Accounting For Decision Making And Control 9th Edition By Zimmerman – Test Bank

Chapter 12 Standard Costs: Direct Labor and Materials Answer Key

Multiple Choice Questions

1. Standard costs:

A. represent the actual amount spent

B. are standard prices

C. are often set based on inputs by engineers

D. are never changed

E. none of the above
Engineers, industrial engineers and other technical personnel provide valuable inputs in setting standards within the firm.

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Blooms: Remember
Difficulty: 1 Easy
Topic: Standard Costs

2. Standard costs embody targets. The targets should:

A. be very easy to achieve so everyone gets rewarded

B. reflect ideal performance so the company can measure efficiency losses

C. be used to evaluate performance and assign blame

D. reflect a particular management team’s goals

E. none of the above
Firms rely on standard costs for various reasons. Targets set within the firm should reflect the goals of management. Standards are used in evaluating performance so that corrective actions can be taken to improve efficiencies, rather than for assigning blame.

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Difficulty: 1 Easy
Topic: Setting and Revising Standards

3. Fantastic Diapers made 3,000 batches this month. According to the plan, each batch needs 45 minutes of direct labor, which is paid $12.50 per hour, including benefits. Payroll records showed that 2,100 labor hours were worked and that 50 cents more per hour was paid. Which is true?

A. The direct labor rate variance is $1,050 fav

B. The direct labor rate variance is $1,125 unfav

C. The direct labor efficiency variance is $1,875 fav

D. The direct labor efficiency variance is $1,875 unfav

E. None of the above
DL labor rate variance = ($12.50 – $13.00) × 2100 hours = $1,050 Unfavorable.
DL efficiency variance = (2100 hours – 2,250 hours) × $13.00 = $1,950 Favorable.

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Difficulty: 3 Hard
Topic: Direct Labor Variances

4. A review of skilled engineering labor rates and variances at Kumisomo Industries revealed the following: Actual wage per hour was ¥15,000, as opposed to ¥13,000 planned. Actual labor hours per unit produced were 1.2 compared with 1.4 hours planned. If during a period 1,000 units were produced, which of the following is false?

A. The DL wage rate variance is unfavorable.

B. The DL wage rate variance is ¥2,400 favorable

C. The DL efficiency variance is ¥26,000 favorable

D. The DL efficiency variance may be random

E. None of the above is false
The wage rate variance is unfavorable.

DL wage rate variance = (¥15,000 – ¥13,000) × 1.2 hours per unit × 1,000 units = ¥2,400 unfav.
DL efficiency variance = (1,200 hours – 1,400 hours) × ¥13,000 = ¥26,000 fav.

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AICPA: BB Resource Management
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Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Topic: Direct Labor Variances

5. Ultimate U-bolts (UU) paid $161,175 for direct labor this month, paying $1.50 cents less per hour than planned. Fifty-four thousand pounds of bolts were produced and direct labor was paid for 9,210 hours. Producing one pound takes ten minutes. Which is true?

A. The direct labor rate variance is $4,605 unfav

B. The direct labor rate variance is $4,605 fav

C. The direct labor rate variance is $4,500 fav

D. The labor operating efficiency is 102%

E. None of the above
Std DL hours = 54,000 lbs × (10 minutes ÷ 60 minutes per hour) = 9,000 hours.
Actual wage rate = $161,175/9,210 hours = $17.50 per hour.
Standard wage rate = Actual rate + $1.50 = $19.00.
DL rate variance = ($17.50 – $19.00) × 9,210 = $13,815 fav.
DL efficiency variance = (9,210 hours – 9,000 hours) × $19.00 = $3,990 unfav.
DL operating efficiency = 9,000 hours/9,210 hours = 97.7%

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Blooms: Apply
Difficulty: 3 Hard
Topic: Direct Labor Variances

6. Continuing Ultimate U-bolts above. Which is true?

A. The workers were efficient because UU saved $825 overall

B. The workers were efficient because they used 210 fewer hours than allowed

C. The direct labor efficiency variance is $3,780 U

D. The direct labor efficiency variance cannot be calculated from the information provided

E. None of the above
The internal control system is designed to safeguard assets, protect the integrity of the accounting information system, and to prevent fraud. A key practice is the division of duties to ensure that critical tasks are performed by two or more people.

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Difficulty: 3 Hard
Topic: Direct Labor Variances

7. Fegox Firinghi (FF) produces flip flops. Each flip-flop requires 2 lbs of Flub and 1 lb of Fleeb, which are planned to cost $8 and $3 per lb. respectively. During the month of May, FF purchased 22,000 lbs of Flub for $194,000 and 13,000 lbs of Fleeb for $42,000. All materials were consumed in producing 10,500 good flip flops.

Which is true?

A. Direct materials price variances total $21,000 unfav

B. Direct material price variances total $6,950 unfav

C. The standard price of Flub should be revised

D. The standard price of Flub should not be revised

E. a) and c) only

Actual price for Flub = $194,000/22,000 lbs = $8.18
Actual price for Fleeb = $42,000/13,000 = $3.23
Price variance for Flub = ($8.18 – $8.00) × 22,000 lbs = $3,960 unfav
Price variance for Fleeb = ($3.23 – $3) × 13,000 lbs = $2,990 unfav
Total price variance $6,950 unfav

9. Barb Bubbletop (BB) produces bangles. Each bangle requires .25 lbs of bronze which should cost $16 per lb. In August, BB purchased 12,000 lbs of bronze at $15 per lb. In the month, 41,000 bangles were made, and 11,000 lbs of bronze were used. Which is false of BB’s materials variances?

A. The company should have spent $164,000 on materials

B. Bronze inventory increased by $15,000

C. Material quantity variance is $18,000 unfav

D. Materials price variance is $12,000 unfav

E. All of the above are false

Standard quantity for actual output = 41,000 × 0.25 = 10,250 lbs
Price variance = ($15 – $16) × Quantity purchased
= ($15 – $16) × 12,000 = $12,000 fav
Quantity variance = (12,000 – 10,500) × $16 = $28,000 fav

AACSB: Knowledge Application
AICPA: BB Resource Management
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Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Topic: Direct Materials Variances

10. When variances are used as an input to the performance evaluation system, which of the following scenarios may be encountered?

A. Purchasing managers may buy too much inventory to get a bulk purchase discount

B. Purchasing managers may buy lower quality materials to generate a favorable price variance

C. If standards are set at easily achievable levels, some people will only do enough to meet the target, but no more

D. When labor efficiency is measured on a team or production cell basis, the free rider may take advantage

E. All of the above
All of the scenarios mentioned above may be encountered.