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Chapter 7—Standard Costing and Variance Analysis
MULTIPLE CHOICE
1. A primary purpose of using a standard cost system is
READ PAPER
a. to make things easier for managers
in the production facility.
b. to provide a distinct measure ofcost control.
c to minimize the cost per unit of production
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c. to minimize the cost per unit of production.
d. b and c are correct.
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0. $he standard cost card contains uantities and costs for a. direct material only.
b. direct labor only.
c. direct material and direct labor only.
d. direct material/ direct labor/ and overhead.
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2. 3hich of the follo4ing statements regarding standard cost systems is true5
a. 'avorable variances are not necessarily good variances.
b. anagers 4ill investigate all variances from standard.
c. $he production supervisor is generally responsible for material price variances.
d. Standard costs cannot be used for planning purposes since costs normally change in the
future.
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6. &n a standard cost system/ 3ork in #rocess &nventory is ordinarily debited 4ith
a. actual costs of material and labor and a predetermined overhead cost for overhead.
b. standard costs based on the level of input activity such as direct labor hours 4orked8.
c. standard costs based on production output.
d. actual costs of material/ labor/ and overhead.
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Chapter 7
9. A standard cost system may be used in
a. :ob order costing/ but not process costing.
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b. process costing/ but not :ob order costing.
either :ob order costing or process costing.
d. neither :ob order costing nor process costing.
Chapter 7 Test Bank
c.
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;. Standard costs may be used for a. product costing.
b. planning.
c. controlling.
d. all of the above.
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7. A purpose of standard costing is to
a. replace budgets and budgeting.
b. simplify costing procedures.
c. eliminate the need for actual costing for e<ternal reporting purposes.
d. eliminate the need to account for year+end underapplied or overapplied manufacturing
overhead.
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=. Standard costs
a. are estimates of costs attainable only under the most ideal conditions.
b. are difficult to use 4ith a process costing system.
c. can/ if properly used/ help motivate employees.
d. reuire that significant unfavorable variances be investigated/ but do not reuire that
significant favorable variances be investigated.
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>. A
of material
does not include
a. bill
uantity
of component
inputs.
b. price of component inputs.
c. uality of component inputs.
d. type of product output.
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Chapter 7 Test Bank
 D O W N LO A D
Chapter 7
1?. An operations flo4 document
a. tracks the cost and uantity of material through an operation.
b. tracks the net4ork of control points from receipt of a customer@s order through the delivery
of the finished product.
c. specifies tasks to make a unit and the times allo4ed for each task.
d. charts the shortest path by 4hich to arrange machines for completing products.
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11. A total variance is best defined as the difference bet4een total
a. actual cost and total cost applied for the standard output of the period.
b. standard cost and total cost applied to production.
c. actual cost and total standard cost of the actual input of the period.
d. actual cost and total cost applied for the actual output of the period.
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10. $he term standard hours allo4edB measures
a. budgeted output at actual hours.
b. budgeted output at standard hours.
c. actual output at standard hours.
d. actual output at actual hours.
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12. A large labor efficiency variance is prorated to 4hich of the follo4ing at year+end5
Cost of oods Sold
a.
b.
c.
d.
no
no
yes
yes
3&#
&nventory
'
&nventory
no
yes
no
yes
no
yes
no
yes
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16. 3hich of the follo4ing factors should not be considered 4hen deciding 4hether to investigate a
variance5
a. magnitude of the variance
b. trend of the variances over time
c. likelihood that an investigation 4ill reduce or eliminate future occurrences of the variance
d. 4hether the variance is favorable or unfavorable
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 D O W N LO A D
Chapter 7
19. At the end of a period/ a significant material uantity variance should be
a. closed to Cost of oods Sold.
b. allocated among ,a4 aterial/ 3ork in #rocess/ 'inished oods/ and Cost of oods
Sold.
c. allocated among 3ork in #rocess/ 'inished oods/ and Cost of oods Sold.
d. carried for4ard as a balance sheet account to the ne<t period.
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1;. 3hen computing variances from standard costs/ the difference bet4een actual and standard price
multiplied by actual uantity used yields a
a. combined price+uantity variance.
b. price variance.
c. uantity variance.
d. mi< variance.
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17. A company 4ishing to isolate variances at the point closest to the point of responsibility 4ill dete
its material price variance 4hen
a. material is purchased.
b. material is issued to production.
c. material is used in production.
d. production is completed.
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1=. $he material price variance computed at point of purchase8 is
a. the difference bet4een the actual cost of material purchased and the standard cost of
material purchased.
b. the difference bet4een the actual cost of material purchased and the standard cost of
material used.
c. primarily the responsibility of the production manager.
d. both a and c.
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Chapter 7 Test Bank
 D O W N LO A D
Chapter 7
1>. $he sum of the material price variance calculated at point of purchase8 and material uantity var
euals
a. the total cost variance.
b. the material mi< variance.
c. the material yield variance.
d. no meaningful number.
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0?. A company 4ould most likely have an unfavorable labor rate variance and a favorable labor
efficiency variance if a. the mi< of 4orkers used in the production process 4as more e<perienced than the normal
mi<.
b. the mi< of 4orkers used in the production process 4as less e<perienced than the normal
mi<.
c. 4orkers from another part of the plant 4ere used due to an e<tra heavy production
schedule.
d. the purchasing agent acuired very high uality material that resulted in less spoilage.
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01. &f actual direct labor hours %-Ds8 are less than standard direct labor hours allo4ed and overhea
applied on a %-D basis/ an8
a. favorable variable overhead spending variance e<ists.
b. favorable variable overhead efficiency variance e<ists.
c. favorable volume variance e<ists.
d. unfavorable volume variance e<ists.
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00. $he total labor variance can be subdivided into all of the follo4ing except
a.
b.
c.
d.
rate variance.
yield variance.
learning curve variance.
mi< variance.
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AS! C
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02. $he standard predominantly used in 3estern cultures for motivational purposes is an8 EEEE stan
a. e<pected annual
b. ideal
c. practical
d. theoretical
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