Standard costs, Flexible budgets, Variance Analysis

1. Which is not an advantage of developing and using standard costs?

a. They make possible the concept of management by exception
b. They facilitate cash planning and inventory planning
c. They provide a basis for disciplining personnel
d. They can assist in the implementation of responsibility accounting
e. They can greatly simplify the bookkeeping process
2. Where AQ = actual quantity, AP = actual price, SQ = standard quantity, SP = standard
price, QV = quantity variance, and PV = price variance, which describes the general model for
variance analysis?
a. (AQ x AP) - (AQ x SP) = PV; (AQ x SP) - (SQ x SP) = QV
b. (AQ x AP) - (AQ x SP) = QV; (AQ x SP) - (SQ x SP) = PV
c. (AQ x SP) - (AQ x AP) = PV; (AQ x SP) - (AQ x AP) = QV
d. (AQ x AP) - (SQ x SP) = PV; (AQ x AP) - (SQ x AQ) = QV
3.ABC Co. has the following:
Standard quantity Standard price
or hours or rate
Direct materials 5 ounces Php3.00
Direct labor 3 hours Php5.00

During the month, 12,000 ounces of material were purchased for Php3.05 per ounce. Nine
thousand ounces of the material were used to produce 1,700 units of product. The materials
price variance is determined at time of purchase. The materials price variance and quantity
variance were:
a. Php600 unfavorable and Php1,500 favorable, respectively
b. Php600 favorable and Php1,500 favorable, respectively
c. Php600 unfavorable and Php1,500 unfavorable, respectively
d. Php600 favorable and Php1,500 unfavorable, respectively
4.DEF Co. has the following
Standard quantity Standard price
or hours or rate
Direct materials 5 kilograms Php3.00
Direct labor 3 hours Php5.00
During the month, 12,000 kilograms of material were purchased for Php3.05 per kilogram. All
of the material was used to produce 2,200 units of product. The materials variances are
determined at time of issue. The materials price variance and the materials quantity variance
were:
a. Php600 unfavorable and Php3,000 favorable, respectively
b. Php600 favorable and Php3,000 favorable, respectively
c. Php600 favorable and Php3,000 unfavorable, respectively
d. Php600 unfavorable and Php3,000 unfavorable, respectively
5. The standard cost per board foot of furniture-grade oak lumber is Php8.Each table contains
60 board feet. Two hundred tables were produced with 12,600 board feet of lumber at a
standard materials cost of Php100,800. The materials quantity variance was:
a. Php4,800 favorable
b. Php4,800 unfavorable
c. Php1,680 favorable
d. Php1,680 unfavorable

6.GHI Co. has the following

Standard quantity Standard price
or hours or rate
Direct materials 5 tons Php3.00
Direct labor 3 hours Php5.00

During the month, 6,500 hours of labor were used at Php5.20 per hour to produce 2,200 units
of product. The labor rate variance and the labor efficiency variance were:
a. Php1,300 unfavorable and Php500 favorable, respectively
b. Php1,300 favorable and Php500 favorable, respectively
c. Php1,300 unfavorable and Php500 unfavorable, respectively
d. Php1,300 favorable and Php500 unfavorable, respectively
e. none of the above

7. The labor efficiency variance was Php1,210 unfavorable. The labor rate variance was
Php2,000 favorable. Standard labor hours allowed were 3,890. The actual labor rate was
Php10.50, Php.50 lower than the standard labor rate. What were the actual labor hours?

