Chapter 10

Question 1

What are Standards?

Answer 1

benchmarks or “norms” for measuring performance. There are 2.

Question 2

Quantity standards

Answer 2

specify how much of an input should be used to make a product or provide a service

Question 3

Cost (price) standards

Answer 3

specify how much should be paid for each unit of the input.

Question 4

Management by Exception

Answer 4

Deviations from standards deemed significant are brought to the attention of management

Question 5

Step 1: Variance Analysis Cycle

Answer 5

Prepare standard cost performance report

Question 6

Step 2: Variance Analysis Cycle

Answer 6

Analyze variances

Question 7

Step 3: Variance Analysis Cycle

Answer 7

Identify questions

Question 8

Step 4: Variance Analysis Cycle

Answer 8

Receive explanations

Question 9

Step 5: Variance Analysis Cycle

Answer 9

Take corrective actions

Question 10

Step 6: Variance Analysis Cycle

Answer 10

Conduct next period’s operations

Question 11

Standard Price per Unit (Direct Materials)

Answer 11

Final, delivered cost of materials, net of discounts

Question 12

Standard Quantity per Unit (Direct Materials)

Answer 12

Summarized in a Bill of Materials.

Question 13

Standard Price per Unit (Labour Standards)

Answer 13

Often a single

rate is used that reflects the mix of wages earned

Question 14

Standard Hours per Unit (Labour Standards)

Answer 14

Use time and motion studies for each labour operation.

Question 15

Price Standards (Variable Overhead)

Answer 15

The rate is the variable portion of the predetermined overhead rate

Question 16

Quantity Standards (Variable Overhead)

Answer 16

The quantity is the activity in the allocation base used to calculate the predetermined overhead

Question 17

Standard?

Answer 17

is a per unit cost. Standards are often used when preparing budgets

Question 18

Are standards the same as budgets?

Answer 18

A budget is set for total costs.

Question 19

Price and quantity standards are determined separately ( 1st Reason)

Answer 19

The purchasing manager is responsible for raw material purchase prices and the production manager is responsible for the quantity of raw material used

Question 20

Price and quantity standards are determined separately ( 2nd Reason)

Answer 20

The buying and using activities occur at different times. Raw material purchases may be held in inventory for a period of time before being used in production

Question 21

What is Price Variance?

Answer 21

Difference between actual price and standard price

Question 22

What is Quantity Variance?

Answer 22

Difference between actual quantity and standard quantity

Question 23

Types of Price Variance?

Answer 23

Materials price variance - Labour rate variance - VOH spending variance`

Question 24

Types of Quantity Variance?

Answer 24

Materials quantity variance -Labour efficiency variance -VOH efficiency variance

Question 25

What is Actual quantity?

Answer 25

is the amount of direct materials, direct labour, and variable manufacturing overhead actually used.

Question 26

What is Standard Quantity?

Answer 26

is the standard quantity allowed for the actual output of the period

Question 27

What is Actual price?

Answer 27

is the amount actually paid for the input used.

Question 28

What is Standard price?

Answer 28

is the amount that should have been paid for the input used.

Question 29

Price Variance Formula?

Answer 29

(AQ × AP) – (AQ × SP)

Question 30

Quantity Variance?

Answer 30

(AQ × SP) – (SQ × SP)

Question 31

Who is responsible for Materials Quantity Variance?

Answer 31

Production Manager

Question 32

Who is responsible for Materials Price Variance?

Answer 32

Purchasing Manager

Question 33

How are the variances computed if the amount purchased differs from the amount used?

Answer 33

The price variance is computed on the entire quantity purchased AND The quantity variance is computed only on the quantity used.

Question 34

Production Manager responsibility?

Answer 34

Mix of skill levels assigned to work tasks AND Quality of training provided to employees

Question 35

Variable manufacturing overhead spending variance

Answer 35

VMSV = AH (AR – SR)

Question 36

Variable manufacturing overhead efficiency variance

Answer 36

VMEV = SR (AH – SH)

Question 37

POHR (Variable)

Answer 37

The variable component is useful for preparing and analyzing variable overhead variances.

Question 38

POHR (Fixed)

Answer 38

The fixed component is useful | for preparing and analyzing fixed overhead variances.

Question 39

Overhead in a Normal Cost?

Answer 39

Overhead is applied to work in process based on the actual number of hours worked in the period.

Question 40

Overhead in a Standard Cost?

Answer 40

Overhead is applied to work in process based on the standard hours allowed for the actual output of the period.

Question 41

What does FR stand for?

Answer 41

FR = Standard Fixed Overhead Rate

Question 42

What does SH stand for?

Answer 42

SH = Standard Hours Allowed

Question 43

What does DH stand for?

Answer 43

DH = Denominator Hours

Question 44

Fixed Overhead Budget

Answer 44

DH × FR

Question 45

Fixed Overhead Applied

Answer 45

SH × FR

Question 46

What is Volume Variance?

Answer 46

Results when standard hours allowed for actual output differs from the denominator activity

Question 47

What is an Unfavourable Volume Variance?

Answer 47

when standard hours

Question 48

What is a Favourable Volume Variance?

Answer 48

when standard hours > denominator hours

Question 49

What is Theoretical capacity?

Answer 49

is the volume of capacity if all available production time is used and no waste occurs.

Question 50

What is Practical capacity?

Answer 50

represents what could be produced with operations at theoretical capacity less unavoidable downtime.

Question 51

Advantages of Standard Costs?

Answer 51

Enhances responsibility accounting AND Simplified bookkeeping

Question 52

Disadvantages of Standard Costs?

Answer 52

Continuous improvement may be more important than meeting standards AND Standard cost reports may not be timely