Chapter 10-Standard Costing: A Managerial Control Tool: Multiple Choice

Chapter 10—Standard Costing: A Managerial Control Tool
MULTIPLE CHOICE
1. Standards based on the amount of input that should be used per unit of output are called
a. quantity standards.
b. price standards.
c. ideal standards.
d. currently attainable standards.
e. kaizen standards.
ANS: A PTS: 1 DIF: Difficulty: Easy
OBJ: LO: 10-1 NAT: BUSPROG: Analytic
STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-27-Managerial
Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 2 min.
2. Price standards are based on

a. the amount of input that should be used per unit of output.
b. the amount that should be paid for the total quantity of input to be used.
c. the amount that should be paid per unit of output.
d. the amount that should be paid per unit of input purchased.
e. None of these.
ANS: B
Price standards are based on the pricing decision, which is the amount that should be paid for the
quantity of input to be used.
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-1

NAT: BUSPROG: Analytic
NOT: 2 min.
3. The sources of quantitative standards include

a. historical experience.
b. engineering studies.
c. input from operating personnel.
d. historical experience, engineering studies, and input from operating personnel.
e. None of these.
ANS: D PTS: 1 DIF: Difficulty: Easy
NOT: 2 min.
4. Which of the following is true regarding historical experience in standard setting?

a. It provides very rigorous guidelines.
b. Operating personnel may not be able to achieve operating standards based on historical
experience.
c. It should be used with caution because it can perpetuate inefficiencies.
d. Standards based on historical experience are better than standards based on engineering
studies.
e. None of these.
ANS: C
Historical experience should be used with caution because processes are often operating inefficiently.
Using standards based on past experience can perpetuate the inefficiencies.
PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-1

STA: AICPA: FN-Decision Modeling | IMA: Performance Measurement | ACBSP: APC-27-
Managerial Accounting Features/Costs KEY: Bloom's: Knowledge
NOT: 2 min.
5. Which of the following is not true regarding engineering studies?

a. They can determine the most efficient way to operate.
b. They are often achievable by operating personnel.
c. They provide very rigorous guidelines.
d. All of these statements are true.
e. More than two of these statements are true.
ANS: B
Engineering studies are typically so rigorous they are often not achievable by operating personnel.

NOT: 2 min.
6. In setting price standards for materials and labor,

a. the purchasing department must consider discounts, freight, and quality.
b. personnel must consider payroll taxes, fringe benefits, and qualifications.
c. it is the joint responsibility of operations, purchasing, personnel, and accounting.
d. All of these.
e. None of these.
ANS: D PTS: 1 DIF: Difficulty: Moderate
NOT: 2 min.
7. Ideal standards
a. do not allow for machine breakdowns, slack, or lack of skill (even momentarily).
b. demand maximum efficiency.
c. can be achieved only if everything operates perfectly.
d. All of these.
e. None of these.
NOT: 2 min.
8. Which of the following is true regarding currently attainable standards?

a. They can be achieved under efficient operating conditions.
b. Allowance is made for normal breakdowns, interruptions, etc.
c. They are challenging but achievable.
d. They tend to achieve higher performance levels from personnel.
e. All of these.
ANS: E PTS: 1 DIF: Difficulty: Moderate
Managerial Accounting Features/Costs KEY: Bloom's: Comprehension
NOT: 2 min.
9. Standard cost systems are adopted

a. to improve planning and control.
b. to facilitate product costing.
c. to improve planning and control, and to facilitate product costing.
d. to enhance the operational control of firms that emphasize continuous improvement.
e. for all of these reasons.
ANS: C
The benefits of operational control in a standard cost system may not extend to the manufacturing
environments that emphasize continuous improvement and just-in-time purchasing and manufacturing.

NOT: 2 min.
10. Standard cost systems can enhance operational control through the use of
a. efficiency variances which indicate the need for corrective action.
b. price variances which indicate the need for better spending control.
c. standard costs which indicate the desired cost of a unit of input.
d. actual costs which indicate the price received for units sold.
e. All of these.
ANS: A PTS: 1 DIF: Difficulty: Moderate
NOT: 2 min.
11. Which of the following is true regarding standard cost systems in manufacturing environments that
emphasize continuous improvement and just-in-time manufacturing and purchasing?
a. The standard cost system enhances the operational control.
b. The materials price variance may encourage the purchasing department to buy in smaller
quantities to reduce inventories.
c. Variances can be computed and presented in reports to higher-level managers.
d. The operational level will benefit from the detailed computation of variances.
e. None of these.
ANS: C
Although the benefits of operational control may not extend to these manufacturing environments,
variances can still be computed and presented in reports to higher-level managers so they can monitor
the financial dimension.

NOT: 2 min.
12. In a standard cost system, costs are assigned to all of the following, except for
a. direct materials.
b. direct labor.
c. variable overhead.
d. fixed overhead.
e. none of these.
ANS: E PTS: 1 DIF: Difficulty: Easy
Accounting Features/Costs KEY: Bloom's: Comprehension
NOT: 2 min.
13. The standard cost system differs from the actual cost system in the assignment of
a. direct materials.
b. direct labor.
c. overhead.
d. all of the manufacturing inputs.
e. none of the manufacturing inputs.
NOT: 2 min.
14. Which of the following is not true regarding normal costing systems?
a. A normal costing system predetermines overhead costs.
b. A normal costing system assigns direct materials and direct labor to products using a
predetermined rate.
c. In a normal costing system overhead is assigned using a budgeted rate and actual activity.
d. A normal costing system has less capacity for control than a standard costing system.
e. All of these statements are true.
ANS: B
A normal costing system assigns direct materials and direct labor to products using actual costs.