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 a. 4,000
b. 4,120
c. 3,890
d. 10,000
e. none of the above

8. The actual direct labor hours were 4,000. The standard variable overhead rate is Php2.50
per hour. The actual variable overhead was Php10,400. The spending variance:
a. was Php800 unfavorable
b. was Php800 favorable
c. was Php400 unfavorable
d. was Php500 unfavorable
e. cannot be determined from the data presented

9. JKL Co has the following:

Standard quantity Standard price
or hours or rate
Direct labor 3 hours Php 5.00
Variable overhead 3 hours Php 6.00

During the month, 6,800 hours of labor were used to produce 2,200 units of product. The
actual variable overhead costs were Php39,984. The variable overhead spending variance and
efficiency variance was:
a. Php816 unfavorable and Php384 favorable, respectively
b. Php816 favorable and Php1,200 unfavorable, respectively
c. Php816 favorable and Php384 unfavorable, respectively
d. Php816 unfavorable and Php1,200 favorable, respectively
e. none of the above because the data is insufficient

10. Which term is used as the amount of time required to turn raw materials into completed
products?
a. Throughput
b. Delivery cycle
c. MCE (manufacturing cycle efficiency)
d. Wait
e. Process

11. The following average times were recorded for one unit of product:
Process time . . . . 3.00 days
Inspection time . . .50 days
Move time. . . . . . .25 days
Queue time . . . . . .25 days
Wait time from start to completion of product . 6.0 days

The manufacturing cycle efficiency (MCE) for the product was:

a. 0.333
b. 0.750
c. 0.428
d. 0.500
e. none of the above

12. The standard hours for direct labor are 3 hours. The standard rate per hour is Php5.00.
During the month, 7,000 hours of labor were used at Php4.80 per hour to produce 2,200 units
of product. An entry to record usage of direct labor will include (but not be limited to):
a. Labor Rate Variance, Dr., Php1,400; Labor Efficiency Var., Cr., Php2,000
b. Labor Efficiency Variance Dr., Php2,000; Labor Rate Variance, Cr. Php1,400
c. Labor Rate Variance, Cr. Php1,400
d. Labor Efficiency Variance, Cr., Php2,000

13. The standard quantity of direct materials is 5 kilograms (kgs.). The standard price is
Php3.00 per kg.. During the month, 12,000 kgs. of material were purchased for Php3.05 per
kg.. Nine thousand kgs. of materials were used to produce 1,700 units of product. The
materials price variance is determined at time of purchase. An entry to record material usage
will include (but not be limited to):
a. Work in Process, Dr., Php25,500; Materials Quantity Variance, Cr., Php1,500
b. Work in Process, Dr., Php25,500; Materials Quantity Variance, Dr.,
Php1,500
c. Work in Process, Dr., Php27,000; Materials Quantity Variance, Dr., Php1,500

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 d. Work in Process, Dr., Php25,500; Materials Quantity Variance, Dr., Php1,525

14. Which of the following is not true about standard costs?

a. Provide key elements in a management by exception approach.
b. Promote economy and efficiency.
c. Fit naturally into an integrated system of 'responsibility accounting'.
d. Used by managers to keep employees in line and focused.
e. Provide benchmarks that individuals can use to judge performance.

15. With regards to a balanced scorecard, which of the following is false?

a. Performance measures should be consistent with the company's strategy.
b. The scorecard should not have too many performance measures.
c. Responsible individuals should have their own personal scorecard.
d. Top managers are responsible for financial performance measures.
e. Performance measures tend to fall into six distinct groups

16. Which of the following is true about the performance measures for an individual's balanced
scorecard? The performance measures should:
a. be influenced by the actions of others
b. be influenced by events that outside of the individual's control
c. be directly related to those on the overall balanced scorecard
d. be all of the above
e. be none of the above

17. Which of the following is true about a well constructed balanced scorecard?
a. Performances measures are linked together on a cause-and-effect basis
b. Each link should be read as a hypothesis in the form of 'if, then'
c. It articulates a theory on how a company can attain desired outcomes
d. It continually tests the theories underlying management's strategy
e. All of the above are true

18. Which of the following is not a factor in considering the activity base decision?
a. The existence of a causal relationship with the activity base
b. The avoidance of hours in the activity base itself
c. The selection of an activity base that is simple and easily understood
d. All of the above are considerations in the activity base decision

19. MON Co. Has the following

Standard labor-hours allowed, 8,000.
Actual labor-hours used, 8,400.

