1. A direct materials quantity standard generally includes an allowance for wast

Question

1.  A direct materials quantity standard generally includes an allowance for waste.

True

False

2. A materials price variance is unfavorable if the actual price exceeds the standard price.

True

False

3. Purchase of poor quality materials may cause a favorable materials price variance and an unfavorable labor efficiency variance.

True

False

4. The standard labor rate per hour defines the company's expected direct labor wage rate per hour, including employment taxes and fringe benefits.

True

False

5. The variable overhead efficiency variance measures how efficiently variable manufacturing overhead resources were used.

True

False

6. The standard cost per unit is computed by dividing the standard quantity or hours by the standard price or rate.

True

False

7. Which of the following would produce a materials price variance?

An excess quantity of materials used.

An excess number of direct labor-hours worked in completing a job.

Shipping materials to the plant by air freight rather than by truck.

Breakage of materials in production.

8. Variable manufacturing overhead is applied to products on the basis of standard direct labor-hours. If the labor efficiency variance is unfavorable, the variable overhead efficiency variance will be:

favorable.

unfavorable.

either favorable or unfavorable.

zero

9. The Collins Corporation uses standard costing and has established the following direct material and direct labor standards for each unit of the single product it makes:

• Direct materials: 4 gallons at $8 per gallon
• Direct labor: 1 hour at $16 per hour

During July, the company made 6,000 units of product and incurred the following costs:

• Direct materials purchased: 26,800 gallons at $8.20 per gallon
• Direct materials used: 25,200 gallons
• Direct labor used: 5,600 hours at $15.30 per hour

The direct materials purchases variance is computed when the materials are purchased.

The labor efficiency variance for July was:

$6,400 Favorable

$89,600 Favorable

$10,320 Favorable

$6,120 Favorable

10. The following data have been provided by Mathews Corporation:

Budget production                                  6900 units

Standard machine-hours per unit         9.4 machine-units

Standard lubricants rate                     $1.20 per machine-hour

Standard supplies rate                          $1.00 per machine-hour

Actual production                                   7,000units

Actual machine-hours (total)                   66,230 machine-hours

Actual lubricants cost (total)                   $78,100

Actual supplies costs (total)                   $66,536

Lubricants and supplies are both elements of variable manufacturing overhead.

The variable overhead rate variance for lubricants is closest to:

$1,376 F

$516 U

$860 F

$1,376 U

Explanation / Answer

Ans 1 True.

Yes standard material includes an allowance for waste. As waste is the part of normal course of activity so it is included.

Ans 2 True

Material Price Variance=Actual Quantity*(Actual Price-Standard price). So it actual price exceeds standard price it gives rise to unfavorable variance.

Ans 3 True.

Material Price Variance=Actual Quantity*(Actual Price-Standard price). So if material is of low quality it would cost less but because of poor quality at the time of processing it will increase waste so it turn increase time for labor.

Ans 4 True

I wage rate all the fringe benefits and employment taxes are included.

Ans 5 True.

Variable overhead Variance= Standard Price*(Actual Hours-Standard Hours). This tells how efficiently the resources are used.

Ans 6 False

Standard Cost per unit= Standard Price*No.of hours/quantity

Ans 7 Shipping materials to the plant by air freight rather than by truck

Because by air freight the cost will be more than by truck so actual price will be more.

Ans 8 Unfavorable

Because if labour efficiency is unfavorable this meand more hours used and variable overhead is applied on the basis of direct labour hours, so it will also be unfavourable

Ans 9 Labor Efficiency Variance=$16*(5600-6000)=$6400 Favorable

Ans 10 Variable Overhead rate variance= Actual Cost-Actual hours*standard rate            

78100-(7000*9.4*1.2)= 860F

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