Part 1 : 09/23/18 11:22:02
Question 1 - CMA 694 3.19 - Introduction to Variance Analysis and Standard Costs
Which one of the following is least likely to be involved in establishing standard costs for evaluation purposes?
A. Top management.
B. Quality control personnel.
C. Industrial engineers.
D. Budgetary accountants.
Question 2 - CMA 695 3.10 - Introduction to Variance Analysis and Standard Costs
A standard costing system is most often used by a firm in conjunction with
A. Flexible budgets.
B. Target (hurdle) rates of return.
C. Management by objectives.
D. Participative management programs.
Question 3 - ICMA 10.P1.009 - Introduction to Variance Analysis and Standard Costs
When compared with ideal standards, practical standards:
A. Produce lower per-unit product costs.
B. Serve as a better motivating target for manufacturing personnel.
C. Result in a less desirable basis for the development of budgets.
D. Incorporate very generous allowances for spoilage and worker inefficiencies.
Question 4 - ICMA 10.P1.012 - Introduction to Variance Analysis and Standard Costs
After performing a thorough study of Michigan Company’s operations, an independent consultant determined that the
firm’s labor standards were probably too tight. Which one of the following facts would be inconsistent with the
consultant’s conclusion?
A. Michigan's budgeting process was well-defined and based on a bottom-up philosophy.
B. Management noted that minimal incentive bonuses have been paid in recent periods.
C. A review of performance reports revealed the presence of many unfavorable efficiency variances.
D. Production supervisors found several significant fluctuations in manufacturing volume, with short-term increases in
output being followed by rapid, sustained declines.
Question 5 - ICMA 1603.P1.064 - Introduction to Variance Analysis and Standard Costs
Which one of the following statements best describes the concept of continuous improvement when developing
standard costs?
A. Standards are developed with zero slack or downtime factored into the calculation.
B. Standards are established at an easily attainable level to increase employee morale.
C. Standards become more challenging as time passes.
(c) HOCK international, page 1
Part 1 : 09/23/18 11:22:02
C. Standards become more challenging as time passes.
D. Standards remain unattainable to encourage employees to strive harder.
Question 1 - CMA 694 3.19 - Introduction to Variance Analysis and Standard Costs
A. Top management is primarily involved in formulating strategy plans and budgets. Establishing standard
costs for evaluation purposes is a task of management of a lower level. These standards are used to estimate
what costs should be under normal conditions of operations. Industrial engineers, budgetary accountants,
quality control personnel and employees who will be evaluated using these criteria are involved in the
process.
B. Quality control personnel are involved in establishing standard costs for evaluation purposes.
C. Industrial engineers are involved in establishing standard costs for evaluation purposes.
D. Budgetary accountants are involved in establishing standard costs for evaluation purposes.
Question 2 - CMA 695 3.10 - Introduction to Variance Analysis and Standard Costs
A.
A standard cost is an estimate of the cost the company expects to incur in the production process. Without a
standard cost, the analysis of actual activities and results is very difficult because there is no standard to
measure the performance against. Standard costs are best used with a flexible budgeting system in order to
provide the most useful variance analysis. The flexible budget will enable the company to identify differences
from the budget that are not simply due to the actual quantity produced or sold being different from the
budgeted quantity.
B. The target (hurdle) rate of return is a capital budgeting function. It is not concerned with standard costs.
C. MBO can be used in conjunction with a standard costing system, but they are not necessarily related. The primary
focus of MBO is goal congruence; it is a behavioral, communication-oriented, responsibility approach system.
D. Participative management lies in the area of communications and does not relate to standard costs.
Question 3 - ICMA 10.P1.009 - Introduction to Variance Analysis and Standard Costs
A. A practical standard includes allowances for downtime and idle time. Therefore it would actually increase the
per-unit standard costs somewhat.
B.
Ideal, or theoretical, standards are the level of activity that will occur if the company produces at its absolute
most efficient level at all times, with no allowances made for idle time or downtime. Ideal standards cannot be
achieved in the long run. Practical standards are the ideal capacity reduced by allowances for idle time and
downtime.
Because practical standards are achievable, they are a better target to motivate manufacturing employees.
Knowing the volume that both can and should be produced gives employees a realistic guideline that can be
applied to everyday working conditions. Practical standards are reasonable, not impossible.
(c) HOCK international, page 2
C. Practical standards are a more desirable basis as rarely does any company work under ideal situations. To budget
at those levels would be to set the company up for multiple budget variances and unmotivated employees.
Part 1 : 09/23/18 11:22:02
Question 1 - CMA 694 3.19 - Introduction to Variance Analysis and Standard Costs
A. Top management is primarily involved in formulating strategy plans and budgets. Establishing standard
costs for evaluation purposes is a task of management of a lower level. These standards are used to estimate
what costs should be under normal conditions of operations. Industrial engineers, budgetary accountants,
quality control personnel and employees who will be evaluated using these criteria are involved in the
process.
B. Quality control personnel are involved in establishing standard costs for evaluation purposes.
C. Industrial engineers are involved in establishing standard costs for evaluation purposes.
D. Budgetary accountants are involved in establishing standard costs for evaluation purposes.
Question 2 - CMA 695 3.10 - Introduction to Variance Analysis and Standard Costs
A.
A standard cost is an estimate of the cost the company expects to incur in the production process. Without a
standard cost, the analysis of actual activities and results is very difficult because there is no standard to
measure the performance against. Standard costs are best used with a flexible budgeting system in order to
provide the most useful variance analysis. The flexible budget will enable the company to identify differences
from the budget that are not simply due to the actual quantity produced or sold being different from the
budgeted quantity.
