QUIZ

Standard Costing (SET A)

Prof. SIMANGAN

THEORIES. Write the letter of your choice in CAPITAL LETTERS.

1. The primary purpose of using a standard cost system is to:

A. Make things easier for managers in the production facility
B. Provide a distinct measure of cost control
C. Minimize the cost per unit of production
D. Assure continuous production of goods

2. Which of the following statements is true concerning standard costs?

A. Standard costs are estimates of costs available only under the most ideal conditions, but
rarely predictable
B. Standard costs are difficult to use with a process-costing system
C. If properly used, standards can help motivate employees
D. Unfavorable variances, material in amount, should be investigated, but large favorable
variances need not be investigated

3. Which of the following contains the two levels that standards may be set at?
A. Normal and ideal
B. Ideal and less efficient
C. Normal and fully efficient
D. Fully efficient and fully effective

4. In most companies, machines break down occasionally and employees are often less than
perfect. Which type of standard acknowledges these characteristics when determining the
standard cost of a product?
A. Efficiency standard
B. Ideal standard
C. Practical standard
D. Budgeted standard

5. Which of the following should be least considered when deciding whether to investigate a
variance?
A. Whether the variance is favorable or unfavorable
B. Significance of the variance
C. Cost if investigating the variance
D. Trend of the variances over time

6. When performing input/output variance analysis in standard costing, “standard hours

allowed” is a means of measuring
A. Standard output at standard hours
B. Standard output at actual hours
C. Actual output at standard hours
D. Actual output at actual hours

7. If the total materials variance (actual cost of materials used compared with the standard cost
of the standard amount of materials required) for a given operation is favorable, why must
this variance be further evaluated as to price and usage?
A. There is no need to further evaluate the total materials variance if it is favorable
B. Financial reporting standards require that all variance be analyzed in three stages
C. All variances must appear in the annual report to equity owners for proper disclosure
D. To allow management to evaluate the efficiency of the purchasing and production
functions

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

9. The fixed overhead application rate is a function of a predetermined “normal” activity level.
If standard hours allowed for good output equal this predetermined activity level for a given
period, the volume variance will be
A. Zero
B. Favorable
C. Unfavorable
D. Either favorable or unfavorable, depending on the budgeted overhead

10. New republic products has a favorable fixed overhead spending variance. Which of the
following would be the most likely reason for this variance?
A. More units were actually produced than predicted
B. Fewer units were actually produced than predicted
C. Actual fixed overhead was more than predicted
D. Actual fixed overhead was less than predicted

11. Rigor Ltd. uses direct labor hours as the cost driver for variable overhead. In order to
calculate the variable overhead efficiency variance, which of the following items does not
need to be known?
A. Actual overhead costs
B. Actual direct labor hours
C. Standard variable overhead rate per direct labor hour
D. Standard direct labor hours allowed

12. The unfavorable volume variance may be due to all but which of the following factors?
A. Failure to maintain an even flow of work
B. Machine breakdowns
C. Unexpected increases in the cost of utilities
D. Failure to obtain enough sales orders

13. The variance least significant for purposes of controlling costs is the:
A. Material usage variance
B. Variable overhead efficiency variance
C. Fixed overhead spending variance
D. Fixed overhead volume variance

14. The variance most useful in evaluating plant utilization is the:

A. Variable overhead spending variance
B. Fixed overhead spending variance
C. Variable overhead efficiency variance
D. Fixed overhead volume variance

15. Favorable volume variances may be harmful when:

A. Machine repairs cause work stoppages
B. Supervisors fail to maintain an even flow of work
C. Production in excess of normal capacity cannot be sold
D. There are insufficient sales orders to keep the factory operating at normal capacity

16. A difference between standard costs used for cost control and the budgeted costs
representing the same manufacturing effort can exist because:
A. Standard costs must be determined after the budget is completed

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 B. Standard costs represent what costs should be while budgeted costs represent expected
actual costs
C. Budgeted costs are historical costs while standard costs are based on engineering studies
D. Budgeted costs include some “slack” or “padding” while standard costs do not

17. 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 expensed in per-
unit amounts

18. 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

19. Under the two-variance method for analyzing factory overhead, which of the following
variances are composed of both variable and fixed overhead elements?
A. Controllable or budget variance only
B. Volume or capacity variance only
C. Both controllable and volume variances
D. Neither controllable nor volume arises

20. 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.

21. For the doughnuts of McDonut Co. the Purchasing Manager decided to buy 65,000 bags of
flour with a quality rating two grades below that which the company normally purchased.
This purchase covered about 90% of the flour requirement for the period. As to the material
variances, what will be the likely effect?

