Standard costing and variance analysis

Multiple choice questions (MCQs)

Your answer is incorrect. The correct answer is “budgeted unit cost of product produced in a particular period” (option 2).

Your answer is incorrect. The correct answer is “estimated expenses of budgeted production” (option 1).

Your answer is incorrect. The correct answer is “standard cost card” (option 3).

Your answer is incorrect. The correct answer is “ideal standards” (option 3).

Your answer is incorrect. The correct answer is “$65” (option 2).

Computations:

(6 pounds + 0.5 pounds) × $10
= $65

Your answer is incorrect. The correct answer is “$35” (option 1).

Computations:

($12 + $2)* × (2 hours + 0.3 hours + 0.2 hours)**
= $14 × 2.5 hours
= $35

*Standard cost includes basic wage rate and other costs associated with direct labor such as fringe benefits and employment taxes etc.

**Standard time includes basic time required to produce a unit of product and allowances for brakes, down time and rejected materials etc. 

Your answer is incorrect. The correct answer is “Actual quantity purchased × (Actual rate – Standard rate)” (option 2).

Your answer is incorrect. The correct answer is “actual rate of direct materials is less than standard rate of direct materials” (option 3).

Your answer is incorrect. The correct answer is “$3,750 unfavorable” (option 2).

Computations:

Direct materials price variance = (Actual quantity purchased × Actual rate) – (Actual quantity purchased × Standard rate)
= $128,750 – (25,000 pounds × $5)
= $128,750 – $125,000
= $3,750 Unfavorable

Or direct materials price variance can be computed as follows:

Direct materials price variance = Actual quantity × (Actual rate – Standard rate)
= 25,000 ponds × ($5.15* – $5.00)
= 25,000 ponds × $0.15
= $3,750 Unfavorable

*Actual rate of direct materials: $128,750/25,000 ponds = $5.15

Your answer is incorrect. The correct answer is “$1,250 favorable” (option 4).

Computations:

Direct materials quantity variance = (Actual quantity used × Standard rate) – (Standard quantity allowed × Standard rate)
= (19,750 pounds × $5) – (*20,000 pounds × $5)
= $98,750 – $100,000
= $1,250 favorable

Or direct materials quantity variance can be computed as follows:

Direct materials quantity variance = Standard rate × (Actual quantity used – Standard quantity allowed)
= $5 × (19,750 pounds – 20,000 pounds)
= $5 × 250 pounds
= $1,250 favorable

*5,000 units × 4 pounds per unit = 20,000 pounds

Your answer is incorrect. The correct answer is “$5,000 unfavorable” (option 1).

Computations:

Direct labor rate variance = Actual hours worked × (Actual rate – Standard rate)
= 20,000 hours × ($20.25* – $20)
= 20,000 hours × $0.25
= $5,000 unfavorable

*$405,000/20,000 hours = $20.25 per hour

Your answer is incorrect. The correct answer is “actual output in units × standard input allowed” (option 1).

Your answer is incorrect. The correct answer is “$25,000 unfavorable” (option 2).

Computations:

Direct labor efficiency variance = Standard rate × (Actual hours worked – Standard hours allowed)
= $20 × (20,000 hours – *18,750 hours)
= $20 × 1,250 hours
= $25,000 unfavorable

*Standard hours allowed are computed by multiplying the actual units produced by the standard hours per unit: 12,500 units × 1.5 hours

Your answer is incorrect. The correct answer is “appointment of inexperienced workers” (option 3).

Your answer is incorrect. The correct answer is “uneconomical order size” (option 4).

Your answer is incorrect. The correct answer is “frequent break downs” (option 3).

Your answer is incorrect. The correct answer is “increase in direct materials prices” (option 1).

Your answer is incorrect. The correct answer is “4,000 hours” (option 2).

Computations:

Direct labor rate variance = (AH × AR) – (AH × SR)
-$450* = $39,550 – (AH × $10)
-$450 – $39,550 = -$10AH
-$40,000 = -$10AH
AH = $40,000/$10
AH = 4,000 hours

AH = Actual hours
AR = Actual rate
SR = Standard rate

*The negative sign (-) indicates a favorable variance because a favorable variance means less production cost than expected.

Your answer is incorrect. The correct answer is “2,600 hours” (option 4).

Computations:

Direct labor efficiency variance = (AH × SR) – (SH × SR)
-$1,000* = $25,000 – (SH × $10)
-$1,000 – $25,000 = -$10SH
-$26,000 = -$10SH
SH = $26,000/$10
SH = 2,600 hours

AH = Actual hours
SR = Standard rate
SH = Standard hours

*The negative sign (-) indicates a favorable variance because a favorable variance means less production cost than expected.

Your answer is incorrect. The correct answer is “$20 per hour” (option 2).

Computations:

Direct labor efficiency variance = (AH × SR) – (SH × SR)
$2,000 = $42,000 – (2,000 × SR)
$2,000 – $42,000 = -2,000SR
-$40,000 = -2,000SR
SR = $40,000/2,000
SR = $20 per hour

AH = Actual hours
SR = Standard rate
SH = Standard hours

Your answer is incorrect. The correct answer is “$300 favorable” (option 4).

Computations:

Variable manufacturing overhead rate variance = (Actual hours × Actual rate) – (Actual hours × Standard rate)
= (3,000 hours × $12.2) – (3,000 hours × $12.3)
= $36,600 – $36,900
= $300 favorable

Or we can compute the above variance by using factored formula as follows:

Variable manufacturing overhead rate variance = Actual hours × (Actual rate – Standard rate)
= 3,000 hours × ($12.2 – $12.3)
= 3,000 hours × $0.1
= $300 favorable

Your answer is incorrect. The correct answer is “variable manufacturing overhead spending variance” (option 2).

Your answer is incorrect. The correct answer is “$2,000 unfavorable” (option 3).

Computations:

Variable manufacturing overhead efficiency variance = (Actual hours × Standard overhead rate) – (Standard hours × Standard overhead rate)
= (4,100 hours × $20) – (*4,000 hours × $20)
= $82,000 – $80,000
= 2,000 unfavorable

Or we can compute above variance using factored formula as follows:

Variable manufacturing overhead efficiency variance = Standard overhead rate × (Actual hours – Standard hours)
= $20 × (4,100 hours – *4,000 hours)
= $20 × 100 hours
= $2,000 hours

*Standard hours allowed for actual production:
The standard time to complete one unit is 20 minutes. Therefore, the standard time to complete 12,000 units would be 240,000 minutes or 4,000 hours as computed below:
12,000 units × 20 minutes = 240,000 minutes
240,000 minutes/60 = 4,000 hours