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Exam 23: Performance Evaluation Using Variances From Standard Costs

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Question 1

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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 identify inventory
C) Used to plan direct materials, direct labor, and factory factory overhead.
D) Used to control costs.

E) B) and C)
F) A) and D)

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Question 2

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A company must choice either a standard system or nonfinancial performance measures to evaluate the performance of a company.

A) True
B) False

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Question 3

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Standard costs are a useful management tool that can be used solely as a statistical device apart from the ledger or they can be incorporated in the accounts.

Standard costs serve as a device for measuring efficiency.

The standard factory overhead rate is $7.50 per machine hour ($6.20 for variable factory overhead and $1.30 for fixed factory overhead) based on 100% capacity of 80,000 machine hours. The standard cost and the actual cost of factory overhead for the production of 15,000 units during August were as follows: What is the amount of the factory overhead volume variance?

Because accountants have financial expertise, they are the only ones that are able to set standard costs for the production area.

The standard costs and actual costs for factory overhead for the manufacture of 2,500 units of actual production are as follows: The amount of the factory overhead volume variance is:

Calculate the Total Direct Labor Variance using the above information

Ruby Company produces a chair that requires 5 yds. of material per unit. The standard price of one yard of material is $7.60. During the month, 8,500 chairs were manufactured, using 40,000 yards at a cost of $7.50. Determine the (a) price variance, (b) quantity variance, and (c) cost variance.

A company records their inventory purchases at standard cost but also records purchase price variances. The company purchased 5,000 widgets $8.00. The standard cost for the widgets is $7.60. Which of the following would be included in the journal entry?

Currently attainable standards do not allow for reasonable production difficulties.

While setting standards, the managers should never allow for spoilage or machine breakdowns in their calculations.

Calculate the Direct Labor Time Variance using the above information

Which of the following would not lend itself to applying direct labor variances?

If employees are given bonuses for exceeding normal standards, the standards may be very effective in motivating employees.

Calculate the Direct Materials Price variance using the above information:

A company should only use nonfinancial performance measures when financial measures cannot be calculated.

The use of standards for nonmanufacturing expenses is:

An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds actual cost.

Since the controllable variance measures the efficiency of using variable overhead resources, if budgeted variable overhead exceeds actual results, the variance is favorable.