Exercises: Standard Costing

I. TRUE OR FALSE THEORY

1. In standard costing, practical standards can be used to forecast cash flows and to plan inventory, as well as
to signal abnormal deviations in costs. TRUE
2. The standard direct labor rate should not include fringe benefits. FALSE
3. In standard costing, the standard quantity allowed refers to the output that should have been achieved
based on the planned inputs for the period. FALSE
4. Quantity standards indicate how much of an input should be used for manufacturing a unit of product or
in providing a unit of service. TRUE
5. Ideal standards can only be attained under the best circumstances and allow for no work interruptions.
TRUE
6. Purchase of poor quality materials will generally result in a favorable materials price variance and an
unfavorable labor rate variance. FALSE
7. From a standpoint of cost control, the most effective time to recognize materials price variances is when
the materials are placed into production. FALSE
8. The materials quantity variance is computed based on the amount of materials purchased during the
period. FALSE
9. The production manager is usually held responsible for the labor efficiency variance. TRUE
10. The variable overhead efficiency variance measures how efficiently variable overhead resources were
used. FALSE

II. Multiple Choice Theory

11. The standards that allow for no machine breakdowns or other work interruptions and that require peak
efficiency at all times are referred to as:
A. normal standards.
B. practical standards.
C. ideal standards.
D. budgeted standards.

12. Which of the following statements concerning practical standards is incorrect?

A. Practical standards can be used for product costing and cash budgeting.
B. Practical standards can be attained by the average worker.
C. When practical standards are used, there is no reason to adjust standards if an old machine is replaced
by a newer, faster machine.
D. Under practical standards, large variances are less likely than under ideal standards.

13. The general model for calculating a quantity variance is:

A. actual quantity of inputs used x (actual price - standard price).
B. standard price x (actual quantity of inputs used - standard quantity allowed for output).
C. (actual quantity of inputs used at actual price) - (standard quantity allowed for output at standard
price).
D. actual price x (actual quantity of inputs used - standard quantity allowed for output).
14. An unfavorable materials quantity variance indicates that:
A. actual usage of material exceeds the standard material allowed for output.
B. standard material allowed for output exceeds the actual usage of material.
C. actual material price exceeds standard price.
D. standard material price exceeds actual price.

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 Exercises: Standard Costing
15. The materials price variance should be computed:
A. when materials are purchased.
B. when materials are used in production.
C. based upon the amount of materials used in production when only a portion of materials purchased is
actually used.
D. based upon the difference between the actual quantity of inputs and the standard quantity allowed for
output times the standard price.

16. A favorable materials price variance coupled with an unfavorable material usage variance would most
likely result from:
A. labor efficiency problems.
B. machine efficiency problems.
C. the purchase and use of higher than standard quality material.
D. the purchase and use of lower than standard quality material.

17. A favorable materials price variance coupled with an unfavorable material usage variance would MOST
likely result from:
A. problems with processing machines.
B. the purchase of low quality materials.
C. problems with labor efficiency.
D. changes in the product mix.

18. Misemer Corporation is developing standards for its products. One product requires an input that is
purchased for $57.00 per kilogram from the supplier. By paying cash, the company gets a discount of
8% off this purchase price. Shipping costs from the supplier's warehouse amount to $3.60 per kilogram.
Receiving costs are $0.26 per kilogram. The standard price per kilogram of this input should be:
A. $57.70
B. $56.30
C. $65.42
D. $57.00

Standard price

19. Mcgann Corporation is developing standards for its products. Each unit of output of the product requires
0.53 kilogram of a particular input. The allowance for waste and spoilage is 0.06 kilogram of this input
for each unit of output. The allowance for rejects is 0.12 kilogram of this input for each unit of output.
The standard quantity in kilograms of this input per unit of output should be:
A. 0.53
B. 0.35
C. 0.71
D. 0.47
Standard quantity

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 Exercises: Standard Costing
20. Daughdrill Corporation is developing direct labor standards. The basic direct labor wage rate is $10.95
per hour. Employment taxes are 9% of the basic wage rate. Fringe benefits are $4.00 per direct labor-
hour. The standard rate per direct labor-hour should be:
A. $5.96
B. $4.99
C. $10.95
D. $15.94

