4-4 Multiple Choice (Theories)

1. Setting standards

a. has important behavioral implications.

2. 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.

3. The principle of exceptions allows managers to

a. focus on correcting variances between standard costs and actual costs.

4. Several people play an essential part in setting standards. Which of the following is
incorrect in setting standards?

D. Quality managers provide quality measures that will be used to evaluate

rejects.

5. Which of the following would produce a labor rate variance?

d. Use of persons with high hourly wage rates in tasks that call for low hourly
wage rates.

6. KGA COMPANY found that the differences in product cost resulting for the
application of predetermined overhead rates rather than actual overhead rates were
immaterial even though actual production was substantially less than planned
production. The most likely explanation is that

c. Overhead was composed chiefly of variable costs.

7. Allowances should not be made in the direct labor quantity standard for

a. wasted time.
8. A favorable variance

b. implies a positive result if quality control standards are met.

9. I. A decrease in denominator level of activity will decrease the fixed portion of the
predetermined overhead rate.

II. The type of standard that is intended to represent challenging yet attainable results is
normal standard

III. Setting standards has important behavioral implications.

A. False, true, true

10. Which set of terms describes the same type of variance?

c. Use variance, efficiency variance, quantity variance.

11. The use of ideal standards

D. can cause performance to suffer.

12. Which one of the following is least likely to be involved in establishing standard
costs for evaluation purposes?

D. Top management.

13. Which variance is MOST likely to be affected by buying a more expensive material
that produces less waste and is easier to handle?

C. Direct labor efficiency variance.

14. If the actual quantity of direct materials used in producing a commodity differs from
the standard quantity, the variance is termed:

C. quantity variance

15. The unfavorable volume variance may be due to all but the following factors:
C. unexpected increases in the cost of utilities

16. The variance least significant for purposes of controlling costs is the

b. fixed overhead volume variance.

17. To determine the standard rate for direct labor, management consults

D. the payroll department.

18. The overhead controllable variance is calculated as the difference between actual
overhead costs incurred and the budgeted

A. overhead costs for the standard hours allowed.

19. A negative fixed overhead volume variance can be caused due to the following
except:

D. Increase in utility costs

20. A purchasing manager bought cheaper-than-normal materials that are difficult to

handle. Which combination of variances is LEAST likely to be affected by this decision?

C. Direct labor rate and variable overhead budget.

21. For a company whose variable overhead relates to direct labor, the variable
overhead efficiency variance

b. results from efficient or inefficient use of direct labor.

22. Which of the following statements about standard costs is false?

c. Standards should not be used in "management by exception."

23. If the material quantity variance has a debit variance, which of the following is the
most likely explanation?

c. The amount of spoilage exceeded tolerable level.

24. Which of the following properly shows responsibility for variances?

Material Use Variance DL Rate Variance

c. Production Human Resources

25. Which of the following properly characterizes ideal and practical standards?

Ideal Standards Practical Standards

c. Demotivates Employees Preferred by Behavioral Scientists

4-6 Multiple Choice (Problems)

Use the following information in answering the next question(s):

The following data is given for the MICHIGAN CORP.

Budgeted production 1,000 units

Actual production 980 units

Materials:

Standard price per lb P2.00

Standard pounds per completed unit 12

Actual pounds purchased and used in production 11,800

Actual price paid for materials P23,000

Labor:

Standard hourly labor rate P14 per hour

Standard hours allowed per completed unit 4.5

Actual labor hours worked 4,560

Actual total labor costs P62,928

Overhead:
Actual and budgeted fixed overhead P27,000

Standard variable overhead rate P3.50 per standard labor hour

Actual variable overhead costs P15,500

Overhead is applied on standard labor hours.

1. The direct material price variance is:

A. 600F

2. The direct material quantity variance is:

D. 80U

Use the following information in answering the next item(s):

ALABAMA CORP. is applying overhead with direct labor hours as its basis. Four direct
labor hours are needed to produce one unit of finished goods. Planned production for
the period was set at 15,000 units. Budgeted manufacturing overhead amounted to
P150,000 for the period, of which 40% of this cost is fixed. The 18,000 direct labor
hours during the period resulted in producing 10,000 units. For the current month, the
company incurred variable manufacturing overhead amounting to P65,000 and fixed
manufacturing overhead cost was P50,000.

3. How much is the total budget variance?

D. P5,000 F

4. How much is the total spending variance?

C. P28,000 UF

5. VIRGINIA CORP. uses a standard cost system. The standard for each finished unit
VIRGINIA bought 4,500 pounds of plastic at P0.75 per pound, and used 4,100 of
product allows for 3 pounds of plastic at P0.72 per pound. During December, pounds in
the production of 1,300 finished units of product. What is the materials purchase price
variance for the month of December?

