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Suggested answer (b) Either job order or process costing Standard costing system costs the product at
standard or predetermined costs and compares expected with actual cost. This comparison allows
deviations from expected results to be identified and investigated. A standard cost system can be used
in both job order and process costing systems to isolate variances.

2. Suggested answer (b) Control cost Standard costing is used to isolate the variances between expected
costs and actual costs. It a/lows management to measure performance and to correct inefficiencies.
Thereby helping to control costs.

3. Suggested answer(c) If properly used, standards can help motivate employees. Standards are used as
a norm against which actual results may be compared. One of the benefits of a standard cost system is
that it can be used to motivate employees to achieve specified goals.

4. Suggested answer (c) The actual equivalent units are multiplied by the standard cost per unit. A
process costing system is used to account for continuous production of homogeneous products.
Equivalent units of production are calculated to determine how many complete units could have been
produced. To determine the cost of the units produced, these equivalent units of production are
multiplied by the standard cost per unit.

5. Suggested answer (b) Flexible budget variance. A flexible budget is a series of several budgets
prepared for many levels of activity. A flexible budget allows adjustment of the budget to the actual
level before comparing the budgeted and actual results. The difference between the flexible budget and
actual figures is known as the flexible budget variance.

6. Suggested answer (a) A flexible amount minus a static budget amount. The sales volume variance
assumes that, unit prices and costs and total fixed costs remain constant. The only variable is the sales
activity level. Thus, the difference between a given flexible budget amount and the corresponding static
budget amount is the sales volume variance.

7. Suggested answer (d) Budgeted unit price times the difference between actual inputs and budgeted
inputs for the actual activity level achieved. An efficiency variance compares the actual use of inputs
with the budgeted ^quantity of inputs allowed for the activity level achieved. The variance equals this
difference multiplied by the budgeted unit price. The result is to isolate the cost effect of using more or
fewer units of inputs than budgeted.

8. Suggested answer (c) Cost of goods sold and inventories. Allocation of variances, if the amount is
material, to cost of goods sold and inventories based on production and sales for the period will
effectively convert standard costing to actual costing.

9. Determining price and usage variances allows management to evaluate the efficiency of the
purchasing and production functions. A standard cost system differentiates expected cost from actual
cost, which allows deviations from expected results to be identified on a timely basis. An overall
variance may include both unfavorable and favorable variances separate analyzing the components of
the overall variance results in more useful information. Thus, the price variance is used to evaluate the
purchasing department, and the usage variance pinpoints any production inefficiencies.
10. Suggested answer (d) Production Responsibility for variances should bear some relationship to the
decision and control processes used. Material usage should be the primary responsibility of the
production management personnel.

11. Suggested answer (d) Sales volume of the product. An unfavorable materials quantity or usage
(efficiency) variance can be caused by a number of factors, including waste, shrinkage, theft, poor
performance by production workers, nonskilled workers, or the purchase of below standard quality
materials by the purchasing department. Engineering changes in design of the production process or of
the product can also affect the quantity of materials used. However, sales volume should not be a
contributing factor to a materials efficiency variance.

12. Suggested answer (d) Labor efficiency. The efficiency of the employees varies with how long they
have been performing the particular task. Thus, more experienced employees are expected to be more
efficient, which affects the labor efficiency variance

13. Suggested answer (d) Labor rate. A standard cost system differentiates the expected cost from the
actual cost. Thus, deviations from expected results can be identified on a routine basis. Depending on
the circumstances, the premium paid for overtime hours may be treated as overhead or as a direct labor
cost. In the latter case, it increases the labor rate and is reflected in the labor rate variance.

14. Suggested answer (a) Total labor variance. The total actual labor cost is determined by multiplying
the actual labor rate times the actual labor hours. The total standard cost for good output is determined
by multiplying the standard rate times the standard hours allowed. The total labor rate variance is the
difference between the total actual labor costs and the total standard labor costs.

15. Suggested answer (d) overhead is composed only of variable costs. Actual overhead and
predetermined amounts of overhead are most likely to be similar if overhead is composed primarily of
variable costs. In principle, unit variable overhead should fluctuate little with the activity level.

16. Suggested answer (a) Zero The volume variance is the difference between the budgeted fixed factory
overhead and the amount applied based upon standard input allowed for good output. Thus, given no
difference between the predetermined activity level and the standard input allowed for the actual
output, no variance occurs.

17. Suggested answer (a) Overhead volume. The volume variance measures the effect of not operating
at the budgeted activity level. This variance can be caused by insufficient sales or a labor strike. These
events are out of the production supervisor's control. Thus, the production volume variance is the least
controllable by a production supervisor.

18. Suggested answer (a) Price and quantity differences for factory overhead costs. Variable factory
overhead includes numerous items, and an overall rate is required. The spending variance results not
only from differences in the prices of variable factory overhead items but also from differences in
quantities used. The spending variance is the difference between actual variable factory overhead based
on the application of a predetermined rate to actual hours worked.

19. Suggested answer (b) Net overhead variance The net factory overhead variance is the difference
between the sum of actual fixed and variable factory overhead and the sum of the fixed and variable
factory overhead applied.
20. Suggested answer (a) Net factory overhead variance The three-way analysis calculates spending,
efficiency, and production volume variances. However, regardless of whether two, three, or four-way
analysis is used, the net factory overhead variance is the difference between actual total factory
overhead and the total applied to the product.

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