Variable Standard Actual Costs Budgeted costs

Overhead: cost/hour for 8,400 hours for 8,000 hours Variance

Indirect labor Php0.90 Php7,980 Php7,200 Php780

Power 0.25 1,960 2,000 40

The total variable overhead variance is:

a. Php820 unfavorable
b. Php820 favorable
c. Php740 favorable
d. Php740 unfavorable

20. PQR Co has the following

Standard labor-hours allowed, 9,000.
Actual labor-hours used, 8,400.

Variable Standard Actual hours Actual hours Budgeted costs

Overhead: cost/hour at actual rate at standard rate for 9,000 hours

Maintenance Php0.80 Php6,700 Php6,720 Php7,200

Power 0.30 2,600 2,520 2,700

The variable overhead spending variance is:

a. Php60 favorable
b. Php60 unfavorable
c. Php100 unfavorable
d. Php100 favorable

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 e. Php160 favorable

21.STU Co has the following

Standard labor-hours allowed, 9,000.
Actual labor-hours used, 8,400.

Variable Standard Actual hours Actual hours Budget based

Overhead: cost/hour at actual rate at standard rate on 9,000 hours

Maintenance Php.80 Php6,700 Php6,720 Php7,200

Power 0.30 2,600 2,520 2,700

The variable overhead efficiency variance is:

a. Php660 favorable
b. Php660 unfavorable
c. Php 60 favorable
d. Php 60 unfavorable
e. Php900 favorable

22. Based on the variable assignments used to describe actual hours (AH), standard rates (SR),
and other units or costs associated with factory overhead, which of the following formulas will
yield a variable overhead efficiency variance?
a. SR(AH - SH)
b. (AH x SR) - (SH x AR)
c. AH(AR - SR)
d. (AH x AR) - (AH x SR)

23. VW Co. has the following

Direct labor-hours: 7,200.
Units completed: 1,900.
The standard cost card shows:
Variable overhead: 4 hours @ Php5.25 per direct labor-hour
Fixed overhead: 4 hours @ Php2.00 per direct labor-hour
Actual fixed factory overhead was Php16,550.
The volume variance was Php800 unfavorable.

The amount of fixed overhead cost contained in the flexible budget for overhead was:
a. Php15,200
b. Php16,000
c. Php13,700
d. Php14,400
e. none of options (1-4)

24. Total factory overhead (charges to the Manufacturing Overhead account) can be classified
as:
a. prime costs
b. mixed (semi-variable) costs
c. predetermined costs
d. fixed costs only
e. a subdivision of labor

25. When compared to an actual cost system, the amount of underapplied- or overapplied-
overhead determined through a standard cost system will be:
a. the same
b. based on standard hours rather than actual hours
c. based on a different predetermined overhead rate
d. determined without consideration of actual costs
e. different by the amount of the volume variance

26. The difference between the flexible budget fixed overhead cost and the fixed overhead
cost applied to the work in process will yield the:
a. spending variance
b. volume variance
c. budget variance
d. efficiency variance

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 27. Based on the variable assignments used to describe actual hours (AH), standard rates (SR),
and other units or costs associated with factory overhead, which of the following formulas will
yield the overhead volume variance?
a. (AH x SR) - (SH x SR)
b. Actual fixed costs less flexible budget fixed overhead costs
c. Predetermined fixed overhead rate x (actual hours - standard hours)
d. (SH x AR) - (AH x SR)
e. none of the above describe the overhead volume variance calculation

28. A company's actual fixed overhead was Php9,400. Its fixed overhead budget variance was
Php400 unfavorable. The fixed overhead was applied at Php1.50 per hour on 5,500 standard
hours allowed. Which of the following statements is true?
a. The volume variance was favorable
b. The total fixed overhead variance was Php1,150 favorable
c. The volume variance was Php750 unfavorable
d. Fixed overhead applied was greater than actual fixed overhead

29. Total underapplied factory overhead was Php500. The variable overhead spending variance
was Php300 unfavorable, the efficiency variance was Php150 unfavorable, and the fixed
overhead budget variance was Php300 favorable. The volume variance was:
a. an unfavorable variance of Php350
b. an unfavorable variance of Php50
c. a favorable variance of Php50
d. a favorable variance of Php350