C. P135 unfavorable.

6. ARIZONA CORP. bought 10,000 pounds of material and used 9,500. The material
price variance was P300 unfavorable and the standard price per pound is P3.

The cost of materials purchased was

D. P30,300

7. ALASKA CORP. uses a standard costing system in the manufacture of its single
product. The 35,000 units of raw material in inventory were purchased for P105,000,
and two units of raw material are required to produce one unit of final product. In
November, the company produced 12,000 units of product. The standard allowed for
material was P60,000, and there was an unfavorable quantity variance of P2,500.
ALASKA CORP.'s standard price for one unit of material is

A. P2.50

8. A company uses a standard cost system to account for its only product. The
materials standard per unit was 4 lbs. at P5.10 per lb. Operating data for April were as
follows:

Material used 7,800 lbs.

Cost of material used P40,950

Number of finished units produced 2,000

The material usage variance for April was:

A. P1,020 favorable

9. WASHINGTON CORP. has a standard of 15 parts of component X costing P1.50

WASHINGTON generated a P220 favorable price variance and a P3,735 favorable
each. The company purchased 14,910 units of component X for P22,145 quantity
variance. If there were no changes in the component inventory, how many units of
finished product were produced?

D. 1,160 units

10. MINNESOTA CORP. labor standards call for 500 direct labor hours to produce 250
units of product. During October, the company worked 625 direct labor hours and
produced 300 units. The standard hours allowed for October would be

C. 600 hours.

11. OREGON CORP. manufactures televisions. The following direct labor information
relates to the manufacture of televisions.

Number of workers 60

Number of productive hours per week, per worker 40

Hours required to make 1 unit 3

Weekly wages per worker P600

Employee benefits treated as direct labor costs 20% of wages

What is the standard direct labor cost per unit?

A. P54

12. A recent fire devastated the records of MARYLAND CORP. In relation to its direct
labor for the current year, the following data were gathered:

Actual production 4,000 units

Standard hours per unit 3

Rate variance 500 F

Efficiency variance 2,000 UF

Standard direct labor cost per unit P15

How many hours were used by the company for the current year in producing the 4,000
units?

B. 12,400 hrs.

13. WASHINGTON CORP. uses a standard-costing system in the production of its

product. The standard cost card shows that the standard hours required to produce one
unit is 0.75 hours per unit.

During the month of August, WASHINGTON produced 10,000 units by using 8,000
direct labor hours resulting to an unfavourable efficiency variance of P4,500. The payroll
for the month of August is P67,000. What is the direct labor rate variance for the month
of August?

B. P5,000 F

Use the following information in answering the next item(s):

LOS ANGELES CORP. manufactures a cleaning solvent. The company employs both
skilled and unskilled workers. Skilled workers class C are paid P12 per hour, while
unskilled workers class D are paid P7 per hour. To produce one 55-gallon drum of
solvent requires 4 hours of skilled labor and 2 hours of unskilled labor. The solvent
requires 2 different materials: A and B. The standard and actual material information is
given below:

Standard:

Material A: 30.25 gallons@P1.25 per gallon

Material B: 24.75 gallons @ P2.00 per gallon

Actual:

Material A: 10,716 gallons purchased and used @ P1.50 per gallon

Material B: 17,484 gallons purchased and used @ P1.90 per gallon

Skilled labor hours: 1,950 @ P11.90 per hour

Unskilled labor hours: 1,300 @ P7.15 per hour

During the current month, LOS ANGELES CORP. manufactured 500 55-gallon drums.

(Round all answers to the nearest whole dollar.)

14. What is the total material mix variance?

B. P3,596 U

15. What is the total material yield variance?

A. P1,111 U

16. What is the labor mix variance?

C. P1,083 F

17. What is the labor yield variance?

A. P2,583 U

Use the following information in answering the next item(s):

MISSOURI INC. is a manufacturer of chocolates and uses two types of raw materials in
the production of its products. Materials X and Y have the following standards for a
standard yield of 5,000 units:

Material Standard Mix Standard Price

X 3,000 lbs. 2.00 per lbs

Y 2,000 lbs. 1.00 per lbs.

During the current month, the following actual information was provided in relation to
actual production of 40,000 units:
Material Mix Price

X 25,000 lbs. 2.50 per lbs.

Y 20,000 lbs. 0.90 per lbs.

18. How much is the material price variance?

B. P10,500 UF

19. What is the materials mix variance?

B. P2,000 F

20. What is the materials yield variance?

A. P8,000 UF

21. INDIANA CORP is famous for its rugby manufacturing. The main ingredient of its
rugby is a chemical material known as "RUGGIBEE". This material is usually purchased
on a 20-gallon container costing P240 per container. INDIANA'S supplier usually offers
a 5% for payments within 15-day discount period. INDIANA takes all available
discounts. Transportation cost and freight cost amounts to P100 for an average
shipment of 50 20-gallon containers of RUGGIBEE.