NOT: 2 min.
15. Which of the following is not an advantage of standard costing over normal costing and actual
costing?
a. A greater capacity for control.
b. Ability to easily distinguish the FIFO and weighted average methods of accounting for
beginning inventory costs.
c. Computing a unit cost for each equivalent unit cost category is not necessary.
d. Providing for readily available unit cost information.
e. All of these are advantages of standard costing.
ANS: B
There is no need to distinguish between the FIFO and weighted average methods of accounting for
beginning inventory costs.

NOT: 2 min.
16. The production data needed to calculate the standard unit cost as well as the underlying details for the
standard cost per unit are provided in
a. the standard cost sheet.
b. the standard production budget.
c. the balance sheet.
d. the standard work-in-process account.
e. None of these.
NOT: 2 min.
17. Standard hours allowed are computed using the equation

a. unit labor standard  actual output.
b. unit labor standard  standard output.
c. unit labor standard  actual input.
d. unit labor standard  standard input.
e. not shown here.
NOT: 2 min.
18. The standard quantity of materials allowed is computed by the equation

a. unit quantity standard  standard output.
b. unit quantity standard  actual input.
c. unit quantity standard  standard input.
d. unit quantity standard  actual output.
e. not shown here.
NOT: 2 min.
19. An accountant would refer to a cost sheet to perform which of the following actions?
a. Calculate standard cost per unit.
b. Calculate efficiency variances.
c. Calculate the total amount of inputs allowed for the actual output.
d. All of these.
NOT: 2 min.
Figure 10-1.
Flying High Company manufactures model airplanes. During the month, it manufactured 10,000
airplanes. Each one used an average of 6.5 direct labor hours and an average of 1.5 sheets of
aluminum. It normally manufactures 7,500 airplanes. Materials and labor standards for making the
airplanes are:
Direct Materials (1 sheet of aluminum @ $10.00) $10.00

Direct Materials (other accessories @ $8.75) 8.75
Direct Labor (6 hours @ $7.00) 42.00
20. Refer to Figure 10-1. Compute the standard hours allowed for a volume of 10,000 airplanes.
a. 60,000 hours
b. 420,000 hours
c. 70,000 hours
d. 65,000 hours
ANS: A
SH = Unit labor standard  Actual output
SH = 6  10,000 = 60,000.

Accounting Features/Costs KEY: Bloom's: Application
NOT: 3 min.
21. Refer to Figure 10-1. Compute the standard number of sheets of aluminum allowed for a volume of
10,000 airplanes.
a. 15,000 sheets
b. 10,000 sheets
c. 7,500 sheets
d. 11,250 sheets
ANS: B
SQ = Unit quantity standard  Actual output.
SQ = 10,000  1 = 10,000 sheets.

NOT: 3 min.
22. Variances indicate

a. that actual performance is not going according to plan.
b. the cause of the variance.
c. who is responsible for the variance.
d. when the variance should be investigated.
e. none of these.
NOT: 2 min.
23. The difference between the actual cost of the input and its planned cost is
a. the total budget variance.
b. the usage variance.
c. the price variance.
d. the efficiency variance.
e. the budget variance.
NOT: 2 min.
24. Which of the following is true concerning the materials price variance?
a. It is the difference between the actual and standard unit price of an input multiplied by the
number of inputs used.
b. It is the difference between the actual and standard unit price of an output multiplied by
the number of inputs used.
c. It is the difference between the actual and standard unit price of an input multiplied by the
number of inputs purchased.
d. It is the difference between the actual and standard unit price of an output multiplied by
the number of inputs purchased.
e. None of these.
ANS: C PTS: 1 DIF: Difficulty: Moderate
NOT: 2 min.
25. The usage variance is the difference between the actual and standard quantity of inputs
a. multiplied by the standard unit price of the input.
b. budgeted multiplied by the standard unit price of the input.
c. multiplied by the actual unit price of the input.
d. purchased multiplied by the actual unit price of the input.
e. None of these.
NOT: 2 min.
26. Which of the following is true regarding variances?

a. Unfavorable variances occur whenever actual prices or actual usage of inputs are greater
than standard prices or standard usage.
b. Favorable variances occur whenever actual prices or actual usage of inputs are greater than
standard prices or standard usage.
c. Unfavorable variances are always credits.
d. Favorable variances are always debits.
e. None of these.
NOT: 2 min.
27. All of the following are true regarding variance investigation except
a. the investigation should be undertaken only if the anticipated benefits are greater than the
expected costs.
b. managers must consider whether a variance will recur.
c. it is difficult to assess the costs and benefits of variance analysis on a case-by-case basis.
d. variances are not investigated unless they are large enough to be of a concern.
e. every variance is investigated.
ANS: E
Only material variances are investigated.

NOT: 2 min.
28. Which of the following is not true concerning control limits?

a. Control limits are the top and bottom measures of the allowable range.
b. The upper control limit is the standard plus the allowable deviation.
c. The lower control limit is the standard minus the allowable deviation.
d. In current practice, control limits are set objectively using standard formulas.
e. Variances that fall outside the control limits are investigated.
ANS: D
In current practice, control limits are set subjectively, using past experience, judgment, and intuition.

NOT: 2 min.
29. Acme Company's standard cost is $500,000. The allowable deviation is 10%. Its actual costs for three
months are
January $520,000
February $550,000
March $575,000
The upper and lower control limits are, respectively,

a. $550,000 and $450,000
b. $500,000 and $450,000
c. $550,000 and $500,000
d. $575,000 and $520,000
ANS: A
The upper control limit is $550,000 ($500,000 + ($500,000  10%)).
The lower control limit is $450,000 ($500,000  ($500,000  10%)).