Price variance Usage variance

A) Favorable Favorable
B) Favorable Unfavorable
C) Unfavorable Favorable
D) No Effect Unfavorable

22. An unfavorable labor efficiency variance

A. means that workers were inefficient and their supervisor did a poor job.
B. causes a favorable variable overhead efficiency variance.
C. can result from an action taken by a manager other than the supervisor of the workers.
D. should always be investigated and corrected.

23. Using the two-variance method for analyzing overhead, which of the following variances
contains both variable and fixed overhead elements?

Controllable Variance Volume Variance Efficiency Variance

A Yes
) Yes Yes
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 B) Yes Yes No
C) Yes No No
D No
) No No

24. Rigor Ltd. uses direct labor hours as the cost driver for variable overhead. In order to
calculate the variable overhead efficiency variance, which of the following items does not
need to be known? (E)
A. Actual overhead costs
B. Actual direct labor hours
C. Standard direct labor hours allowed
D. Standard variable overhead rate per direct labor hour

25. Management scrutinizes variances because

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

PROBLEM SOLVING. Write the letter of your choice in CAPITAL LETTERS.

1. Each finished unit of Product EM contains 60 pounds of raw material. The manufacturing
process must provide for a 20% waste allowance. The raw material can be purchased for
P2.50 a pound under terms of 2/10, n/30. The company takes all cash discounts. The
standard direct material cost for each unit of EM is:
A. P180.00
B. P183.75
C. P187.50
D. P176.40

2. The Bohol Company uses standard costing. The following data are available for October:
Actual quantity of direct materials used 23,500 pounds
Standard price of direct materials P2 per pound
Material quantity variance P1,000 U
The standard quantity of materials allowed for October production is:
A. 23,000 lbs
B. 24,500 lbs
C. 24,000 lbs
D. 25,000 lbs

3. MICHIGAN CORP. has a signature scarf for ladies that are very popular. Certain
production and marketing data are indicated below:

Cost per yard of cloth P36.00

Yards of cloth needed per scarf 0.50 yard
Airfreight from supplier P0.60/yard
Motor freight to customers P0.90 /scarf
Purchase discounts from supplier 3%
Sales discount to customers 2%

Calculate the standard cost of cloth per scarf that Hankies Unlimited should use in its cost
sheets.
A. P16.87
B. P17.76
C. P17.30
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 D. P18.21

4. Information on Dulce’s direct material costs for May is as follows:

Actual quantity of direct materials purchased and used 30,000 lbs
Actual cost of direct materials P84,000
Unfavorable direct materials usage Variance P3,000
Standard quantity of direct materials allowed for May production 29,000 lbs
For the month of May, Dulce’s direct materials price variance was:
A. P2,800 favorable
B. P6,000 unfavorable
C. P2,800 unfavorable
D. P6,000 favorable

5. Clean Harry Corp. uses two different types of labor to manufacture its product. The type of
labor, Mixing and Finishing, have the following standards in yielding 4,000 units:

Labor Type Standard Mix Std Hourly Rate Standard Cost

Mixing 500 hours P10 P5,000
Finishing 250 hours P5 P1,250

During January, in yielding 36,000 units, the following actual production information was
provided:

Labor Type Actual Mix

Mixing 4,500 hours
Finishing 3,000 hours

Note: Just use the same computations/process for materials yield and mix variance

How much labor yield variances should be reported?

A. P2,500
B. P5,000
C. P5,250
D. P6,250

6. The following direct labor information pertains to the manufacture of product Glu:
Time required to make one unit 2 direct labor hours
Number of direct workers 50
Number of productive hours
per week, per worker 40
Weekly wages per worker P500
Workers’ benefits treated
as direct labor costs 20% of wages

What is the standard direct labor cost per unit of product Glu?
A. P12.
B. P24.
C. P15.
D. P30.
Use the following information to answer 7 and 8:

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Goodeve Company’s direct labor costs

Standard direct labor hours 30,000

Actual direct labor hours 29,000
Direct labor efficiency variance P4,000
Favorable
Direct labor rate variance Favorable P5,800
Total payroll P110,200

7. What was Goodeve’s standard direct labor rate?

A. P3.54
B. P4.00
C. P3.80
D. P5.80

8. What was Goodeve’s actual direct labor rate?

A. P3.54
B. P4.00
C. P3.80
D. P5.80

9. Kent Company sets the following standards for 2007:

Direct labor cost (2DLH @4.50) P9.00
Manufacturing overhead (2DLH @7.50) 15.00

Kent Company plans to produce its only product equally each month. The annual budget for
overhead costs are:
Fixed overhead P150,000
Variable overhead 300,000
Normal activity in direct labor hours 60,000

