HANDOUT#3

STANDARD COSTING AND VARIANCE ANALYSIS

Question 1
LH Tent Company produces tents and sells them to large sporting goods stores. For a recent period, the
company had the following static budget for manufacturing overhead costs based on 100,000 machine hours.

LH is now preparing a flexible budget based on 80,000 actual machine hours. What amount will be reported
on the flexible budget for manufacturing overhead?

A. $768,000
B. $576,000
C. $720,000
D. $816,000

Question 2
A company expects to earn $300,000 in operating income on sales of 50,000 units. It actually earns
$230,000 in operating income on sales of 32,000 units. If the flexible budget operating income for 32,000
units is $192,000, what is the sales volume variance?

A. $70,000 unfavorable
B. $108,000 unfavorable
C. $108,000 favorable
D. $38,000 favorable

Question 3
The HJU Company sells a simple product and a complex product. In 20X8, it expected to sell 9,000 simple
units and 3,000 complex units and earn a contribution margin of $10 per unit and $24 per unit respectively.
In 20X8, it sold 12,600 simple units with a contribution margin of $8 per unit and 2,400 complex units with a
contribution margin of $27 per unit. What is the sales quantity variance for the complex product in 20X8?

A. $22,500 favorable
B. $18,000 favorable
C. $14,400 unfavorable
D. $32,400 unfavorable

Question 4
The HJU Company sells a simple product and a complex product. In 20X8, it expected to sell 9,000 simple
units and 3,000 complex units and earn a contribution margin of $10 per unit and $24 per unit respectively.
In 20X8, it sold 12,600 simple units with a contribution margin of $8 per unit and 2,400 complex units with a
contribution margin of $27 per unit. What is the sales mix variance for the simple product in 20X8?

A. $13,500 favorable
 B. $32,400 unfavorable
C. $36,000 favorable
D. $22,500 favorable

Question 5
The variance that arises solely because the quantity actually sold differs from the quantity budgeted to be
sold is:

A. sales mix variance.

B. sales volume variance.
C. flexible budget variance.
D. static budget variance.

Question 6
Jewel and Sasha were calculating materials variances for the company. Both needed to know the actual
quantity and standard price of materials. However, only Jewel needed to know the actual price of the
materials, and only Sasha needed to know the standard quantity of materials. Why?

A. Jewel was calculating materials price variance, whereas Sasha was calculating materials
quantity variance.
B. Jewel was calculating materials quantity variance, whereas Sasha was calculating materials quality
variance.
C. Jewel was calculating materials quality variance, whereas Sasha was calculating materials price
variance.
D. Jewel was calculating materials quantity variance, whereas Sasha was calculating materials price
variance.

Question 7
Which of the following correctly represents the management-by-exception concept in variance analysis?

A. Only favorable variances provide a signal to management indicating that something in the
organization is out of compliance with budget standards or performance expectations.
B. Only unfavorable variances provide a signal to management indicating that something in the
organization is out of compliance with budget standards or budget performance.
C. Both favorable and unfavorable variances provide a signal to management indicating that
something in the organization is out of compliance with budget standards or performance
expectations.
D. Variances by themselves do not provide a signal to management that something in the
organization is out of compliance with budget standards or performance expectations.

Question 8
Which of the following companies is most likely to prepare a flexible budget for their products or services?

A. Black night Restaurants, which has a two-month waiting list for reservations.
B. Clearwater Chemicals, which regularly sells $12,000 to $12,200 worth of sodium bicarbonate each
month.
C. Toy Works, which produces and sells 60% of their toys in November and December, with
fluctuating sales the rest of the year.
D. Handmade Furnishings, which requires a preorder time of two months for handmade
furniture pieces.

Question 9
A company reported the following cost information for the last fiscal year when it produced 100,000 units.
 All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and
administrative expenses. Using flexible budgeting, what are the total costs associated with producing
and selling 110,000 units?

A. $450,000
B. $650,000
C. $695,000
D. $715,000

Question 10
Comfort Chairs (CC) is a manufacturer of reclining chairs. CC manufactures two different models of chair,
the classic and deluxe model. Below is CC's budget information and actual results for last year.

What is the sales price variance based on the above information?