NOT: 3 min.
Figure 10-2.
Highland Company's standard cost is $250,000. The allowable deviation is 10%. Its actual costs for
six months are
January $235,000
February 220,000
March 245,000
April 265,000
May 270,000
June 280,000
30. Refer to Figure 10-2. The upper and lower control limits are, respectively,
a. $250,000 and $225,000
b. $305,000 and $195,000
c. $275,000 and $250,000
d. $275,000 and $225,000
ANS: D
The upper control limit is $275,000 ($250,000 + ($250,000  10%)).
The lower control limit is $225,000 ($250,000  ($250,000  10%)).

NOT: 3 min.
31. Refer to Figure 10-2. The variance that is higher than the upper control limit is
a. $220,000
b. $280,000
c. $265,000
d. $235,000
ANS: B PTS: 1 DIF: Difficulty: Easy
NOT: 3 min.
32. Refer to Figure 10-2. The variance that is lower than the lower control limit is
a. $220,000
b. $280,000
c. $265,000
d. $235,000
NOT: 3 min.
33. Which of the following is not true concerning direct materials variances?
a. The sum of the price and usage variances will add up to the total materials variance only if
the materials purchased is equal to the materials used.
b. The materials price variance uses the actual quantity of materials purchased rather than the
actual quantity of materials used.
c. The materials price variance always uses the actual quantity of materials used rather than
the actual quantity of materials purchased.
d. The materials usage variance uses the actual quantity of materials used.
e. Separate materials variances can be computed for each type of material used.
ANS: C
Typically, the quantity of material purchased is used to determine the materials price variance.

NOT: 3 min.
34. The materials price variance is computed using the equation

a. (Actual Price  Actual Quantity)  (Standard Price  Standard Quantity).
b. (Standard Price  Actual Quantity)  (Actual Price  Actual Quantity).
c. (Standard Price  Standard Quantity)  (Actual Price  Actual Quantity).
d. (Actual Price  Actual Quantity)  (Standard Price  Actual Quantity).
e. None of these.
NOT: 3 min.
35. The materials usage variance is calculated by the equation

a. (Standard Price  Actual Quantity)  (Standard Price  Standard Quantity).
b. (Standard Price  Standard Quantity)  (Standard Price  Actual Quantity).
c. (Actual Price  Actual Quantity)  (Standard Price  Actual Quantity).
d. (Actual Price  Standard Quantity)  (Actual Quantity  Standard Price).
e. None of these.
NOT: 3 min.
36. Which of the following is not true regarding the use of materials variance information?
a. The purchasing agent has the responsibility for controlling the materials price variance.
b. The production manager is generally responsible for materials usage.
c. The production manager is concerned with minimizing scrap, waste, and rework.
d. The purchasing department is responsible for acquiring quality materials.
e. All of these are true.
ANS: E PTS: 1 DIF: Difficulty: Moderate
NOT: 3 min.
37. During the month of March, Baker's Express purchased 10,000 pounds of flour at $1 per pound. At the
end of March, Baker's Express found that it had an unfavorable materials price variance of $500. The
standard cost per pound must be
a. $1.95
b. $1.00
c. $1.05
d. $0.95
ANS: D
MPV = (AP  SP)AQ
$500 = ($1  SP)10,000
SP = $0.95

NOT: 3 min.
38. During the month of March, Baker's Express purchased 10,000 pounds of flour at $1 per pound. At the
end of March, Baker's Express found that it had a favorable materials price variance of $500. The
standard cost per pound must be
a. $0.95
b. $1.00
c. $1.05
d. $1.95
ANS: C
MPV = (AP  SP)AQ
$500 = ($1  SP)10,000
SP = $1.05
Or (10,000  $1.00) + 500 = $10,500

$10,500/10,000 = $1.05

NOT: 3 min.
39. During June, Cisco Company produced 12,000 chainsaw blades. The standard quantity of material
allowed per unit was 1.5 pounds of steel per blade at a standard cost of $8 per pound. Cisco
determined that it had a favorable materials usage variance of $1,000 for June. Calculate the actual
quantity of materials Cisco used.
a. 17,875 pounds
b. 12,125 pounds
c. 11,875 pounds
d. 18,125 pounds
ANS: A
12,000 blades  1.5 pounds = 18,000 pounds of steel
MUV = (AQ  SQ)SP

$1,000 = (AQ  18,000)$8
AQ = 17,875 pounds
Or 12,000 blades  1.5 pounds  $8 = $144,000  $1,000 = $143,000/$8 = 17,875 pounds

NOT: 3 min.
allowed per unit was 1.5 pounds of steel per blade at a standard cost of $8 per pound. The actual cost
was $7 per pound. The actual pounds of steel that Cisco purchased were 19,500 pounds. All materials
purchased were used. Calculate Cisco's materials usage variance.
a. $10,500 U
b. $12,000 F
c. $12,000 U
d. $10,500 F
ANS: C
MUV = (AQ  SQ)SP

= (19,500  18,000)$8
= $12,000 U

NOT: 3 min.
41. Perfect Builders makes all sorts of moldings. Its standard quantity of material allowed is 1 foot of
wood per 1 foot of molding at a standard price of $2.00 per foot. During August, it purchased 500,000
feet of wood at a cost of $1.90 per foot, which produced only 499,000 feet of molding. Calculate the
materials price variance and the materials usage variance, respectively.
a. $50,000 F and $2,000 U
b. $49,900 U and $2,000 F
c. $50,000 F and $1,900 U
d. $49,900 F and $1,900 U
ANS: A
MPV = (AP  SP)AQ
= ($1.90  $2.00)500,000
= $50,000 F
MUV = (AQ  SQ)SP
= (499,000  500,000)$2.00
= $2,000 U

