Chapter 6

MULTIPLE CHOICE:

1. Which of the following statements concerning standard cost is false?

a. If properly used, standards can help motivate employees.
b. All variances, whether favorable or unfavorable, should be investigated.
c. Standard costs should be attainable under conditions of efficient operation.
d. A standard cost system may be used with a process costing system or a job order costing
system.

2. Variance analysis should be used

a. As the only source of information for performance evaluation.
b. To understand why variances arise.
c. To encourage employees to focus on meeting standards.
d. To administer appropriate disciplinary action to employees that do not meet standards.

3. Standard costing systems may be used with

a. Just-In-Time systems.
b. Computer-Integrated manufacturing systems.
c. Total quality management.
d. All of the above

4. Standard costing is used to isolate the variances between standard costs and actual costs. It
allows management to measure performance and correct inefficiencies, thereby helping to
a. Allocate costs accurately.
b. Determine the break-even point.
c. Control costs.
d. Eliminate management’s need for subjective decisions.

5. Both standard costs and budgeted costs are used for controlling costs. However, the two terms
are not the same. Standard costs differ from budgeted costs in that standard costs
a. Are based on engineering studies while budgeted costs are historical costs.
b. Costs that were incurred for actual production, while budgeted costs are costs that should
have been incurred for such production.
c. Are costs that should have been incurred for actual production, while budgeted costs are
costs that should be incurred for budgeted or planned production.
d. Are always expressed in total amounts, while budgeted costs are always expressed in per-
unit amounts.

6. Which of the following statements is correct?

a. A standard cost system can never be used in both the job order and process costing
systems.
b. Standard costing can be used in job order costing system, but not in process costing system.
c. Standard costing can be used in either the job order costing system or process costing
system.
d. A standard cost system can be used in process costing system, but not in job order costing
system.
7. In a process costing system, equivalent units of production are computed to determine the
number of complete units that could have been produced, given no beginning and ending work-
in-process inventories. If a company uses standard costing in its process costing system, the
equivalent units of production.
a. Are multiplied by the standard cost per unit to compute the total standard cost of units
produced.
b. Are never used.
c. Are converted to standard equivalent units and then multiplied by the actual cost per unit.
d. Are assumed to be zero.

8. A variance shows a deviation of actual results from standard or budgeted results. In deciding
whether to investigate a variance or not, management may consider the following factors,
except
a. The amount of the variance and the cost of investigation.
b. Whether the variance is favorable or unfavorable.
c. The possibility that investigation will eliminate future occurrences of the variance.
d. The trend of the variances over the time.

9. The following describe ideal standards, except

a. Currently attainable standards.
b. Theoretical or maximum-efficiency standards
c. Make no allowance for waste, machine downtime, and spoilage.
d. Perfection standards.

10. Which of the following does not describe practical standards?

a. Currently attainable standards.
b. Can be used for product costing and cash budgeting
c. Performance that is reasonably expected to be achieved with an allowance for normal
spoilage, waste, and downtime
d. Negate the need to adjust standards if working conditions change

11. A standard cost is an estimate of what a cost should be under normal operating conditions. In
establishing standard costs, the following organizational personnel may be involved, except
a. Top management
b. Budgetary accountants
c. Quality control personnel
d. Industrial engineers.

12. Because of the impact of fixed costs in most businesses, standard costing system is usually not
effective unless the company also has a flexible budgeting system. In flexible budgeting,
a. A standard costs are used to prepare budgets for multiple activity levels
b. Standard costs are never used
c. Variable costs and fixed costs show the same behavior as budgets for different activity levels
are prepared.
d. A budget for the expected activity level is prepared showing variable and fixed costs
separately.
13. In a standard costing system, actual costs are compared with standard costs. The difference or
variance is determined, and responsibility for such variance is assigned or identified to a
particular person or department, in order to
a. Determine who is at fault and render the appropriate punishment
b. Be able to set the correct selling price of the product
c. Use the knowledge about the variances to promote learning and continuous improvement
in the manufacturing operations
d. Trace the variances to the proper inventory accounts so that they may be valued at actual
costs

14. This management practice involves giving significant attention only to those areas in which
material variances from expectations occur, that is, giving less attention on areas operating as
expected.
a. Responsibility accounting
b. Management by objectives
c. Management by exception
d. Materials control

15. The materials efficiency variance is the difference between actual and standard quantities used
in production, multiplied by the standard price. This variance may be the responsibility of
a. Purchasing department
b. Sales department
c. Production department
d. Personnel department

16. An unfavorable materials spending variance coupled with a favorable materials efficiency
variance would most likely result from
a. The purchase and use of lower than standard quality materials
b. The purchase and use of higher than standard quality materials
c. Problems involving machine efficiency
d. Changes in product mix

17. For a recent month, the accountant’s standard cost variance analysis report showed a significant
amount of unfavorable materials efficiency (quantity or usage) variance that warrants an
investigation. The investigation of this variance should begin with the
a. Personnel manager
b. Purchasing manager only
c. Production manager only
d. Production manager or purchasing manager

18. The difference between the actual time used and the amount of time that should have been
used for actual production, multiplied by the standard labor rate per time is called
a. Efficiency variance
b. Price variance
c. Spending variance
d. Rate variance
 19. The difference between the actual price or rate paid and the standard price or rate that should
have been paid, multiplied by the actual quantity or actual time is called
a. Efficiency variance
b. Quantity variance
c. Time variance
d. Spending variance

ITEMS 20 TO 25 BASED ON THE FOLLOWING INFORMATION:

A company produces a product with the following standard costs:

Materials, 2 pieces @ P5 per piece P 10

Labor 4 hours @ P8 per hour 32
Variable overhead 4 hours @ P6 per hour 24
Fixed overhead* 4 hours @ P4 per hour 16
Total standard manufacturing cost per unit P82

*based on a capacity level of 5,000 units

20. If a flexible budget for 4,500 units, 5,000 units, and 5,5000 units is prepared for a certain, the
budgeted costs are

4,500 units 5,000 units 5,500 units

a. P369,000 P410,000 P451,000
b. 297,000 330,000 363,000
c. 377,000 410,000 443,000
d. 0 410,000 0