The correct answer for each question is indicated by a

1 CORRECT
What is a standard cost?
An estimated cost based on historical data
A)
A budget for the production of one unit of product or service
B)
An actual cost reduced to a practical level
C)
None of the above
D)
Feedback:
A standard cost is defined as a budget for the production of one unit of
product or service. LO 1

2
INCORRECT

How are cost variances measured?

Comparing standard costs with actual costs.
A)
Comparing actual costs with historical costs.
B)
Comparing standard costs with historical costs.
C)
Comparing ideal standards to standard costs.
D)
Feedback:
First, a predetermined or standard cost is determined. Second, the actual
cost is calculated. Third, the variance is calculated as the difference between
the standard cost and the actual cost. If the actual cost is greater than the
standard cost, then the cost variance is said to be unfavorable. LO 1

3
INCORRECT

The term management by exception refers to which of the following?

Investigating all unfavorable cost variances
A)
Investigating all favorable cost variances
B)

Investigating significant cost variances

C)
Setting standards that are acceptable to management
D)
Feedback:
Management by exception refers to a management philosophy that only
those variances that are significant should be given first attention and
investigation into the cause or causes of the cost variance. LO 1

4
INCORRECT

Which are the two methods used by managerial accountants to set cost
standards?
Analysis of historical data and management by exception
A)
Analysis of historical data and task analysis
B)
Analysis of historical data and variance analysis
C)
Task analysis and a statistical approach
D)
Feedback:
The methods most typically used are (1) analysis of historical data and (2)
task analysis. Task analysis involves determining what a product should cost
in the future, with emphasis shifting from historical data to future prediction.
It is not unusual for management accountants to use both methods in
combination. LO 2

5 CORRECT
Which of the following can be obtained only under nearly perfect operating
conditions?
Practical standards
A)
Perfection standards
B)
Attainable standards
C)
Exceptional standards
D)

Feedback:
Perfection (or ideal) standards can be obtained only under nearly perfect
operating conditions. These standards assume peak efficiency, the lowest
possible input prices, the best-quality materials obtainable, and no
disruptions in the production. LO 2

6
INCORRECT

Which of the following allows for normal amounts of raw-material waste?

Practical standards
A)
Perfection standards
B)
Ideal standards
C)
Exceptional standards
D)
Feedback:
Practical (or attainable) standards assume a production process that is
efficient as practical under normal operating conditions. Practical standards
allow for such occurrences as occasional machine breakdowns and normal
amounts of raw-material waste. LO 2

7
INCORRECT

Which of the following statements is true?

A)

B)

C)

Many managers and behavioral scientists believe that perfection standards

encourage and motivate employees in positive ways.
There is disagreement among managers and behavioral scientists that
perfection standards encourage and motivate employees in positive ways.
Most behavioral theorists believe that perfection standards encourage more
positive and productive employee attitudes than do practical standards.
Both (B) and (C) are true.

D)
Feedback:
There is disagreement among managers and behavioral scientists that
perfection standards encourage and motivate employees in positive ways.
Most behavioral theorists believe that practical standards encourage more
positive and productive employee attitudes than do perfection standards. LO
2

8 CORRECT

Which of the following statements is true?

The result of A minus B equals the direct-material price variance
A)
The result of B minus C equals the direct-material quantity variance
B)
The result of A minus C equals the total direct-material cost variance
C)
All of the statements are true.
D)
Feedback:
The direct-materials price variance is equal to the difference between the
actual price and the standard price multiplied by the actual quantity.
The direct-material quantity variance is equal to the difference between the
actual quantity and the standard quantity multiplied times the standard
price. The total direct-material cost variance is the difference between the
total actual cost and total standard cost. LO 2

9
INCORRECT

Which of the following statement is false?

The standard direct-material quantity is the total amount of direct-material
normally required to produce a finished product, including allowances for
A) normal waste or inefficiency.

B)

C)

D)

The standard direct-material price is the total delivered cost, after

subtracting any purchase discounts.
The standard direct-labor quantity is the number of direct-labor hours
normally needed to manufacture one unit of product.
The standard direct-labor rate is the total hourly cost of compensation, after
subtracting the fringe benefits.