NOT: 4 min.
42. Mover Company has developed the following standards for one of its products:
Direct materials: 7.5 pounds  $8 per pound

Direct labor: 2 hours  $12 per hour
The following activity occurred during March:
Materials purchased: 5,000 pounds costing $42,500

Materials used: 3,600 pounds
Units produced: 500 units
Direct labor: 1,150 hours at $11.80/hour
The company records materials price variances at the time of purchase. The variable standard cost per
unit for materials and labor is
a. $98.
b. $84.
c. $74.
d. $38.
ANS: B
Direct materials (7.5 pounds  $8) $60
Direct labor (2 hours  $12) 24
$84
NOT: 3 min.
43. Roberts Company uses a standard costing system. The following information pertains to direct
materials for the July:
Standard price per lb. $18.00

Actual purchase price per lb. $16.50
Quantity purchased 3,100 lbs.
Quantity used 2,950 lbs.
Standard quantity allowed for actual output 3,000 lbs.
Actual output 1,000 units
Roberts Company reports its material price variances at the time of purchase. What is the material
usage variance for Roberts Company?
a. $900 F
b. $1,950 F
c. $2,850 F
d. $900 U
ANS: A
(2,950  3,000)  $18 = $900 F

NOT: 3 min.
44. During August, 10,000 units were produced. The standard quantity of material allowed per unit was 10
pounds at a standard cost of $3 per pound. If there was an unfavorable usage variance of $18,750 for
August, the actual quantity of materials used must be
a. 106,250 pounds.
b. 93,750 pounds.
c. 31,875 pounds.
d. 23,438 pounds.
ANS: A
10,000  10  $3 = $300,000
$300,000 + $18,750 = $318,750
$318,750/$3 = 106,250 pounds

NOT: 3 min.
45. During September, 40,000 units were produced. The standard quantity of material allowed per unit was
5 pounds at a standard cost of $2.50 per pound. If there was a favorable usage variance of $25,000 for
September, the actual quantity of materials used must have been
a. 210,000 pounds.
b. 190,000 pounds.
c. 105,000 pounds.
d. 95,000 pounds.
ANS: B
40,000  5  $2.50 = $500,000
$500,000  $25,000 = $475,000
$475,000/$2.50 = 190,000 pounds

NOT: 3 min.
46. Max Company has developed the following standards for one of its products.
Direct materials: 15 pounds  $16 per pound

Direct labor: 4 hours  $24 per hour
Variable overhead: 4 hours  $14 per hour
The following activity occurred during the month of October:
Materials purchased: 10,000 pounds costing $170,000

Materials used: 7,200 pounds
Units produced: 500 units
Direct labor: 2,300 hours at $23.60/hour
The company records materials price variances at the time of purchase. The direct materials price
variance is
a. $50,000 F.
b. $50,000 U.
c. $10,000 U.
d. $10,000 F.
ANS: C
$170,000  (10,000  $16) = $10,000 U

NOT: 3 min.
47. All of the following are true except

a. A favorable labor efficiency variance could result from using higher quality materials that
result in fewer inspections.
b. A favorable labor rate variance could result from lower wage workers quitting.
c. A favorable materials price variance could result from purchasing identical materials from
another supplier at a lower price.
d. An unfavorable materials usage variance could result from not efficiently utilizing raw
materials, thus causing waste.
e. An unfavorable labor efficiency variance can be caused by machine downtime, and poor
quality materials.
ANS: B PTS: 1 DIF: Difficulty: Moderate
OBJ: LO: 10-4 | LO: 10-5 NAT: BUSPROG: Analytic
NOT: 2 min.
Figure 10-3.
Bortello Corporation produces high-quality leather boots. The company has a standard cost system and
has set the following standards for materials and labor:
Leather (12 strips @ $20) $240

Direct labor (10 hours @ $12) $120
Total prime cost $360
During the year Bortello produced 125 boots. Actual leather purchased was 1,700 strips, at $16 per
strip. There were no beginning or ending inventories of leather. Actual direct labor was 1,500 hours at
$15 per hour.
48. Refer to Figure 10-3. Compute the materials price variance and the materials usage variance,
respectively.
a. $9,000 F and $1,200 U
b. $9,300 U and $1,500 F
c. $6,800 F and $4,000 U
d. $6,800 U and $4,000 F
ANS: C
MPV = (AP - SP) x AQ
($16 - $20)1,700 = $6,800 F
MUV = (AQ - SQ) x SP

(1,700 - 1,500)$20 = $4,000 U

NOT: 4 min.
49. Refer to Figure 10-3. Calculate the labor rate variance and the labor efficiency variance, respectively.
a. $4,500 U and $3,000 U
b. $4,500 F and $3,000 F
c. $4,500 U and $3,000 F
d. $4,500 F and $3,000 U
ANS: A
LRV = (AR - SR)AH
($15 - $12)1,500 = $4,500 U
LEV = (AH - SH)SR

(1,500 - 1,250)$12 = $3,000 U

NOT: 3 min.
50. Refer to Figure 10-3. Compute the total budget variances for materials and labor, respectively.
a. $2,800 F and $7,500 F
b. $2,800 F and $7,500 U
c. $2,800 U and $7,500 U
d. $2,800 U and $7,500 F
ANS: B
Actual Cost* Budgeted Cost^ Variance
Materials $27,200 $30,000 2,800 F
Labor 22,500 15,000 7,500 U
*(1,700 x $16); (1,500 x $15)
^Budgeted Materials: (SQ x SR) x AQ = $240 x 125 = $30,000