21. Zellner Corporation is developing direct labor standards. A particular product requires 0.94 direct labor-
hours per unit. The allowance for breaks and personal needs is 0.02 direct labor-hours per unit. The
allowance for cleanup, machine downtime, and rejects is 0.10 direct labor-hours per unit. The standard
direct labor-hours per unit should be:
A. 0.82
B. 0.92
C. 0.94
D. 1.06

22. Cox Company's direct material costs for the month of January were as follows:

For January there was a favorable direct materials quantity variance of:
A. $3,360
B. $3,375
C. $3,400
D. $3,800

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 Exercises: Standard Costing

23. The following materials standards have been established for a particular product:

The following data pertain to operations concerning the product for the last month:

What is the materials quantity variance for the month?

A. $15,240 U
B. $6,350 U
C. $14,340 U
Standard quantity = 1,000 x 5.1 grams = 5,100grams
MQV = SP (SQ-AQ)
$11.95 (5,100-6,300)
$11.95 (1,200)
D. $5,975 U $ 14,340 Unfavorable

Alternate solution:

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 Exercises: Standard Costing
24. The following materials standards have been established for a particular product:
The following data pertain to operations concerning the product for the last month:

The following data pertain to operations concerning the product for the last month:

What is the
What materials
is the materialsprice
price variance forthethe
variance for month?
month?
A. $14,850
A. $14,850UU
B. $8,250
B. $8,250UU
C. $8,640 U U
C. $8,640
D. $2,860
D. $2,860 FF

MPV = AQ (SP-AP)
AP $60,500/4,400 = $13.75
MPV= 4,400($14.40-$13.75)
4,400 ($0.65)
$ 2,860 Favorable

Alternate Solution:

24 Actual Price
($60,500/4,400) $ 13.75
Standard Price 14.4
Favorable $ -0.65
x Actual Quantity Purchased 4,400
Materials Price Variance $ -2,860 F

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 Exercises: Standard Costing
25. The Fletcher Company uses standard costing. The following data are available for October:

The standard quantity of material allowed for October production is:

A. 23,000 pounds
B. 24,000 pounds
C. 24,500 pounds D. 25,000 pounds

MQV SP (SQ-AQ)
$ 1,000 $2 (SQ -23,500)
$ 1,000 $2SQ-$47,000
-$2SQ -$1,000-$47,000
SQ $ -48,000.0
$ -2
SQ 24,000 pounds

26.Discover Motor Company uses a standard cost system to collect costs related to the production of its
toothpick motors. The direct labor standard for each toothpick motor is 1.25 hours at a standard cost of
$9.50 per hour.
During the month of May, Discover's toothpick motor production used 5,900 direct labor-hours at a total
direct labor cost of $54,575. This resulted in production of 4,800 toothpick motors for May. What is
Discover's labor efficiency variance for the month of May?
A. $950 favorable
B. $1,475 favorable
C. $8,975 unfavorable
D. $10,450 unfavorable

Standard hours = 1.25hrs x 4,800

6,000 hrs
Labor efficiency variance SR (SH-AH)
Labor efficiency variance $9.5 (6,000-5,900)
Labor efficiency variance $9.6 (100)
Labor efficiency variance $960 Favorable

Alternate solution:

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The following data pertain to operations concerning the product for the last month:
Exercises: Standard Costing
27. The following labor standards have been established for a particular product:

The following data pertain to operations concerning the product for the last month:
What is the labor efficiency variance for the month?
A. $5,955 U
B. $9,240 U
C. $9,240 F
D. $6,090 U
What is the labor efficiency variance for the month?
A. $5,955 U
SHB.=$9,240
5.0 x U1,400 = 7,000
Direct laborF efficiency variance = SR (AH - SH)
C. $9,240
= $19.85 (7,300
D. $6,090 U - 7,000) = $5,955 U

LEV SR (SH-AH)
SH 5.0hrs x 1,400 units)
SH 7,000
LEV $19.85 (7,000-7,300)
LEV $19.85 (300)
$ 5,955 Unfavorable

28. The following labor standards have been established for a particular product:

The following data pertain to operations concerning the product for the last month:

What is the labor rate variance for the month?

