84. The formula for the materials quantity variance is

FOR INSTRUCTOR USE ONLY

Keller Company's materials price variance is

Keller Company's materials quantity variance is

Keller Company's total materials variance is

FOR INSTRUCTOR USE ONLY

93. The matrix approach to variance analysis

94. Labor efficiency is measured by the

95. An unfavorable labor quantity variance may be caused by

96. The investigation of materials price variance usually begins in the