In March, Kent Company produced 2,450 units with actual direct labor hours used of 5,050.
Actual overhead costs for the month amounted to P37,245 (fixed overhead is as budgeted).
The amount of overhead volume variance for Kent Company is

A. P250 unfavorable
B. P750 unfavorable
C. P500 unfavorable
D. P375 unfavorable

10. Calma Company uses a standard cost system. The following budget, at normal capacity, and
the actual results are summarized for the month of December:
Direct labor hours 24,000
Variable factory OH P48,000
Fixed factory OH P108,000
Total factory OH per DLH P6.50

Actual data for December were as follows:

Direct labor hours worked 22,000

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 Total factory OH P147,000
Standard DLHs allowed for capacity 21,000
attained

Using the two-way analysis of overhead variance, what is the controllable variance for
December?
A. P3,000 favorable
B. P9,000 favorable
C. P5,000 favorable
D. P10,500 unfavorable
Use the following information to answer 11 and 12:

Paper Products applies fixed overhead at a rate of P3 per direct labor hour. Each unit produced is
expected to take 2 direct labor hours. Paper Products expected production in the current year to
be 10,000 units but 9,000 units were actually produced. Actual direct labor hours were 19,000
and actual fixed overhead costs were P62,000.

11. Paper Products’ fixed overhead spending variance is:

A. P8,000 F
B. P8,000 U
C. P2,000 F
D. P2,000 U

12. Paper Products’ fixed overhead volume variance is:

A. P2,000
B. P6,000
C. P8,000
D. P0

13. Abbey Company ALASKA CO. uses a standard cost system. Direct materials statistics for
the month of May, are summarized below:
Standard unit price P90.00
Actual units purchased 40,000
Actual units used 32,000
Standard units allowed for actual production 36,250
Materials price variance- favorable P6,000

What was the actual purchase price per unit?

A. P89.81
B. P88.50
C. P85.89
D. P89.85
Use the following information to answer 14 to 16:

Darf Company, which applies overhead on the basis of direct labor hours. Two direct labor hours
are required for each product unit. Planned production for the period was set at 9,000 units.
manufacturing overhead is budgeted at P135,000 for the period, of which 20% of this cost is
fixed. The 17,200 hours worked during the period resulted in production of 8,500 units. Variable
manufacturing overhead cost incurred was P108,500 and fixed manufacturing overhead costs
was P28,000. Darf Company uses a four variance method for analyzing manufacturing overhead.

14. The variable overhead spending variance for the period is

A. P5,300 U
B. P1,200 U
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 C. P6,300 U
D. P6,500 U
15. The variable overhead efficiency variance (quantity) variance for the period is
A. P5,300 U
B. P1,500 U
C. P1,200 U
D. P6,500 U
16. The fixed overhead budget (spending) variance for the period is
A. P6,300 U
B. P1,500 U
C. P2,500 U
D. P1,000 U

17. Dagalangit Company uses a standard cost system. The following information pertains to
direct labor for Product A for the month of March:
Standard rate per hour P12.00
Standard hours allowed for actual 3,000 hours
production
Actual rate per hour P12.60
Labor efficiency variance-unfavorable P2,400

What were the actual hours worked?

A. 3,200
B. 2,800
C. 3,000
D. 3,190

18. Charis Corporation produces a single product with a standard direct labor cost of 4 hours
@12 per hour. During May, 1,000 units were produced using 4,100 hours @P12.20 per
hour. The total labor cost variance is
A. P1,200 U
B. P820 U
C. P1,020 U
D. P2,020 U

19. The following information is available from the KANSAN CORP.:

Actual factory O/H P15,000
Fixed O/H expenses, actual P7,200
Fixed O/H expenses, budgeted P7,000
Actual hours 3,500
Standard hours 3,800
Variable O/H rate per DLH P2.50

What is the spending variance?

A. P200 U
B. P950 F
C. P200 F
D. P750 F

20. The predetermined overhead rate for Weed-B-Gone is P8, comprised of a variable overhead
rate of P5 and a fixed rate of P3. The amount of budgeted overhead costs at normal capacity

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of P240,000 was divided by normal capacity of 30,000 direct labor hours, to arrive at the
predetermined overhead rate of P8. Actual overhead for June was P14,800 variable and
P8,100 fixed, and 1,500 units were produced. The direct labor standard is 2 hours per unit
produced. The total overhead variance is
A. P2,900 F.
B. P1,100 U.
C. P1,100 F.
D. P2,900 U.

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