CHAPTER 5 STANDARD COSTS AND VARIANCE ANALYSIS THEORIES: L Which i of the following statements is true regarding "management by exception ? is rarely used in variance analysis. It nc a forces managers to investigate all variances, regardless of size. a the use of flexible budgets. requires managers to calculate standard costs but not actual costs. gne> 1 w has Managers use the process called "management by exception": A. they take action when there is a significant variance between planned and actual results, B. they take action when there is a variance of any size or amount between planned and actual results, CC. they are allowed to use standard costs rather than actual costs on financial statements issued to decision makers. D._ they are not required to compute the standard cost of making a product. Ataoagare who properly apply the concept called "management by exception’ will: A. investigate only unfavorable variances. B. investigate only favorable variances. CC. always investigate unfavorable and favorable variances regardless of size D. investigate only variances of a certain size or scope. ‘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. Which one of the following statements is true concerning standard costs? ‘A. Standard costs are estimates of costs attainable only under the most ideal conditions, but rarely practicable. 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. Which of the following is a purpose of standard costing? A. Determine “breakeven” production level 8710, n. 12. BG I costs C._ Eliminate the need for subjective decisions by management D. Allocate cost with more accuracy i jement sometim, Whon evaluating the operating performance manag sn difference between expected and actual performance. This refers to: * A. Management by Deviation B. Management by Control Management by Objective D. Management by Exception 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 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 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 of investigating the variance D. Trend of the variances over time When standard costs are used in a process-costing system, how, if at all, are equivalent units involved or used in the cost report at standard? A. Equivalent units are not used. B. Equivalent units are computed using a “special” approach. C. The actual equivalent units are multiplied by the standard cost per unit D. The standard equivalent units are multiplied by the actual cost per unit. 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 88PROBLEMS: Question No. 1 and 2 are based on the. following : lis various types of fishing equipment Roger Fed Company manufactures and sel nt. At the » 2010, Roger ha extated forthe production and sale of 15,000 bass fishing rods Rage standard calling for 1.5 pounds of direct material at a standard cast of P8.00 per Pound ang 1. minutes of direc labor time ata standard cost of P.18 per minute. During 2011, Roget 415 | direct material patty roduced and sold 16,000 rods. These 16,000 rods had an actua als coat pe 05, 600 pounds at P7.00 per pound) and an actual direct labor cost of P44,800 (224,000 mon at P.20 per iminute). Ench rod selis for P50. s 1. Whats Roger’s net income (loss) based ona flexible budget? A. 579,500 C. P576,000 B. P564,800 D. P590,000 2. Whatis Roger;s flexible budget variance? A. P11,200F Cc. P 3,500F B. P11,200U D. P 3500U 3. ATP Company is a chemical manufacturer that supplies industrial users, The company plans to introduce a new chemical solution and needs to develop a standard product cost for this new solution. The new chemical solution is made by combining a chemical compound (Nyclyn) and a solution Galex), boiling the mixture; adding a second compound (Prote!) and bottling the resulting solution in 20-liter containers. The initial mix, which is 20 liters in volume, consists of 24 kilograms of Nyclyn and 19.2 liters of Salex. A 20% reduction in volume occurs during the boiling process. The solution is then cooled slightly before 10 kilograms of Protet are added; the addition of Protet does not affect the total liquid volume. The purchase prices of the raw materials used in the manufacture of this new chemical solution are as follows: Nyclyn P15.00 per kilogram Salex P21.00 per liter Protet 28.00 per kilogram The total standard materials cost of 20 liters of the product is: A. P1,043.20 Cc. P 834.56 B. P1,304.00 ‘D. P1,234.00 96rouble Company bs a chemical manufacturer that supplies various products to peste nar. | 'e company plans to introduce a new chemical solution called Labor infor nich it needs to develop a standard product cost. The following Wormation is available an the production of Bysap. 1) The product, which is bottled in 10-liter containers, is primarily a mixture of Byclyn, Salex, and Protet 2) The finshed product is highly unstable, and one 10-liter batch out of six is ejected at the final inspection. Rejected batches have no commercial value and are thrown out. 3) We takes a worker 35 minutes to process one l0-hter batch of Bysap. Employees work on eight-hour a day, including one hour per day for rest breaks and cleanup. What is the standard labor time to produce one 10-liter batch of Bysap? A. 35 minutes C. 48 minutes B. 40 minutes D. $5 minutes: Rafa Company uses a standard costing system in connection with the manufacture of a line of T-shirts. Each unit of finished product contains 2.25 yards of direct material. However, a 25 percent direct material spoilage calculated on input quantities occurs during the manufacturing process. The cost of direct materials is P150 per yard. The standard direct material cost per unit of finished product is A. P 253 Cc. P 450 B. P 422 D. P 405 Safin Corporation's master budget calls for the production of 5,000 units of product monthly. The annual master budget includes indirect labor of P144,000 annually. Safin considers indirect labor to be a variable cost. During the month of April, 4500 units of product were produced, and indirect labor costs of P10,100 were incurred. A performance report utilizing flexible budgeting would report a budget variance for indirect labor of: A. P1,900 Unfavorable C. P1900 Favorable B, P70 Unfavorable D. P-700 Favorable Big Marat, Inc. began operations on January 3. Standard costs were established in early January assuming a normal production volume of 160,000 units. However, Big Marat produced only 140,000 units of product and sold 100,000 units at a selling price of P180 per unit during the year. Variable costs totaled P7,000,000, of which 60% were manufacturing and 40% were selling. Fixed costs totaled 11,200,000, of which 50% were manufacturing and 50% were selling. Big Marat had no raw materials or work-in-process inventories at December 31. Actual input prices and quantities per unit of product were equal to standard. 9710. income statement would show: vin etcia reno B. P7,200,000 700,000 U B Prana ogy F i ds of raw material, i it of Product EM contains 60 poun rial. The aermetng: procted rust provide for a 20% waste allowance. The raw forp2.50 a pound under terms of 2/10, n/30. The be purchased 5 2 counpany takes Ficgsh discounts. The standard direct material cost for each unig & arn 00 c. 2187.50 B 183.75 D. P176.40 Flip, Inc. manufactures widgets. Management has determined that each widget has a standard materials cost of P3.50 when 2.5 ounces of raw material at a cost of P1.40 per ounce are used. The static budget for the month of December showed an estimated production of 4,000 widgets in December. During December, 4,309 widgets were actually produced. The actual cost for each widget was P3.60 when 2.25 ounces of raw material ata cost of P1.60 per ounce were purchased and used, What should be the total direct materials cost according to Flip's flexible budget for December? A. P14,400 C, P14,000 B. 15,050 D. P15480 Under a standard cost system, the materials quantity variance was recorded at P1,970 unfavorable, the materials price variance was recorded at P3,740 favorable, and the Goods in Process was debited for P51,690. Ninety-six thousand units were completed. What was the per unit price of the actual materials used? A. P052each C. PO54each B. P0.53 each D. P0.51 each The Federer Company has a signature scarf for ladies that is very popular. Certain production and marketing data are indicated below: Cost per yard of cloth 40.00 Allowance for rejected scarf 5% of production Yards of cloth needed per scarf 0.475 yard Airfreight from supplier P1.00/yard Motor freight to customers P0.90 /scarf Purchase discounts from supplier 3% 2% Sales discount to customers 98