^Budgeted Labor: (SH x SR) x AQ = $120 x 125 = $15,000
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4 | LO: 10-5

NOT: 4 min.
51. Refer to Figure 10-3. Compute the costs of leather and direct labor that should have been incurred for
the production of 125 boots.
a. $36,000 and $36,000
b. $46,500 and $37,500
c. $37,200 and $20,000
d. $30,000 and $15,000
ANS: D
Materials: (SQ x SR) x AQ = $240 x 125 = $30,000
Labor: (SH x SR) x AQ = $120 x 125 = $15,000
PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4 | LO: 10-5

NOT: 4 min.
Figure 10-5.
Seaside Company produces picture frames. During the year 190,000 picture
frames were produced. Materials and labor standards for producing the picture
frames are as follows:
Direct materials (2 pieces of wood @ $2.25) $4.50

Direct labor (2 hours @ $10) $20.00
Seaside purchased and used 400,000 pieces of wood at $2.00 each and its actual
labor hours were 360,000 hours at a wage rate of $10.50.
52. Refer to Figure 10-5. What is the materials price variance?

a. $100,000 F
b. $112,500 U
c. $135,000 F
d. $170,000 U
ANS: A
MPV= (AP-SP)AQ
(2.00 - $2.25) x 400,000
$100,000 F

NOT: 3 min.
53. Refer to Figure 10-5. What is the materials usage variance?

a. $112,500 F
b. $112,500 U
c. $45,000 F
d. $45,000 U
ANS: D
($2.25 x 400,000) - ($2.25 x 380,000)

$45,000 U
NOT: 3 min.
54. Refer to Figure 10-5. What is Seaside's labor rate variance?

a. $180,000 F
b. $180,000 U
c. $225,000 U
d. $217,500 F
ANS: B
LRV = (AR - SR)AH
($10.50 - $10.00) x 360,000
$180,000 U

NOT: 3 min.
55. Refer to Figure 10-5. What is Seaside's total labor variance?

a. $20,000 F
b. $20,000 U
c. $112,500 F
d. $120,000 U
ANS: A
(360,000 x $10.50) - (380,000 x $10.00)
$20,000 F

NOT: 3 min.
56. Which of the following is true regarding direct labor variances?

a. The labor efficiency variance measures the difference between what was paid to direct
laborers and what should have been paid.
b. The labor rate and labor efficiency variances will always add up to the total labor variance.
c. The labor rate variance measures the difference between the labor hours that were actually
used and the labor hours that should have been used.
d. The labor rate variance measures the difference between the labor hours that were
originally budgeted and the labor hours that should have been used.
e. The labor rate variance measures the difference between the labor hours that were actually
used and the labor hours that were originally budgeted.
ANS: B PTS: 1 DIF: Difficulty: Easy
NOT: 2 min.
57. The labor rate variance is computed by

a. (Actual Rate  Actual Hours)  (Standard Rate  Standard Hours).
b. (Standard Rate  Actual Rate)  (Actual Rate  Actual Hours).
c. (Actual Rate  Standard Hours)  (Standard Rate  Actual Hours).
d. (Actual Rate  Actual Hours)  (Standard Rate  Actual Hours).
e. None of these.
NOT: 2 min.
58. The labor efficiency variance is calculated by the equation

a. (Standard Hours  Actual Hours)  (Actual Hours  Standard Rate).
b. (Actual Rate  Actual Hours)  (Standard Rate  Actual Hours).
c. (Actual Hours  Standard Rate)  (Standard Hours  Standard Rate).
d. (Standard Hours  Actual Rate)  (Actual Hours  Actual Rate).
e. None of these.
ANS: C PTS: 1 DIF: Difficulty: Moderate
NOT: 2 min.
59. Which of the following is not true regarding the use of labor variance information?
a. The actual wage rate is almost always different from the standard rate.
b. Unexpected overtime can cause variation in the labor rate.
c. An average wage rate is chosen as the labor rate standard.
d. The production manager controls the use of labor.
e. The actual wage rate is used in determining the labor rate variance.
ANS: A
Typically, the actual wage rate is equal to the standard rate.

NOT: 2 min.
60. Kaizen costing involves

a. changing the standards frequently.
b. changing management.
c. outsourcing processes.
d. major ad campaigns.
ANS: A
Thus, kaizen costing differs from traditional standard costing in that the standard changes frequently,
reflecting continuous improvement efforts.

NOT: 2 min.
61. Which of the following is not true about Kaizen Standards?

a. Kaizen standards are the standards used for continuous improvement.
b. Kaizen standards are a currently attainable standard that reflects planned improvement.
c. Kaizen standards are constantly changing.
d. Kaizen standards are the standards used in traditional costing systems.
STA: AICPA: FN-Decision Modeling | IMA: Strategic Planning | ACBSP: APC-27-Managerial
NOT: 2 min.
62. Claire Company uses a standard costing system. The following information pertains to direct labor
costs for February:
Standard direct labor rate per hour $15.00

Actual direct labor rate per hour $13.50
Labor rate variance $18,000 F
Standard hours allowed for actual production 10,000 hours
What is the total labor budget variance for Claire Company?

a. $18,000 F
b. $12,000 F
c. $18,000 U
d. $12,000 U
ANS: D
$18,000/($15.00  $13.50) = 12,000 actual hours
(12,000  $13.50)  (10,000  $15) = $12,000 U

STA: AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-27-Managerial Accounting
Features/Costs KEY: Bloom's: Application
NOT: 4 min.
63. Claire Company uses a standard costing system. The following information pertains to direct labor
costs for February:
Standard direct labor rate per hour $15.00

Actual direct labor rate per hour $13.50
Labor rate variance $18,000 F
Standard hours allowed for actual production 10,000 hours
How many actual labor hours were worked during February for Claire Company?
a. 10,000 hours
b. 2,000 hours
c. 1,200 hours
d. 12,000 hours
ANS: D
$18,000/($15.00  $13.50) = 12,000 hours

NOT: 4 min.
64. If the actual labor rate exceeds the standard labor rate and the actual labor hours exceed the number of
hours allowed, the labor rate variance and labor efficiency variance will be
Labor Rate Labor Efficiency

Variance Variance
a. Favorable Favorable
b. Favorable Unfavorable
c. Unfavorable Favorable
d. Unfavorable Unfavorable
Features/Costs KEY: Bloom's: Comprehension
NOT: 2 min.
65. During January, 7,000 direct labor hours were worked at a standard cost of $20 per hour. If the direct
labor rate variance for January was $17,500 favorable, the actual cost per direct labor hour must be
a. $17.50.
b. $20.00.
c. $22.50.
d. $25.00.
ANS: A
7,000  $20 = $140,000
$140,000  $17,500 = $122,500
$122,500/7,000 = $17.50

NOT: 2 min.
66. During October, 10,000 direct labor hours were worked at a standard cost of $10 per hour. If the direct
labor rate variance for October was $4,000 unfavorable, the actual cost per direct labor hour must be
a. $10.40.
b. $10.00.
c. $9.60.
d. $9.20.
ANS: A
10,000  $10 = $100,000
$100,000 + $4,000 = $104,000
$104,000/10,000 = $10.40

NOT: 2 min.
67. Bender Corporation produced 100 units of Product AA. The total standard and actual costs for
materials and direct labor for the 100 units of Product AA are as follows:
Materials: Standard Actual

Standard: 200 pounds at $3.00 per pound $600
Actual: 220 pounds at $2.85 per pound $627
Direct labor:
Standard: 400 hours at $15.00 per hour 6,000
Actual: 368 hours at $16.50 per hour 6,072
What is the labor efficiency variance for Bender Corporation?

a. $480 U
b. $552 F
c. $552 U
d. $480 F
ANS: D
(368  400)  $15 = $480 F

NOT: 3 min.
Figure 10-4.
High Fliers Company produces model airplanes. During the month of November, it produced 2,000
planes. The actual labor hours were 7 hours per plane. Its standard labor hours are 10 hours per plane.
The standard labor rate is $11 per hour. At the end of November, High Fliers found that it had a
favorable labor rate variance of $10,500.
68. Refer to Figure 10-4. What was High Fliers' actual cost per labor hour?
a. $12.75
b. $11.50
c. $10.50
d. $10.25
ANS: D
LRV = (AR - SR)AH

(10,500) = (AR - $11.00)(2,000 x 7)
AR = $10.25

NOT: 3 min.
69. Refer to Figure 10-4. What was High Fliers' total labor variance?
a. $61,500 F
b. $76,500 F
c. $76,500 U
d. $61,500 U
ANS: B
LEV= (AH - SH)SR

(14,000 - 20,000) x $11
LEV = $66,000 F
Total variance = $66,000 + 10,500 = $76,500

NOT: 3 min.
Figure 10-6.
Extreme Builders constructs houses. The standard labor rate is $25 per hour and the standard number
of hours is 15,000 hours per home. During the year, it constructed 12 homes using 18,000 labor hours
per home and a rate of $28 per hour.
70. Refer to Figure 10-6. Calculate the Extreme Builders' labor rate variance.
a. $540,000 U
b. $540,000 F
c. $648,000 U
d. $648,000 F
ANS: C
LRV= (AR - SR)AH
($28 - $25)216,000
$648,000 U

NOT: 3 min.
71. Refer to Figure 10-6. Calculate the labor efficiency variance.

a. $1,008,000 F
b. $900,000 U
c. $1,008,000 U
d. $900,000 F
ANS: B
LEV = (AH - SH)SR
(216,000 - 180,000) x $25
$900,000 U

NOT: 3 min.
72. Assume that SQ = Standard Quantity, SP = Standard Price, AQ = Actual Quantity, and AP = Actual
Price. The correct entry along with the equation to record the issuance and usage of materials,
assuming a favorable materials usage variance, is as follows
a. Work in Process SQ  SP
Materials Usage Variance (AQ  SQ)SP
Materials AQ  SP
b. Work in Process SQ  SP
Materials AQ  SP
c. Work in Process AQ  AP
Materials AQ  SP
d. Work in Process AQ  AP
Materials AQ  SP
e. None of these.
ANS: A
Only standard quantities and standard prices are used to assign costs to Work in Process.

STA: AICPA: FN-Measurement | IMA: Strategic Planning | ACBSP: APC-06-Recording Transactions
KEY: Bloom's: Comprehension NOT: 3 min.
73. Which of the following is true regarding the disposition of materials and labor variances?
a. The variances for materials and labor are closed directly to Cost of Goods Sold regardless
of materiality.
b. If the materials price variance is material, it is prorated among Materials Inventory,
Materials Usage Variance, Work in Process, and Finished Goods.
c. The materials usage variance and the labor variances, if material, are prorated among
Work in Process, Finished Goods, and Cost of Goods Sold.
d. The materials usage variance and the labor variances are always prorated among Work in
Process, Finished Goods, and Cost of Goods Sold.
e. The materials usage variance and the labor variances are always closed to Cost of Goods
Sold.
ANS: C
The variances for materials and labor are closed directly to Cost of Goods Sold only if immaterial.
If the materials price variance is material, it is prorated among Materials Inventory, Materials Usage
Variance, Work in Process, Finished Goods, and Cost of Goods Sold.