B. The target (hurdle) rate of return is a capital budgeting function. It is not concerned with standard costs.
C. MBO can be used in conjunction with a standard costing system, but they are not necessarily related. The primary
focus of MBO is goal congruence; it is a behavioral, communication-oriented, responsibility approach system.
D. Participative management lies in the area of communications and does not relate to standard costs.
Question 3 - ICMA 10.P1.009 - Introduction to Variance Analysis and Standard Costs
A. A practical standard includes allowances for downtime and idle time. Therefore it would actually increase the
per-unit standard costs somewhat.
B.
Ideal, or theoretical, standards are the level of activity that will occur if the company produces at its absolute
most efficient level at all times, with no allowances made for idle time or downtime. Ideal standards cannot be
achieved in the long run. Practical standards are the ideal capacity reduced by allowances for idle time and
downtime.
Because practical standards are achievable, they are a better target to motivate manufacturing employees.
Knowing the volume that both can and should be produced gives employees a realistic guideline that can be
applied to everyday working conditions. Practical standards are reasonable, not impossible.
C. Practical standards are a more desirable basis as rarely does any company work under ideal situations. To budget
at those levels would be to set the company up for multiple budget variances and unmotivated employees.
D. Practical standards do allow for downtime or idle time, but those allowances do not include incompetence or
(c) HOCK international, page 3
irresponsible use of resources.
Part 1 : 09/23/18 11:22:02
D. Practical standards do allow for downtime or idle time, but those allowances do not include incompetence or
irresponsible use of resources.
Question 4 - ICMA 10.P1.012 - Introduction to Variance Analysis and Standard Costs
A.
"Tight" standards are standards that are very demanding. For example, if a job can be done in two hours only
if everything works perfectly and absolutely nothing goes wrong, then a labor standard of two hours may be
too tight because things can go wrong. Machines can break down, jobs can get interrupted, there could be a
power failure, or any number of things could delay the completion of the job.
Whether the budgeting process was well-defined or not well defined is not relevant to the standards being
used within the company. Furthermore, if the standards were developed using a bottom-up philosophy, there
is little chance that they will be too tight. If anything, they might be too loose, because the people closest to
the production process might build more extra time than necessary into the labor standards, in order to make
sure the standards can be met. Therefore, a bottom-up philosophy of budgeting would not result in too-tight
labor standards, so this is inconsistent with the consultant’s conclusion.
B.
"Tight" standards are standards that are very demanding. For example, if a job can be done in two hours only if
everything works perfectly and absolutely nothing goes wrong, then a labor standard of two hours may be too tight
because things can go wrong. Machines can break down, jobs can get interrupted, there could be a power failure, or
any number of things could delay the completion of the job.
Incentive bonuses are generally based on successful performance which can be measured using standards. If
bonuses are not being paid out, performance has not been what was expected and perhaps the expectations have
been unrealistic. Therefore, this is consistent with the consultant's conclusion, not inconsistent.
C.
"Tight" standards are standards that are very demanding. For example, if a job can be done in two hours only if
everything works perfectly and absolutely nothing goes wrong, then a labor standard of two hours may be too tight
because things can go wrong. Machines can break down, jobs can get interrupted, there could be a power failure, or
any number of things could delay the completion of the job.
Many unfavorable efficiency (quantity of labor used) variances could be a sign of an unrealistic standard. Therefore,
this is consistent with the consultant's conclusion, not inconsistent. If the company continually uses more hours than
anticipated, revisions to the labor standard may be necessary.
D.
"Tight" standards are standards that are very demanding. For example, if a job can be done in two hours only if
everything works perfectly and absolutely nothing goes wrong, then a labor standard of two hours may be too tight
because things can go wrong. Machines can break down, jobs can get interrupted, there could be a power failure, or
any number of things could delay the completion of the job.
Fluctuations in manufacturing volume with short-term increases in output being followed by rapid, sustained declines in
output can indicate an all-out effort to produce the quantities demanded followed by a reining in of costs in order to
meet unrealistic labor standards. Therefore, this is consistent with the consultant’s conclusion, not inconsistent.
Question 5 - ICMA 1603.P1.064 - Introduction to Variance Analysis and Standard Costs
(c) HOCK international, page 4
A. Standards that have no downtime factored into their calculation are unachievable and are not meaningful. This is not
the concept of continuous improvement.
B. Easily attainable standards do not express the concept of continuous improvement.
Part 1 : 09/23/18 11:22:02
Question 5 - ICMA 1603.P1.064 - Introduction to Variance Analysis and Standard Costs
A. Standards that have no downtime factored into their calculation are unachievable and are not meaningful. This is not
the concept of continuous improvement.
B. Easily attainable standards do not express the concept of continuous improvement.
C.
If management has made a strategic decision to pursue kaizen, the Japanese term for continuous
improvement, that decision will impact the standards. The standards will be set at the most challenging level
and they will become more challenging as time passes in order to effect continuous improvement. The
continuous improvements may be accomplished by developing new manufacturing methods and techniques.
Development of new methods and techniques entails an ongoing search for new ways to do things better,
resulting in reduced costs and continuous improvement, which is the heart of the kaizen concept.
D. Standards that are unattainable are not meaningful. This is not the concept of continuous improvement.
(c) HOCK international, page 5