 Show CHAPTER 12 – STANDARD COSTING – MATERIAL, LABOR & FACTORY OVERHEAD VARIANCES MULTIPLE CHOICE – THEORIES (Write letter choice only in upper case. Erasures, in any form, are not allowed. 2 points each) 1. When evaluating the operating performance management sometimes uses the difference between expected and actual performance. This refers to: A. Management by Deviation C. Management by Objective B. Management by Control D. Management by Exception 2. The best basis upon which cost standards should be set to measure controllable production inefficiencies is A. Engineering standards based on ideal performance B. Normal capacity C. Engineering standards based on attainable performance D. Practical capacity 3. A difference between standard costs used for cost control and the budgeted costs representing the same manufacturing effort can exist because A. standard costs must be determined after the budget is completed B. standard costs represent what costs should be while budgeted costs represent expected actual costs C. budgeted costs are historical costs while standard costs are based on engineering studies D. budgeted costs include some “slack” or “padding” while standard costs do not 4. The fixed overhead application rate is a function of a predetermined “normal” activity level. If standard hours allowed for good output equal this predetermined activity level for a given period, the volume variance will be A. Zero B. Favorable C. Unfavorable D. Either favorable or unfavorable, depending on the budgeted overhead. 5. Standards, which are difficult to achieve due to reasons beyond the individual performing the task, are the result of firm using which of the following methods to establish standards? A. Ideal Standards C. Practical Standards B. Lax Standards D. Employee Standards 6. A company uses a two-way analysis for overhead variances: budget (controllable) and volume. The volume variance is based on the A. Total overhead application rate B. Volume of total expenses at various activity levels C. Variable overhead application rate D. Fixed overhead application rate 7. In analyzing manufacturing overhead variances, the volume variance is the difference between the: A. Amount shown in the flexible budget and the amount shown in the debit side of the overhead control account B. Predetermined overhead application rate and the flexible budget application rate times actual hours worked C. Budget allowance based on standard hours allowed for actual production for the period and the amount budgeted to be applied during the period D. Actual amount spent for overhead items during the period and the overhead amount applied to production during the period 8. If the total materials variance (actual cost of materials used compared with the standard cost of the standard amount of materials required) for a given operation is favorable, why must this variance be further evaluated as to price and usage? A. There is no need to further evaluate the total materials variance if it is favorable B. Generally accepted accounting principles require that all variances be analyzed in three stages C. All variances must appear in the annual report to equity owners for proper disclosure D. To allow management to evaluate the efficiency of the purchasing and production functions 9. Favorable fixed overhead volume variance occurs if: A. There is a favorable labor efficiency variance B. There is a favorable labor rate variance C. Production is less than planned D. Production is greater than planned 10. The unfavorable volume variance may be due to all but which of the following factors? A. Failure to maintain an even flow of work B. Machine breakdowns C. Unexpected increases in the cost of utilities D. Failure to obtain enough sales orders MULTIPLE CHOICE – PROBLEMS (Show all supporting computation in good form. No computation, no points. Write opposite each item the letter which corresponds to your choice and it should have no erasure. Boxed your final answer as it appears on your solution.) Materials variance i. Under a standard cost system, the materials quantity variance was recorded at P1,970 unfavorable, the materials price variance was recorded at P3,740 favorable, and the Goods in Process was debited for P51,690. Ninety-six thousand units were completed. What was the per unit price of the actual materials used? A. P0.52 each C. P0.54 eac B. P0.53 each D. P0.51 each ii. Blake Company has a standard price of P5.50 per pound for materials. July’s results showed an unfavorable material price variance of P44 and a favorable quantity variance of P209. If 1,066 pounds were used in production, what was the standard quantity allowed for materials? A. 1,104 C. 1,066 B. 1,074 D. 1,100 iii. Elite Company uses a standard costing system in the manufacture of its single product. The 35,000 units of raw material in inventory were purchased for P105,000, and two units of raw material are required to produce one unit of final product. In November, the company produced 12,000 units of product. The standard allowed for material was P60,000, and there was an unfavorable quantity variance of P2,500. The materials price variance for the units used in November was A. P 2,500 U C. P12,500 U B. P11,000 U D. P 3,500 F iv. Sheridan Company has a standard of 15 parts of component BB costing P1.50 each. Sheridan purchased 14,910 units of component BB for P22,145. Sheridan generated a P220 favorable price variance and a P3,735 favorable quantity variance. If there were no changes in the component inventory, how many units of finished product were produced? A. 994 units. C. 1,000 units B. 1,090 units. D. 1,160 units v. The standard usage for raw materials is 5 pounds at P40.00 per pound. Cave Company spent P131,200 in purchasing 3,200 pounds. Cave used 3,150 pounds to produce 600 units of finished product. The material quantity variance is: A. P6,000 unfavorable C. P3,200 unfavorable B. P5,200 unfavorable D. P2,000 unfavorable Labor variance vi. The flexible budget for the month of May 2007 was for 9,000 units with direct material at P15 per unit. Direct labor was budgeted at 45 minutes per unit for a total of P81,000. Actual output for the month was 8,500 units with P127,500 in direct material and P77,775 in direct labor expense. Direct labor hours of 6,375 were actually worked during the month. Variance analysis of the performance for the month of May would show a(n): A. Favorable material quantity variance of P7,500. B. Unfavorable direct labor efficiency variance of P1,275. C. Unfavorable material quantity variance of P7,500. D. Unfavorable direct labor rate variance of P1,275. vii. The standard hourly rate was P4.10. Standard hours for the level of production are 4,000. The actual rate was P4.27. The labor rate variance was P654.50, unfavorable. What were the actual labor hours? A. 3,700 C. 3,850 B. 4,150 D. 4,000 viii. Powerless Company’s operations for April disclosed the following data relating to direct labor: Actual cost P10,000 Rate variance 1,000 favorable Efficiency variance 1,500 unfavorable What is overhead volume variance?Fixed overhead volume variance is the difference between the amount budgeted for fixed overhead costs based on production volume and the amount that is eventually absorbed.
What would be the cause of a favorable volume variance?If actual production is greater than budgeted production, the production volume variance is favorable. That is, the total fixed overhead has been allocated to a greater number of units, resulting in a lower production cost per unit.
What causes Favourable fixed overhead volume variance?Favorable Variance
Fixed overhead volume variance is positive when the applied fixed overheads exceed budgeted fixed overheads. This indicates that the company has over-utilized its production facilities by producing many units with the available resources. This represents a favorable condition for the company.
What is volume variance caused by?What Causes a Volume Variance? A volume variance is more likely to arise when a company sets theoretical standards, where the theoretically optimal number of units are expected to be used in production.
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What is the overhead volume variance what would be the cause of a favorable volume variance?
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