A. $2,955 F
B. $4,935 F
C. $2,955 U
D. $1,890 U

LRV AH (AR-SR)
AR $103,635/6,300hrs) =$16.45
LRV 6,300($16.45-$16.15)
LRV 6,300($.30)
LRV $ 1,890 Unfavorable

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 Exercises: Standard Costing
29. In a certain standard costing system the following results occurred last period: labor rate variance,
$1,000 U; labor efficiency variance, $2,800 F; and the actual labor rate was $0.20 more per hour than the
standard labor rate. The number of actual direct labor-hours used last period was:
A. 9,000
43.B.Direct
5,400 labor standards at Cepeda Manufacturing Corporation allow 5 direct labor-hours
C. 5,000
forD.every
4,800
unit produced. The standard direct labor rate is $12.00 per hour. During the month
of February, Cepeda incurred 35,000 direct labor-hours and recorded a $15,000 favorable
labor
LRVefficiencyAH
variance.
(SR-AR) How many units did Cepeda produce during February?
A. 6,750
$1,000U AH ($.20)
B. 7,250
AH $1000/.20
C. 33,750
AH 5,000
D. 36,250
30. Direct labor standards at Cepeda Manufacturing Corporation allow 5 direct labor-hours for every unit
Direct labor The
produced. efficiency
standardvariance = rate
direct labor SR is
(AH - SH)
$12.00 per hour. During the month of February, Cepeda
incurred =35,000
($15,000) $12.00 direct labor-hours
(35,000 - SH)and recorded a $15,000 favorable labor efficiency variance. How
many units
SH = 36,250 did Cepeda produce during February?
SHA. =6,750
Units x Standard hours per unit
B. 7,250
36,250 = Units x 5
C. 33,750
Units = 7,250
D. 36,250

LEV SR (SH-AH)
$15,000 $12 (SH-35,000)
$15,000 $12SH-$420,000
$12SH $420,000+$15,000
$12SH $ 435,000
$ 12
SH $ 36,250
No of units 5 /DLH
No of units 7,250

31. In a recent period 12,250 units were made and there was a favorable labor efficiency variance of
$22,500. If 41,000 labor-hours were worked and the standard wage rate was $12 per labor-hour, the
standard hours allowed per unit of output is closest to:
A. 3.19
B. 3.35
C. 3.50 D. 6.00

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 Exercises: Standard Costing

32. CzepielCorporation is developing standards for its products. One product requires an input that is
purchased for $48.00 per kilogram from the supplier. By paying cash, the company gets a discount of 9%
off this purchase price. Shipping costs from the supplier's warehouse amount to $2.84 per kilogram.
Receiving costs are $0.59 per kilogram.

Required:
Determine the standard price per kilogram of this input.

33. Pittmon Corporation is developing direct labor standards. The basic direct labor wage rate is $13.90 per
hour. Employment taxes are 10% of the basic wage rate. Fringe benefits are $4.28 per hour. A particular
product requires 0.90 direct labor-hours per unit. The allowance for breaks and personal needs is 0.07
direct labor-hours per unit. The allowance for cleanup, machine downtime, and rejects is 0.12 direct
labor-hours per unit.

Required:
a. Determine the standard rate per direct labor-hour. Show your work!
b. Determine the standard direct labor-hours per unit of product. Show your work!
c. Determine the standard labor cost per unit of product to the nearest cent.