NOT: 3 min.
74. During September, a small roofing company purchased 500 bundles of a certain type of shingle at a
price of $35 per bundle, $5 less than the standard price. Its standard quantity of this type of shingle is
550 bundles. What is the journal entry to record the purchase of materials?
a. Materials 20,000
Materials Price Variance 2,500
Accounts Payable 17,500
b. Materials 20,000
c. Materials 17,500
d. Materials 20,000
ANS: A
Materials = SP  AQ = $40  500 = $20,000
MPV = (AP  SP)AQ = ($35  $40)500 = $2,500 F

STA: AICPA: FN-Measurement | IMA: Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom's: Application NOT: 4 min.
allowed per unit was 1.5 pounds of steel per blade at a standard cost of $5 per pound. The actual
purchase price was $6.25 per pound. Cisco determined that it had a favorable materials usage variance
of $2,500 for June. What is the journal entry to record the issuance and usage of materials?
a. Work in Process 112,500
Materials Usage Variance 2,500
Materials 110,000
b. Work in Process 110,000
Materials 112,000
c. Work in Process 112,500
Materials 115,000
d. Work in Process 140,625
Materials 138,125
ANS: A
MUV = (AQ  SQ)SP
$2,500 = (AQ  22,500)$5
AQ = 22,000 pounds
Or, 15,000 blades  1.5 pounds  $5 = $112,500  $2,500 = $110,000/$5 = 22,000 pounds
Work in Process = SQ  SP = 22,500  $5 = $112,500

Materials = AQ  SP = 22,000  $5 = $110,000

STA: AICPA: FN-Measurement | IMA: Reporting | ACBSP: APC-06-Recording Transactions
KEY: Bloom's: Application NOT: 4 min.
Figure 10-7.
During April, a small roofing company purchased 700 bundles of a certain type of shingle at a price of
$35 per bundle, $8 more than the standard price. Its standard quantity of this type of shingle is 725
bundles.
76. Refer to Figure 10-7. What is the journal entry to record the issuance and usage of materials assuming
that the roofing company purchased and used 700 bundles?
a. Work in Process 18,900
Materials Usage Variance 675
Materials 19,575
b. Work in Process 19,575
Materials 18,900
c. Work in Process 24,500
Materials 25,375
d. Work in Process 25,375
Materials 24,500
ANS: B
Work in Process = SQ  SP = 725  27 = $19,575
MUV = (AQ  SQ)SP = (700  725)27 = $675 F
Materials = AQ  SP = 700  $27 = $18,900

STA: AICPA: FN-Measurement | IMA: Performance Measurement | ACBSP: APC-06-Recording
Transactions KEY: Bloom's: Application NOT: 4 min.
77. Refer to Figure 10-7. What is the journal entry to record the purchase of materials?
a. Materials 19,575
b. Materials 24,500
c. Materials 18,900
d. Materials 25,375
ANS: C
Accounts Payable = AP  AQ = $35  700 = $24,500
MPV = (AP  SP)AQ = ($8)700 = $5,600 U
Materials = AQ  SP = 700  $27 = $18,900

Figure 10-8.
The Perfect Tool Company (South America Division) produced 80,000 saw blades during the year. It
took 1.5 hours of labor per blade at a rate of $8.50 per hour. However, its standard labor rate is $8.00.
Its labor efficiency variance was an unfavorable $40,000.
78. Refer to Figure 10-8. What is Perfect's standard hours allowed for a volume of 80,000 blades?
a. 210,000 hours
b. 189,000 hours
c. 115,000 hours
d. 125,000 hours
ANS: C
LEV = (AH - SH) x SR
$40,000 = (120,000 - SH) x $8
115,000 hours

NOT: 3 min.
79. Refer to Figure 10-8. What is Perfect's labor rate variance?

a. $57,500 U
b. $57,500 F
c. $60,000 U
d. $60,000 F
ANS: C
= (AR - SR)AH
($8.50 - $8) x 120,000
$60,000 U

NOT: 3 min.
80. Refer to Figure 10-8. What is the journal entry to record both labor variances?
a. Work In Process 920,000
Labor Rate Variance 60,000
Labor Efficiency Variance 40.000
Accrued Payroll 1,020,000
b. Work In Process 960,000
Labor Efficiency Variance 40,000
Accrued Payroll 1,057,500
c. Work In Process 920,000
Accrued Payroll 940,000
d. Work In Process 960,000
Accrued Payroll 977,500
ANS: A
= (AR - SR)AH
($8.50 - $8) x 120,000
$60,000 U
Accrued Payroll = (80,000 x 1.5) x $8.50 = 1,020,000
Work in Process = SH x SR = 115,000 x $8 = $920,000
LEV = (AH - SH) x SR

$40,000 = (120,000 - SH) x $8
115,000 hours

Figure 10-9.
James Company manufactures t-shirts. During the year, it manufactured 250,000 t-shirts, using 2 hours
of direct labor at a rate of $8.50 per hour. The materials and labor standards for manufacturing the t-
shirts are:
Direct materials (6 yards of fabric @ $3 per yard) $18

Direct labor (2.4 hours @ $8.00 per hour) 17
It took James 1,400,000 yards at $2.50 per yard to make the 250,000 t-shirts.
81. Refer to Figure 10-9. What is James’ materials price variance assuming that materials purchased
equals materials used?
a. $750,000 F
b. $700,000 F
c. $700,000 U
d. $750,00 U
ANS: B
MPV = (AP - SP) x AQ
($2.50 - $3.00) x 1,400,000
$700,000 F