A. $57,500 Favorable
B. $67,500 Favorable
C. $57,500 Unfavorable
D. $67,500 Unfavorable

Question 11
Fantastic Fixtures (FF) manufactures light fixtures for commercial buildings. FF manufactures two different
kinds of light fixtures, the small and large model. Below is FF's budget information and actual results for last
year.

What is the sales volume variance based on the above information?

A. $260,000 Favorable
B. $260,000 Unfavorable
 C. $300,000 Unfavorable
D. $300,000 Favorable

Question 12
Avalon, Inc.’s static budget shows $40,500 budgeted for direct materials, $54,000 budgeted for direct labor,
and $13,500 budgeted for overhead. Avalon’s actual direct materials were $42,000, actual direct labor was
$51,000, and actual overhead was $13,800. What is the total difference between the static budget and actual,
and is the difference favorable or unfavorable?

A. $1,200, unfavorable
B. $4,800, favorable
C. $1,200, favorable
D. $4,800, unfavorable

Question 13
Comfort Chairs (CC) is a manufacturer of reclining chairs. CC manufactures two different models of chair, the
classic and the deluxe model. Below is CC’s budget information and actual results for last year.

Based on the above information, what is the sales mix variance measured in terms of sales price?

A. $210,227.27 Unfavorable
B. $85,227.27 Unfavorable
C. 85,227.27 Favorable
D. $125,000 Unfavorable

Question 14
What is the difference between a favorable variance and an unfavorable variance?

A. A favorable variance occurs when actual costs are more than standard costs, whereas an
unfavorable variance occurs when actual costs are less than standard costs.
B. A favorable variance occurs when net income is higher than last year, whereas an unfavorable
variance occurs when net income is lower than last year.
C. A favorable variance occurs when actual costs are less than standard costs, whereas an
unfavorable variance occurs when actual costs are more than standard costs.
D. A favorable variance occurs when a company has net income, whereas an unfavorable
variance occurs when a company has net loss.

Question 15
The HJU Company sells a simple product and a complex product. In 20X8, it expected to sell 9,000 simple
units and 3,000 complex units and earn a contribution margin of $10 per unit and $24 per unit respectively.
In 20X8, it sold 12,600 simple units with a contribution margin of $8 per unit and 2,400 complex units with a
contribution margin of $27 per unit. What is the sales quantity variance for the simple product in 20X8?

A. $22,500 favorable
 B. $18,000 favorable
C. $36,000 favorable
D. $13,500 favorable

Question 16
The ABC Company allocates both variable manufacturing overhead and fixed manufacturing overhead using
direct labor hours as the allocation base. ABC expected to produce 10,000 units during the year and to use
two direct labor hours to produce each unit. It budgeted $400,000 for variable manufacturing overhead and
$600,000 for fixed manufacturing overhead. ABC actually produced 12,000 units and used 18,000 direct labor
hours during the year. If ABC incurred $415,000 in variable manufacturing overhead costs and $580,000 in
fixed manufacturing overhead costs, what is the fixed manufacturing overhead production volume variance?

A. $20,000 favorable
B. $120,000 favorable
C. $140,000 favorable
D. $120,000 unfavorable

Question 17
Chester Tools realized that they had an unfavorable variance in their screwdriver production for the month of May.
Their first plan of action was to talk to the purchasing department. What type of variance did they likely have?

A. Materials price variance

B. Materials quantity variance
C. Labor price variance
D. Labor quantity variance

Question 18
Joe is trying to calculate the materials price variance for the month of November. He has received a report
from the production and purchasing departments with the actual quantity and actual price of materials used.
What other value does he need to finish his calculation?

A. Standard quantity of materials.

B. Standard price of labor.
C. Standard quantity of labor.
D. Standard price of materials.

Question 19
Highlight Inc. uses a standard cost system and applies factory overhead to products on the basis of direct
labor hours. If the firm recently reported a favorable direct labor efficiency variance, then the:

A. variable overhead efficiency variance must be favorable.

B. fixed overhead volume variance must be unfavorable
C. direct labor rate variance must be unfavorable.
D. variable overhead spending variance must be favorable.

Question 20
Ramble Wood, Inc. produces a product which requires 6 hours of direct labor at $32 per hour. During
February, Ramble Wood’s actual payroll was $393,120 and the company used 12,600 direct labor hours to
produce 2,000 units of the product. What is Ramble Wood’s direct labor price variance?

