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Management Accounting
Willie Seal, University of Essex, UK
Ray Garrison, Brigham Young University, Provo, Utah, USA
Eric Noreen, INSEAD, France

Standard Costs and Variance Analysis

Self-test Questions



1

Which of the following statements is untrue regarding material standards
(Learning Objective 1 Ch 13)
A)Historically waste and reject allowances have been included in material standards
B)The standard material cost always allows for the best material available to avoid waste
C)Proponents of TQM argue that waste allowances should not be included in material standards
D)Including an allowance for waste can hide inefficiencies
2

One of the following statements is untrue regarding labour standards
(Learning Objective 1 Ch 13)
A)The standard labour cost should not make an allowance for holidays
B)Pension and NIC costs should always be included
C)Sometimes an average wage rate is used for groups of workers
D)The standard cost should make allowance for meal breaks
3

The following information relates to Questions 3-14:

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The material price variance is
(Learning Objective 2 Ch 13)
A)£2,000 U
B)£2,000 F
C)£6,000 U
D)£6,000 F
4

The material quantity variance is
(Learning Objective 2 Ch 13)
A)£1,000 F
B)£1,000 U
C)£5,000 F
D)£5,000 U
5

Only one of the following is likely to be the reason behind the material price variance in Q3
(Learning Objective 2 Ch 13)
A)More expensive materials were used
B)The material was used inefficiently
C)A different supplier was sourced for the material
D)More material was used than was budgeted for
6

Only one of the following is likely to be the reason behind the material quantity variance in Q4
(Learning Objective 2 Ch 13)
A)More expensive materials were used
B)Inferior quality materials were used
C)The material was used inefficiently
D)The standard was out of date
7

The labour rate variance is
(Learning Objective 3 Ch 13)
A)NIL
B)£2,000 F
C)£3,000 U
D)£3,000 F
8

The labour efficiency variance is
(Learning Objective 3 Ch 13)
A)£4,500 U
B)£4,500 F
C)£1,500 U
D)£1,500 F
9

Only one of the following is likely to be the reason behind the labour rate variance in Q7
(Learning Objective 3 Ch 13)
A)There was a strike
B)Less skilled operatives were used
C)An unexpected pay rise was given
D)There were interruptions to production
10

Only one of the following is likely to be the reason behind the labour efficiency variance in Q8
(Learning Objective 3 Ch 13)
A)There were interruptions to production
B)More efficient working practices were used
C)There was a strike
D)More expensive, therefore easier to handle material, was used
11

The variable overhead spending variance is
(Learning Objective 4 Ch 13)
A)NIL
B)£500U
C)£500 F
D)£1,000 U
12

Only one of the following is likely to be the reason behind the variable overhead spending variance
(Learning Objective 4 Ch 13)
A)Less electricity was used as fewer units were made
B)More electricity was used as more units were made
C)There was an expected rise in electricity prices
D)Fewer units were made per hour
13

The variable overhead efficiency variance is
(Learning Objective 4 Ch 13)
A)£500 U
B)NIL
C)£1,000 F
D)£500 F
14

Only one of the following is likely to be the reason behind the variable overhead efficiency variance
(Learning Objective 4 Ch 13)
A)There were interruptions to production
B)More efficient working practices were used
C)There was a strike
D)More expensive, therefore easier to handle material, was used
15

Which one of the following is not an aim of standard costing
(Learning Objective 5 Ch 13)
A)To find someone to blame
B)To investigate the cause of significant variances
C)To remedy problems
D)To try and ensure that it doesn’t happen again
16

Three of the following four are potential problems caused by over zealous operation of standard costing. Which one is not?
(Learning Objective 5 Ch 13)
A)Speed of working to produce favourable labour efficiency variances may reduce product quality
B)Overemphasis on production to produce favourable fixed overhead variances may cause overstocking
C)Standards are normally incompatible with budgets
D)Attempts to buy cheaply to produce favourable material price variances may result in poorer quality materials