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Exam 10: Standard Costing and Analysis of Direct Costs

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Question 21

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The absolute size of a variance is more important than the relative size when trying to decide what variances to investigate.

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Question 22

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Variances are computed by taking the difference between which of the following?

A) Product cost and period cost.
B) Actual cost and differential cost.
C) Price factors and rate factors.
D) Actual cost and standard cost.
E) Product cost and standard cost.

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Question 23

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The individual generally responsible for the direct-material price variance is the:

The aggregate nature of the variances in standard costing is a drawback in the advanced manufacturing setting that makes it difficult for managers to determine their cause.

Lamar Corporation's purchasing manager obtained a special price on an aluminum alloy from a new supplier, resulting in a direct-material price variance of $9,500F. The alloy produced more waste than normal, as evidenced by a direct-material quantity variance of $2,000U, and was also difficult to use. This slowed worker efficiency, generating a $2,500U labor efficiency variance. To help remedy the situation, the production manager used senior line employees, which gave rise to a $900U labor rate variance. If overall product quality did not suffer, what variance amount is best used in judging the appropriateness of the purchasing manager's decision to acquire substandard material?

Which of the following are methods for setting standards?

A statistical control chart is best used for determining:

When the quantity of materials purchased is not equal to the quantity of material used, most companies base the calculation of the material quantity variance on the:

Timber Enterprises purchased 67,000 pounds (cost = $616,400) of direct material to be used in the manufacture of the company's only product. According to the production specifications, each completed unit requires four pounds of direct material at a standard cost of $9 per pound. Direct materials consumed by the end of the period totaled 65,500 pounds in the manufacture of 16,050 finished units. An examination of Timber's payroll records revealed that the company worked 42,000 labor hours (cost = $621,600) during the period, and specifications called for each completed unit requiring 2.6 hours of labor at a standard cost of $15 per hour. Assume that the company computes variances at the earliest point in time. Required: Calculate the direct-material price and quantity variances, and the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

A direct-labor efficiency variance cannot be caused by:

Venazio Products uses a standard costing system to assist in the evaluation of operations. The company has had considerable employee difficulties in recent months, so much so that management has hired a new production supervisor (Ralph Moreno). Moreno has been on the job for six months and has seemingly brought order to an otherwise chaotic situation. The vice-president of manufacturing recently commented that "Moreno has really done the trick. Ralph's team-building/morale-boosting exercises have truly brought things under control." The vice-president's comments were based on both a plant tour, where he observed a contented work force, and review of a performance report that showed a total labor variance of $14,000F. This variance is truly outstanding, given that it is less than 2% of the company's budgeted labor cost. Additional data follow. · Total completed production amounted to 20,000 units. · A review of the firm's standard cost records found that each completed unit requires 2.75 hours of labor at $14 per hour. Venazio's production actually required 42,000 labor hours at a total cost of $756,000. Required: A. As judged by the information contained in the performance report, should the vice-president be concerned about the company's labor variances? Why? B. Calculate Venazio's direct-labor variances. C. On the basis of your answers to requirement "B," should Venazio be concerned about its labor situation? Why? D. Briefly analyze and explain the direct-labor variances.

Product costing is the process of accumulating the costs of a production process and assigning them to the completed products.

A favorable labor efficiency variance is created when:

During June, Fraser Company's material purchases amounted to 6,000 pounds at a price of $7.35 per pound. Actual costs incurred in the production of 2,000 units were as follows: The standards for one unit of Fraser Company's product are as follows: Required: Compute the direct-material price and quantity variances, the direct-material purchase price variance, and the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

A perfection standard:

Managerial accountants use either task analysis or an analysis of historical data to set cost standards.

Quinton Company has set the following standards for one unit of product: Direct material Quantity: 6.2 pounds per unit Price per pound: $11 per pound Direct labor Quantity: 6 hours per unit Rate per hour: $23 per hour Actual costs incurred in the production of 2,800 units were as follows: Direct material: $194,350 ($11.50 per pound) Direct labor: $393,750 ($22.50 per hour) All materials purchased were consumed during the period. Required: Calculate the direct-material price and quantity variances, and the direct-labor rate and efficiency variances. Indicate whether each variance is favorable or unfavorable.

James at the Mill Barn Woods produces handcrafted frames. A standard-size 11 x 14 inch frame requires 6 board feet of rustic barn wood in the finished product. In addition, 1 board foot of scrap lumber is normally left from the production of one frame. James pays a demolition company $1.50 per board foot, plus $1.00 in transportation charges per board foot. Required: Compute the standard direct-material cost of a frame.

Which of the following choices correctly indicates the use of the standard price per unit of direct material when calculating the materials price variance and the material quantity variance? Price Variance Quantity Variance

Action Enterprises recently used 14,000 labor hours to produce 7,500 completed units. According to manufacturing specifications, each unit is anticipated to take two hours to complete. The company's actual payroll cost amounted to $158,200. If the standard labor cost per hour is $11, Action's labor rate variance is: