# Lesson 3 Standard Cost Accounting

Lesson 3 Standard Cost Accounting

1. A company uses a two-variance analysis for overhead variances—controllable variances and volume variances.
The volume variance is based on the
B. total expenses at various activity levels.

2. When using a flexible budget, what will occur to fixed costs (on a per unit basis) as production increases?
A. Fixed costs aren't considered in flexible budgeting.
B. Fixed costs per unit will decrease.
C. Fixed costs per unit will remain unchanged.
D. Fixed costs per unit will increase.

3. The Johns Company budgeted overhead at \$117,500 for the period for Department A based on a budgeted volume of 50,000 direct labor hours. At the end of the period, the factory overhead control account for Department A had a balance of \$124,000. The actual (and allowed) direct labor hours were 52,000. What was the overapplied (underapplied) overhead for the period?
A. \$(1,800)
B. \$(6,500)
C. \$1,800
D. \$6,500

4. Which of the following terms best describes a characteristic of a system of standard costs?
A. Marginal costing
B. Contribution approach
C. Management by exception
D. Standardized accounting

5. What standard cost variance represents the difference between actual factory overhead incurred and budgeted factory overhead based on actual hours worked?
A. Volume variance
B. Spending (budget) variance
C. Efficiency variance
D. Quantity variance

6. When standard costs are used in a process cost accounting system, how are equivalent units involved or used in the cost report at standard?
A. Equivalent units aren't used.
B. Equivalent units are computed using a special approach.
C. The standard equivalent units are multiplied by the actual cost per unit.
D. The actual equivalent units are multiplied by the standard cost per unit.

7. Information on Armor Company's overhead costs is as follows:
Standard hours allowed for actual production 30,000
Standard variable overhead rate per direct labor hour \$3.25
Standard fixed overhead rate per direct labor hour \$0.75

What is Armor Company's total overhead variance?
A. \$2,500 favorable
B. \$2,500 unfavorable
C. \$3,000 favorable
D. \$3,000 unfavorable

8. The direct labor costs for Boundary Company are as follows:
Standard direct labor hours 35,000
Actual direct labor hours 33,500
Direct labor efficiency variance—favorable \$12,000
Direct labor rate variance—favorable \$3,075
Total payroll \$252,925

What is the company's standard direct labor rate?
A. \$2.63
B. \$3.87
C. \$8.00
D. \$10.50

9. A flexible budget is appropriate for a
Marketing Budget Service Industry
A. No No
B. No Yes
C. Yes No
D. Yes Yes

10. How should an efficiency variance that is material in amountbe treated at the end of an accounting period?
A. Reported as a deferred charge or credit
B. Allocated among work in process inventory, finished goods inventory, and cost of goods sold
C. Charged or credited to cost of goods manufactured
D. Allocated among cost of goods manufactured, finished goods inventory, and cost of goods sold

11. Winny Co. is budgeting sales of 53,000 units of product Tara for October. The manufacture of one unit of Tara requires 4 pounds of chemical Daisy. During October, Winny plans to reduce the inventory of Daisy by 50,000 pounds and increase the finished goods inventory of Tara by 6,000 units. There's no Tara work-in-process inventory. How many pounds of Daisy is Winny budgeting to purchase in October?
A. 138,000
B. 162,000
C. 186,000
D. 238,000

12. Earl Company's direct labor costs for the month of January are as follows:
Actual direct labor hours 18,000
Standard direct labor hours 19,000
Direct labor rate variance—unfavorable \$2,160
Total payroll \$117,000

What was Earl's direct labor efficiency variance?
A. \$1,200 favorable
B. \$1,800 favorable
C. \$6,380 favorable
D. \$6,400 favorable

13. The data below relate to the month of April for Monroe, Inc., which uses a standard cost system:
Actual total direct labor \$54,200
Actual hours used 16,500
Standard hours allowed for good output 16,250
Direct labor rate variance—debit \$1,400
Normal activity in hours 16,000
Total overhead application rate per standard direct labor hour \$3.25

What was Monroe's volume variance for April?
A. \$187.50 favorable
B. \$187.50 unfavorable
C. \$437.50 favorable
D. \$437.50 unfavorable

14. The standard direct material to produce one unit of Product A is four yards of material at \$2.50 per yard. During June, 4,200 yards of material costing \$10,080 are purchased and used to produce 1,000 units of Product A. What was the material price variance for June?
A. \$400 favorable
B. \$420 favorable
C. \$80 unfavorable
D. \$480 unfavorable

15. Which one of the following standard cost variances would be leastcontrollable by a production supervisor?
C. Labor efficiency
D. Material usage

16. The materials price variance, in a standard cost system, is obtained by multiplying the
A. actual price by the difference between actual quantity purchased and standard quantity used.
B. actual quantity by the difference between actual price and the standard price.
C. standard price by the difference between standard quantity purchased and standard quantity used.
D. standard quantity by the difference between actual price and standard price.

17. Flexible budgeting is a reporting system in which the
A. statements included in the budget report vary from period to period.
B. budget standards may be adjusted at will.
C. reporting dates vary according to the levels of activity reported upon.
D. planned level of activity is adjusted to the actual level of activity before the budget comparison report is prepared.

18. If a company uses a predetermined rate for absorbing manufacturing overhead, the volume variance is the
A. underapplied or overapplied variable cost element of overhead.
B. underapplied or overapplied fixed cost element of overhead.
C. difference in budgeted costs and actual costs of fixed overhead items.
D. difference in budgeted costs and actual costs of variable overhead items.

19. Elgin Company's budgeted fixed factory overhead costs are \$50,000 per month, plus a variable factory overhead rate of \$4.00 per direct labor hour. The standard direct labor hours allowed for October production were 20,000. An analysis of the factory overhead indicates that in October Elgin had an unfavorable budget (controllable) variance of \$1,500 and a favorable volume variance of \$500. Elgin uses a two-variance analysis of overhead variances.
What is Elgin's applied factory overhead for October?
A. \$128,000
B. \$129,500
C. \$130,000
D. \$130,500

20. Why might it be misleading to view an unfavorable variance on a performance report as indicative of inferior performance?
A. Actual results are beyond the control of the manager being evaluated.
B. The unfavorable variance may be the result of the company's having used attainable standards rather than ideal standards.
C. The standard may need to be updated.
D. Variance analysis is for purposes of income determination, not performance evaluation.