NOT: 3 min.
82. Refer to Figure 10-9. What is James’ materials usage variance?

a. $250,000 F
b. $300,000 F
c. $300,000 U
d. $250,000 U
ANS: B
= (AQ - SQ)SP
(1,400,000 - 1,500,000) x $3
$300,0000 F
SQ = 1,500,000 = 250,000 x 6

NOT: 3 min.
83. Refer to Figure 10-9. What is James’ labor rate variance?

a. $190,625 F
b. $250,000 F
c. $250,000 U
d. $193,750 U
ANS: C
(AR - SR)AH
($8.50 - $8.00) x 500,000
$250,000 U
AH = 500,000 = 250,000 x 2

NOT: 3 min.
84. Refer to Figure 10-9. What is James’ labor efficiency variance?

a. $800,000 U
b. $850,000 F
c. $800,000 F
d. $850,000 U
ANS: C
(AH - SH)SR
(500,000 - 600,000) x $8
$800,000 F
AH = 500,000 = 250,000 x 2
SH = 600,000 = 250,000 x 2.4

NOT: 3 min.
85. Refer to Figure 10-9. What is the entry to record the purchase of materials?
a. Materials 3,500,000
Accounts Payable 4,250,000
b. Materials 4,200,000
c. Materials 4,200,000
d. Materials 3,500,000
ANS: C
Materials = SP x AQ = $3 x 1,400,000 = $4,200,000
Accounts Payable = 1,400,000 x $2.50 = $3,500,000
Material Price Variance = ($2.50 - $3.00) x 1,400,000 = $700,000 F

86. Refer to Figure 10-9. What is the entry to record the issuance and usage of materials?
a. Work in Process 4,500,000
Materials 4,800,000
b. Work in Process 4,200,000
Materials 4,500,000
c. Work in Process 4,200,000
Materials 3,900,000
d. Work in Process 4,500,000
Materials 4,200,000
ANS: D
Materials = SP x AQ = $3 x 1,400,000 = $4,200,000
Work in Process = SQ x SP = (250,000 x 6) x $3 = $4,500,000
Material Usage Variance = (1,400,000 - (250,000 x 6))$3 = $300,000 F

87. Refer to Figure 10-9. What is the entry to close the variances of labor and materials?
a. Materials Price Variance 700,000
Cost of Goods Sold 1,800,000
Cost of Goods Sold 250,000

b. Materials Price Variance 750,000
Cost of Goods Sold 1,850,000

c. Cost of Goods Sold 1,800,000

d. Cost of Goods Sold 1,850,000

ANS: A
Labor Efficiency Variance = (AH - SH)SR = (500,000 - 600,000)$8 = $800,000 F
Material Usage Variance = (AQ - SQ)SP = (1,400,000 - 1,500,000)$3 = $300,000 F
Material Price Variance = (AP - SP)AQ = ($2.50 - $3.00)1,4000,000= $700,000 F
LRV = (AR - SR)AH = ($8.50 - $8.00)500,000 = $250,000 U
PTS: 1 DIF: Difficulty: Challenging OBJ: LO: 10-6


Chapter 10-Standard Costing: A Managerial Control Tool: Multiple Choice

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Chapter 10-Standard Costing: A Managerial Control Tool: Multiple Choice

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Chapter 10—Standard Costing: A Managerial Control Tool

2. Price standards are based on

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-1

3. The sources of quantitative standards include

4. Which of the following is true regarding historical experience in standard setting?

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-1

5. Which of the following is not true regarding engineering studies?

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-1

6. In setting price standards for materials and labor,

8. Which of the following is true regarding currently attainable standards?

9. Standard cost systems are adopted

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-1

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-1

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-1

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-1

17. Standard hours allowed are computed using the equation

18. The standard quantity of materials allowed is computed by the equation

Direct Materials (1 sheet of aluminum @ $10.00) $10.00

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-2

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-2

22. Variances indicate

26. Which of the following is true regarding variances?

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-3

28. Which of the following is not true concerning control limits?

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-3

The upper and lower control limits are, respectively,

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-3

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-3

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4

34. The materials price variance is computed using the equation

35. The materials usage variance is calculated by the equation

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4

Or (10,000  $1.00) + 500 = $10,500

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4

MUV = (AQ  SQ)SP

Or 12,000 blades  1.5 pounds  $8 = $144,000  $1,000 = $143,000/$8 = 17,875 pounds

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4

MUV = (AQ  SQ)SP

PTS: 1 DIF: Difficulty: Easy OBJ: LO: 10-4

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4

Direct materials: 7.5 pounds  $8 per pound

The following activity occurred during March:

Materials purchased: 5,000 pounds costing $42,500

Standard price per lb. $18.00

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4

Direct materials: 15 pounds  $16 per pound

The following activity occurred during the month of October:

Materials purchased: 10,000 pounds costing $170,000

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4

47. All of the following are true except

Leather (12 strips @ $20) $240

MUV = (AQ - SQ) x SP

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4

LEV = (AH - SH)SR

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-5

*(1,700 x $16); (1,500 x $15)

^Budgeted Materials: (SQ x SR) x AQ = $240 x 125 = $30,000

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4 | LO: 10-5

PTS: 1 DIF: Difficulty: Moderate OBJ: LO: 10-4 | LO: 10-5

Direct materials (2 pieces of wood @ $2.25) $4.50

52. Refer to Figure 10-5. What is the materials price variance?