Chapter 23
Performance Evaluation Using Variances From Standard Costs
MULTIPLE CHOICE
1. Which of the following conditions normally would not indicate that standard costs should be revised?
a. The engineering department has revised product specifications in responding to customer suggestions.
b. The company has signed a new union contract which increases the factory wages on average by $2.00 an hour.
c. Actual costs differed from standard costs for the preceding week. d. The world price of raw materials increased. ANS: C DIF: Difficult OBJ: 23-01
NAT: AACSB Analytic | IMA-Performance Measurement
2. Standards that represent levels of operation that can be attained with reasonable effort are called:
a. theoretical standards b. ideal standards c. variable standards d. normal standards ANS: D DIF: Difficult OBJ: 23-01
NAT: AACSB Analytic | IMA-Performance Measurement
3. Manufacturing companies use standard costs for the following except:
a. Variable costs b. Direct Materials c. Direct Labor
d. Factory Overhead ANS: A DIF: Easy OBJ: 23-01
NAT: AACSB Analytic | IMA-Performance Measurement
4. Standard costs are used in companies for a variety of reasons. Which of the following is not one of the
benefits for using standard costs?
a. Used to indicate where changes in technology and machinery need to be made. b. Used to value inventory
c. Used to plan direct materials, direct labor, and factory manufacturing cost. d. Used to control costs. ANS: A DIF: Easy OBJ: 23-01
NAT: AACSB Analytic | IMA-Performance Measurement
221
222 ??Chapter 23/Performance Evaluation Using Variances From Standard Costs
5. The principle of exceptions allows managers to
a. focus on correcting variances between standard costs and actual costs. b. focus on correcting variances between variable costs and actual costs. c. focus on correcting variances between competitor’s costs and actual costs. d. focus on correcting variances between competitor’s costs and standard costs. ANS: A DIF: Easy OBJ: 23-01
NAT: AACSB Analytic | IMA-Performance Measurement
6. Several people play an essential part in setting standards. Which of the following is incorrect as to
setting standards?
a. Accountants expresses judgement in dollars and cents.
b. Engineers identify material, labor, and machine requirements. c. Human resource managers provide personnel information.
d. Quality managers provide quality measures that will be used to evaluate rejects. ANS: D DIF: Moderate OBJ: 23-01
NAT: AACSB Analytic | IMA-Performance Measurement
7. Periodic comparisons between planned objectives and actual performance are reported in:
a. zero-base reports
b. budget performance reports c. master budgets d. budgets ANS: B DIF: Easy OBJ: 23-02
NAT: AACSB Analytic | IMA-Performance Measurement
8. The standard price and quantity of direct materials are separated because:
a. GAAP reporting requires this separation
b. direct materials prices are controlled by the purchasing department, and quantity used is controlled by the production department
c. standard quantities are more difficult to estimate than standard prices d. standard prices change more frequently than standard quantities ANS: B DIF: Easy OBJ: 23-02
NAT: AACSB Analytic | IMA-Performance Measurement
9. Standard costs are divided into which of the following components?
a. Price Standard and Quantity Standard b. Materials Standard and Labor Standard c. Quality Standard and Quantity Standard d. Price Standard and Quantity Standard ANS: D DIF: Easy OBJ: 23-02
NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 23/Performance Evaluation Using Variances From Standard Costs ? 223
10. A favorable cost variance occurs when
a. Actual costs are more than standard costs. b. Standard costs are more than actual costs. c. Standard costs are less than actual costs. d. None of the above. ANS: B DIF: Easy OBJ: 23-02
NAT: AACSB Analytic | IMA-Performance Measurement
11. Total manufacturing cost variance includes:
a. Direct materials price variance, direct labor cost variance, and fixed factory overhead volume variance
b. Direct materials cost variance, direct labor rate variance, and factory overhead cost variance c. Direct materials cost variance, direct labor cost variance, variable factory overhead controllable variance
d. Direct materials cost variance, direct labor cost variance, factory overhead cost variance ANS: D DIF: Moderate OBJ: 23-02
NAT: AACSB Analytic | IMA-Performance Measurement
12. Which of the following is not a reason standard costs are separated in two components?
a. the price and quantity variances need to be identified separately to correct the actual major differences.