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 Exercises: Standard Costing

34. Lido Company's standard and actual costs per unit for the most recent period, during which 400 units
were actually produced, are given below:

Required:
From the foregoing information, compute the following variances. Show whether the variance is
favorable (F) or unfavorable (U):

a. Materials price variance.

b. Materials quantity variance.
c. Direct labor rate variance.
d. Direct labor efficiency variance.
e. Variable overhead rate variance.
f. Variable overhead efficiency variance.

a. Materials price variance

MPV = AQ(AP - SP)
Actual Quantity= 2.1foot x 400 units=840 units
840 ($1.6-$1.5)
840 ( $ .1)
$84 U

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 Exercises: Standard Costing
b. Materials quantity variance
MQV = SP(AQ - SQ)
Actual Quantity = 2.1foot x 400 units = 840 units
Standard Quantity = 2.0 foot x 400 units = 800 units
$1.5 (840-800)
$1.50 (40)
$60 U

c. Direct labor rate variance

LRV = AH(AR - SR)
Actual hours = 1.4hours x 400 units
560 ($6.5-$6.0)
560 ($.5)
$280U

d. Direct labor efficiency variance =

LEV = SR(AH - SH)
Actual hours = 1.4 x 400 = 560
Standard Hours = 1.5 x 400 = 600
$6.00(560 – 600)
$6.00 (40)
$240 F

e. Variable overhead rate variance =

VORV = AH(AR - SR)
Actual hours = 1.4 x 400 units = 560
560 ($3.10 - $3.40)
560 ($.3) $168 F

f. Variable overhead efficiency variance

VOHEV= SR(AH - SH)
$3.40(560-600)
$3.40(40)
$136F

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 Exercises: Standard Costing
35. Arlon Jeffries Candy Corporation produces and sells taffy by the bag and uses a standard cost system to
collect costs related to production. The following information relates to Arlon Jeffries' operations for
last month:

Required:
Compute the unknown quantities above. (Numbers 4, 6, 7, and 10.)

4. MPV = AQ (AP-SP)
$1,400U = AQ ($0.81-$0.80)
$1,400U = AQ ($.01)
AQ = $1,400/$.01
AQ = 140,000 pounds

6. MQV = SP (AQ –SQ)

Standard Quantity = 1.1 x 120,000 bags = 132,000
$7,200U = $.80 (AQ-132,000)
$7,200U = $.80AQ – 105,600)
-.80AQ = -$7,200-105,600
-.80AQ = -$112,800
AQ used = $112,800/.80
= 141,000 pounds

7. Labor Efficiency Variance = LEV = SP (AH-SH)

$19,600F = $14 (13,000-SH)
$19,600F = $182,000-$14SH)
$14SH = $19,600+$182,000
SH = $201,600/$14
= $14,400/120,000 number of bags
= .12 hour per bag

10. Labor Rate Variance = AH (AR-SR)

$2,600F = AH (AR-$14)
$2,600F = 13,000 (AR - $14)
$2,600F = 13,000AR - $182,000
13,000AR = 2,600-182,000
= 179,400/13,000
= $13.80 per hour

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 Exercises: Standard Costing

36. The following materials standards have been established for a particular product:

The following data pertain to operations concerning the product for the last month:

Required:
a. What is the materials price variance for the month?
b. What is the materials quantity variance for the month?

a. Materials price variance =

MPV = AQ (AP-SP
= 8,500 ($16.4-$15.60)
= 8,500 ($.8)
= $6,800U

b. Materials Quantity Variance

MQV = SP (AQ-SQ)
Standard quantity = 5.2meters x 1,640units = 8,528
= $15.60 (8,200-8,528)
= $15.60 ($328)
= $5,117F

37. Calcagno Corporation's variable overhead is applied on the basis of direct labor-hours. The
company has established the following variable overhead standards for product B47W:

The following data pertain to the most recent month's operations during which 520 units of
product B47W were made:

Required:
a. What was the variable overhead rate variance for the month?
b. What was the variable overhead efficiency variance for the month?

a. Variable overhead rate variance = AH (AR-SR)

VORV = 1,400 ($9.7-$9.4)
VORV = 1,400 ($.3)
= $420U

b. Variable overhead efficiency variance = SR(AH - SH*)

Standard Hour = 3.0 x 520 = 1,560
VOEV= $9.40(1,400 - 1,560)
= $9.40(160) = $1,504F

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