30. Managers should investigate only those variances that are unfavorable, no matter what
the amount of variance.
FALSE
31. Practical standards allow for normal machine downtime and other work interruptions, and
can be attained through reasonable, though highly efficient, efforts by the average worker.
TRUE
32. The standard price for material should be the invoice price of the material.
FALSE
33. The standard quantity per unit is a standard of how much material should be used in
producing a single unit of product.
TRUE
34. The standard rate for labor should include wages earned and fringe benefits and other
labor costs.
TRUE
35. The variable manufacturing overhead standards are a part of the predetermined overhead
rate.
TRUE
36. There is no reason to associate a favorable direct material quantity variance with an
unfavorable direct material price variance.
FALSE
37. The actual quantity of materials purchased multiplied by the difference between the actual
price per unit for material and the standard price per unit for material determines the
materials QUANTITY variance.
FALSE
38. The actual direct labor hours used multiplied by the difference between actual hourly rate
and the standard hourly rate will yield the labor RATE variance.
TRUE
39. The variance for measuring how efficient labor was at its task is determined by multiplying
the standard labor rate per hour by the difference between the hours actually required to
complete the task and the hours allowed to complete the task.
TRUE
40. There may be some correlation between an unfavorable labor efficiency variance and an
unfavorable materials quantity variance.
TRUE
41. The time that should have been taken to complete the period's output is determined by
multiplying the number of units produced in the time period by the standard hours allowed per
unit of product.
TRUE
42. The variable overhead EFFICIENCY variance can be determined by multiplying the standard
variable overhead rate by the difference between actual hours used and the standard hours
allowed for the production level achieved.
TRUE

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 43. The amount of time required to turn raw materials into completed products is known as
throughput time.
TRUE
44. If the manufacturing cycle efficiency (MCE) is 30%, then 70% of the total production time
consisted of non-value-added activities.
TRUE
46. There is no distinction between a standard amount and a budget amount.
FALSE
47. The standard price is used in computing the quantity variance so that the production
manager is not held responsible for the efficiency or inefficiency of the purchasing manager.
TRUE
48. Performance measures used in the balanced scorecard tend to fall into six distinct groups
of financial, customer, vendor, internal business processes, learning and growth, and
production.
FALSE
49. Two characteristics of a static budget are: (a) it is geared toward only one level of activity
and (b) actual results are always compared against budgeted costs at the original activity
level.
TRUE
50. A flexible budget is geared toward all levels of activity within the relevant range and is
dynamic in nature.
TRUE
51. Whenever possible, the activity base for flexible budgets should be expressed in pesos.
FALSE
52. The variable overhead spending variance contains both price and quantity elements.
TRUE
53. When the labor efficiency variance is unfavorable, the variable overhead efficiency
variance will also be unfavorable, if labor hours are the activity base.
TRUE
54. The responsibility for control of the overhead efficiency variance lies with the manager
responsible for control of the utilization base.
TRUE
55. Flexible budgets are not very useful for firms that adopt and use an activity-based costing
system.
FALSE
56. When possible, the denominator activity should be expressed in pesos.
FALSE
57. Because factory overhead is composed of variable cost and fixed cost components, the
denominator activity used to determine the variable overhead rate is generally different from
the one used to determine the fixed overhead rate.
FALSE
58. In a normal cost system, overhead is applied to work in process on the basis of actual
hours of activity multiplied by the predetermined overhead rate.
TRUE
59. (Denominator Hours x Standard Rate) - (Standard Hours x Standard Rate) will yield the
fixed overhead budget variance.
FALSE
60. A company's actual direct labor-hours were 3,500; standard hours allowed for the 1,300
units produced were 3,250; actual fixed overhead cost was Php23,200; fixed overhead was
applied at Php6 per standard hour; and the denominator activity for the period was set at
4,000 hours. The fixed overhead budget variance was Php700 unfavorable.
FALSE

End of quiz.

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