A. $10,080, unfavorable
B. $9,120, unfavorable
C. $19,200, unfavorable
 D. $10,080, favorable

Question 21
For a given time period, a company had a favorable material quantity variance, a favorable direct labor
efficiency variance, and a favorable fixed overhead volume variance. The following factors could have caused
all three variances, except:

A. the purchase of higher-quality materials.

B. the use of lower-skilled workers.
C. the purchase of more efficient machinery.
D. an increase in production supervision.

Question 22
What type of direct material variances for price and usage will arise if the actual number of pounds of
materials used exceeds standard pounds allowed, but at the same time actual price was less than standard
price?

A. Usage: Favorable, Price: Unfavorable

B. Usage: Favorable, Price: Favorable
C. Usage: Unfavorable, Price: Favorable
D. Usage: Unfavorable, Price: Unfavorable

Question 23
Automotive Parts Overstock (APO) has normal budgeted overhead costs of $348,400 and a normal capacity
of 52,000 direct labor hours for the first quarter, which are evenly distributed between months. APO allows 1.2
direct labor hours per unit, and the company produced 15,000 units in the second month of the quarter. This
took APO 16,500 labor hours. APO had variable overhead costs of $52,200 and fixed overhead of $41,400
costs in the month. What was the overhead variance for the month?

A. $27,000 favorable.
B. $27,000 unfavorable.
C. $16,950 favorable.
D. $16,950 unfavorable.

Question 24
Rock Loop Manufacturing’s standard rate of pay is $28.80 per direct labor hour. The actual payroll for 4,000
direct labor hours was $112,896. The standard hours for the amount produced was 4,100 hours. What is Rock
Loop’s direct labor quantity variance?

A. $2,304, unfavorable
B. $2,880, unfavorable
C. $2,304, favorable
D. $2,880, favorable

Question 25
In a standard cost system, the investigation of an unfavorable material usage variance should begin with the:

A. plant controller only.

B. purchasing manager only.
C. production manager and/or the purchasing manager.
D. production manager only.

Question 26
The NBV Company allocates both variable manufacturing overhead and fixed manufacturing overhead using
direct labor hours as the allocation base. NBV expected to produce 40,000 units during the year and to use
 three direct labor hours to produce each unit. It budgeted $600,000 for variable manufacturing overhead and
$1,200,000 for fixed manufacturing overhead. NBV actually produced 35,000 units and used 115,000 direct
labor hours during the year. If NBV incurred $650,000 in variable manufacturing overhead costs and $950,000
in fixed manufacturing overhead costs, what is the fixed manufacturing overhead spending variance?

A. $250,000 favorable
B. $150,000 unfavorable
C. $100,000 favorable
D. $75,000 unfavorable

Question 27
The standard cost sheet for Eiger Mountain Manufacturing’s (EMM) most popular product shows 3 pounds of
material at $6.00 per pound and 1.5 hours at $28.80 per hour. During the most recent period, EMM produced
500 units and incurred direct materials cost of $10,060 when it purchased 1,600 pounds and $20,976 for
direct labor costs for 760 hours of labor. What is EMM’s materials price variance for the period?

A. $1,060, unfavorable
B. $600, unfavorable
C. $460, unfavorable
D. $10,916, unfavorable

Question 28
If the budgeted fixed overhead (OH) costs are $177,000 applied at the rate of $3 per direct labor hour (DLH),
and the actual DLH usage was 56,000 DLH, what was the actual fixed OH cost if the overapplied OH was
$12,000?

A. $180,000
B. $177,000
C. $168,000
D. $156,000

Question 29
A company established its annual direct material budget to produce 300,000 units as follows:

150,000 pounds of material @ $0.75 per pound = $112,500

Throughout the year, the company produced 310,000 units of finished goods using 0.48 pounds per unit at a
cost of $0.76 per pound. The direct material efficiency variance is

A. $588 unfavorable.
B. $900 favorable.
C. $1,488 unfavorable.
D. $4,650 favorable.

Question 30
The following direct labor information pertains to the manufacturing of product Glu:
What is the standard direct labor cost per unit of Glu?