According to INDIANA's bill of materials, each bottle of its rugby contains 9.2 quarts of
ruggibee (there are 4 quarts on each gallon). When ruggibee is boiled, about 8% of the
mixture is lost through evaporation and spillage. In addition, inspection reports show the
one out of six bottles rejected at final inspection due per unit of INDIANA's rugby
products?

D. P34.50

22. The bill of materials of OHIO CORP. requires 2 pounds of direct materials for each
unit produced by the company. Other information relating to the direct materials of
LEOMORD is as follows:

Materials purchased (@ 3.50) 100,000 lbs.

Materials used by production 80,000 lbs.

Direct material standard cost 6 per unit

Usage variance 30,000 favorable

During the current year, how many units were produced by OHIO CORP.?

C. 45,000 units

Use the following information in answering the next item(s):

COLORADO CORP. has made the following information available for its production
facility for June 2020. Fixed overhead was estimated at 19,000 machine hours for the
production cycle. Actual machine hours for the period were 18,900, which generated
3,900 units.

Material purchased (80,000 pieces) P314,000

Material quantity variance P6,400 U

Machine hours used (18,900 hours)

VOH spending variance P50 U

Actual fixed overhead P60,000

Actual labor cost P40,120

Actual labor hours 5,900

COLORADO's standard costs are as follows:

Direct material 20 pieces @ P4 per piece

Direct labor 1.5 hours @ P6 per hour

Variable overhead (applied on a machine hour basis) 4.8 hours @ P2.50 per hour

Fixed overhead (applied on a machine hour basis) 4.8 hours@ P3 per hour
23. The materials purchase price variance is:

A. P6,000 F

24. The conversion cost efficiency variance is:

B. P750 U

25. The fixed overhead noncontrollable variance is:

D. P840 U

26. TENNESSEE INC. uses a standard costing system in connection with the
manufacture of a lone size fit all product made of rubber. Each unit of finished product
contains two feet of direct material, however, a 20% direct material spoilage calculated
on input quantities occurs during the manufacturing process. The cost of the direct
material is P 3 per foot. The standard direct materials cost per unit of finished product is:

A. P 7.50

Use the following information in answering the next item(s):

MARYLAND INC. evaluates manufacturing overhead in its factory by using variance

analysis. The following information applies to the month of July:

ACTUAL BUDGETED

Number of units produced 19,000 20,000

Variable overhead costs P 4,000 P2 per direct labor hour

Fixed overhead costs P 22,000 P 20,000

Direct labor hours 2,100 0.1 hour per unit

27. The controllable variance amounts to

C. P 2,200 unfavorable

28. Using the three-way variance analysis, the spending variance amounts to
B. P 1,800 unfavorable

29. The efficiency variance amounts to

A. P 400 unfavorable

30. The non-controllable variance is

D. P 1,000 unfavorable

31. A small component is purchased for the use in the production of a major product.
The standard price of the component is P0.85. During a recent period, 6,800 units of the
small component were purchased and the materials price variance was P544
unfavorable. The standard number of units of the small component allowed for the
actual output of the period was 5,440 units. What was the actual purchase price per
unit?

C. P0.93

32. KENTUCKY CORP.'s direct labor costs for the month of March were as follows:

Total standard direct labor-hours 42,000

Direct labor rate variance 40,000

Total actual direct labor-hours P8,400 Favorable

Standard direct labor rate per hour P6.30

What was KENTUCKY's total direct labor payroll for the month of March?

A. P243,600

33. OHIO MANUFACTURING CORP. uses a standard cost system to collect costs
related to the production of its ski lift chairs. OHIO uses machine hours as an overhead
base. The variable overhead standards for each chair are 1.2 machine hours at a
standard cost of P18 per hour.
During the month of September, OHIO incurred 34,000 machine hours in the production
of 32,000 ski lift chairs. The total variable overhead cost was P649,400. What is OHIO's
variable overhead spending variance for the month of September?

A. P37,400 unfavorable

34. The UTAH CORP. has a standard costing system. Variable manufacturing overhead
is applied on the basis of direct labor-hours. The following data are available for
January:

 Actual variable manufacturing overhead: P25,500

 Actual direct labor-hours worked: 5,800
 Variable overhead spending variance: P600 Favorable
 Variable overhead efficiency variance: P2,475 Unfavorable

The standard hours allowed for January production is:

D. 5,250 hours

35. A company's flexible budget shows an expected variable delivery expense of

P160,000 when sales are 50,000 units. If sales total 52,000 units, and the actual
delivery expense is P163,000, what will be the flexible budget variance for delivery
expense?

D. P3,400 favorable.