b. identifying variances determines which manager must find a solution to major discrepancies.
c. if a negative variance is over-shadowed by a favorable variance, managers may overlook potential corrections.
d. variances brings attention to discrepancies in the budget and requires managers to revise budgets closer to actual. ANS: D DIF: Difficult OBJ: 23-02
NAT: AACSB Analytic | IMA-Performance Measurement
13. The standard costs and actual costs for direct materials for the manufacture of 2,500 actual units of
product are as follows:
Standard Costs Direct materials (per completed unit) 1.04 kilograms @$8.75
Actual Costs Direct materials 2,500 kilograms @ $8
The amount of direct materials price variance is: a. $1,875 unfavorable b. $1,950 favorable c. $1,875 favorable d. $1,950 unfavorable ANS: C DIF: Moderate OBJ: 23-03
NAT: AACSB Analytic | IMA-Performance Measurement
224 ??Chapter 23/Performance Evaluation Using Variances From Standard Costs
14. The standard costs and actual costs for direct materials for the manufacture of 2,500 actual units of
product are as follows:
Standard Costs Direct materials 2,500 kilograms @ $8
Actual Costs Direct materials 2,600 kilograms @ $8.75
The amount of the direct materials quantity variance is: a. $875 favorable b. $800 unfavorable c. $800 favorable d. $875 unfavorable ANS: B DIF: Moderate OBJ: 23-03
NAT: AACSB Analytic | IMA-Performance Measurement
The following data relate to direct materials costs for November:
Actual costs 4,600 pounds at $5.50 Standard costs 4,500 pounds at $6.00
15. What is the direct materials price variance?
a. $2,250 favorable b. $2,250 unfavorable c. $2,300 favorable d. $1,700 unfavorable ANS: C DIF: Moderate OBJ: 23-03
NAT: AACSB Analytic | IMA-Performance Measurement
16. What is the direct materials quantity variance?
a. $550 unfavorable b. $600 favorable c. $550 favorable d. $600 unfavorable ANS: D DIF: Moderate OBJ: 23-03
NAT: AACSB Analytic | IMA-Performance Measurement
Chapter 23/Performance Evaluation Using Variances From Standard Costs ? 225
17. If the actual quantity of direct materials used in producing a commodity differs from the standard
quantity, the variance is termed: a. controllable variance b. price variance c. quantity variance d. rate variance ANS: C DIF: Easy OBJ: 23-03
NAT: AACSB Analytic | IMA-Performance Measurement
18. If the price paid per unit differs from the standard price per unit for direct materials, the variance is
termed:
a. variable variance b. controllable variance c. price variance d. volume variance ANS: C DIF: Easy OBJ: 23-03
NAT: AACSB Analytic | IMA-Performance Measurement
The following data is given for the Walker Company:
Budgeted production 1,000 units Actual production 980 units Materials: Standard price per lb $2.00 Standard pounds per completed unit 12 Actual pounds purchased and used in production 11,800 Actual price paid for materials $23,000 Labor: Standard hourly labor rate $14 per hour Standard hours allowed per completed unit 4.5 Actual labor hours worked 4,560 Actual total labor costs $62,928 Overhead: Actual and budgeted fixed overhead $27,000 Standard variable overhead rate $3.50 per standard labor hour Actual variable overhead costs $15,500 Overhead is applied on standard labor hours.
19. The direct material price variance is:
a. 600F b. 600U c. 80F d. 80U ANS: A DIF: Moderate OBJ: 23-03
NAT: AACSB Analytic | IMA-Performance Measurement