A. $30
B. $25
C. $15
D. $12.5

Question 31
Chair Company (CC) has provided the following standard cost sheet.

Note that the input quantity multiplied by the cost per input equals cost per chair. Also note in this case that
manufacturing overhead (MOH) costs are being allocated on the basis of total direct labor hours (DLH).

CC also disclosed the following actual information:

What is the direct materials usage variance based on the above information?

A. $3,750 Unfavorable
B. $2,400 Unfavorable
C. $2,400 Favorable
D. $3,750 Favorable

Question 32
Chair Company (CC) manufactures inexpensive classroom chairs, and has provided the following standard
costs for delivering chairs to buying customers:

CC disclosed the following actual information:

 What is the sales and administrative (S&A) overhead price variance based on the above information?

A. $52.50 Favorable
B. $52.50 Unfavorable
C. $250.00 Favorable
D. $250.000 Unfavorable
Question 33
The PBJ Company allocates both variable manufacturing overhead and fixed manufacturing overhead using
direct labor hours as the allocation base. PBJ expected to produce 50,000 units during the year and to use
four direct labor hours to produce each unit. It budgeted $800,000 for variable manufacturing overhead and
$1,400,000 for fixed manufacturing overhead. PBJ actually produced 56,000 units and used 240,000 direct
labor hours during the year. If PBJ incurred $980,000 in variable manufacturing overhead costs and
$1,300,000 in fixed manufacturing overhead costs, what is the variable manufacturing overhead efficiency
variance?

A. $20,000 unfavorable
B. $64,000 unfavorable
C. $84,000 unfavorable
D. There is never a variable manufacturing overhead efficiency variance.

Question 34
R&N Manufacturing produces music boxes. This year's budget was based on the production of 3,000 music
boxes using a standard of 3 direct labor hours per music box and $4 variable overhead per direct labor hour.
R&N incurred 9,200 hours to produce 2,950 music boxes. If actual variable overhead for the year is $32,000,
what is R&N's variable overhead spending variance?

A. $4,000 favorable
B. $4,000 unfavorable
C. $4,800 favorable
D. $4,800 unfavorable

Question 35
James received a report from the production and purchasing departments with the following values for
January:

Two days later, he got a correction report from the purchasing department that they found another invoice
for $6,200. How much would James’s materials price variance change for the month of January?

A. $6,200 favorable.
B. $6,200 unfavorable.
C. $3,900 unfavorable.
D. $3,900 favorable.
 Question 36
When there are multiple inputs of either labor or material, the efficiency variance for either labor or material
can be subdivided into:

A. yield variance and mix variance.

B. mix variance and price variance.
C. yield variance and price variance.
D. volume variance and mix variance
Question 37
Chair Company (CC) has provided the following standard cost sheet.

Note that the input quantity multiplied by the cost per input equals cost per chair. Also note in this case that
manufacturing overhead (MOH) costs are being allocated on the basis of total direct labor hours (DLH).

CC also disclosed the following actual information:

CC also provided the standard and actual direct labor mix percentages.

What is the direct labor yield variance based on the above information?

(Note: Keep the mix percentages precise in your computations. For example, use 0.666667 in your
computations, not 0.67.)

A. $584 Unfavorable
B. $584 Favorable
C. $166 Unfavorable
 D. $166 Favorable

Question 38
The YTR Company uses two different materials to produce its product. In 20X8, YTR expected to produce
18,000 units but it actually produced 20,000 units.
Information about material usage is as follows:

Based on this information, whatis YTR’s material yield variance for 20X8?

A. $150,000 unfavorable
B. $140,000 unfavorable
C. $10,000 unfavorable
D. $90,000 unfavorable

Question 39
The LKO Company uses two different types of labor to produce its product. In
20X8, LKO expected to produce 10,000 units but it actually produced 10,800 units. Information about labor usage
is as follows:

Based on this information, what is LKO’s labor mix variance for 20X8?

A. $4,000 favorable
B. $21,000 favorable
C. $17,000 unfavorable
D. $102,000 unfavorable

Question 40
The following information relates to one particular department of the Herman Company for the fourth quarter:

What were the actual hours worked in this department during the quarter?

A. 137,000
B. 121,000
C. 127,000
D. 119,000
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