Feedback:
The standard direct-labor rate is the total hourly cost of compensation,
including fringe benefits. LO 2

10
INCORRECT

Which of the following are the direct-material price variance and the directmaterial quantity variance, respectively?
$3,750 unfavorable and $2,125 favorable
A)
$3,750 unfavorable and $2,125 unfavorable
B)
$3,625 unfavorable and $2,125 unfavorable
C)
$3,625 unfavorable and $2,250 unfavorable
D)
Feedback:
The direct-material price variance is $3,750, unfavorable (= 15,000($4.50 $4.25) or PQ(AP SP)). The direct-material quantity variance is $2,125,
unfavorable (=$4.25(15,000-14,500) or SP(AQ SQ)). LO 3

11
INCORRECT

Using the variable designations given in the textbook for actual and standard
quantities, prices, hours, and rates, which of the following expresses the directmaterial price variance?
SP(AQ - SQ)
A)
SR(AH - SH)
B)
PQ(AP - SP)
C)
None of the above
D)
Feedback:
The direct-material price variance is PQ(AP - SP), which is purchased
quantity (PQ) multiplied times the difference between the actual price (AP)
and the standard price (SP). Option A is the direct-material quantity
variance. Option B is the direct-labor efficiency variance. LO 3

12
CORRECT

The firm budgeted $240,000 for 60,000 units of direct material to complete
30,000 units of finished product. The firm used 51,000 units of material, at a
total cost of $198,900, to complete 25,000 units of finished product. The firm

utilizes a JIT inventory control system and there were no beginning or ending
direct-materials inventory. What is the direct-material price variance?
$ 6,000 favorable
A)
$41,100 unfavorable
B)
$ 5,100 favorable
C)
Cannot be determined from the information provided.
D)
Feedback:
The direct-material price variance is computed by multiplying the quantity
purchased by the difference between the actual price and the standard price
(PQ(AP – SP)).  The direct-material price variance is a
favorable variance of $5,100 (=51,000 x ($3.90 - $4.00)). Note that
mathematically, the variance is a negative amount (51,000 x ($3.90 - $4.00)
= ($5,100)) which is a favorable variance since the actual price is less than
the standard price. In this case, since a JIT inventory control system is
utilized, actual quantity purchased and actual quantity used are the same. LO
3

13
INCORRECT

The firm's direct-material quantity variance was an unfavorable variance of

$1,900. Actual quantity used was 61,000 units, at a cost of $122,000, for
30,000 units of finished product that require 2 units of direct material each, at
standard. What was the standard price for direct material?
Cannot be determined from the information given.
A)
Is greater than the actual unit price.
B)
$1.90
C)
$2.00
D)
Feedback:
The direct-material quantity variance is computed as SP(AQ - SQ); or
standard price multiplied times the difference between the actual quantity
and the standard quantity. Substituting with known values, the equation
becomes SP(61,000 - 60,000) = $1,900. The standard price (SP) must be
$1.90 (= 1,900/(61,000 - 60,000)). LO 3

14

CORRECT

Which of the following statements is true?

The result of A minus B equals the direct-labor rate variance
A)
The result of B minus C equals the direct-labor efficiency variance
B)
The result of A minus C equals the total direct-labor cost variance
C)
All of the statements are true.
D)
Feedback:
The direct-labor rate variance is equal to the difference between the actual
rate and the standard rate multiplied by the actual hours. The direct-labor
efficiency variance is equal to the difference between the actual hours and
the standard hours multiplied times the standard rate. The total direct-labor
cost variance is the difference between the total actual cost and total
standard cost. LO 2

15
INCORRECT

Which of the following are the direct-labor rate variance and the direct-labor
efficiency variance, respectively?
$7,500 favorable and $7,500 favorable
A)
$7,750 unfavorable and $7,500 favorable
B)
$7,750 favorable and $7,250 unfavorable
C)
$7,500 favorable and $7,250 unfavorable
D)
Feedback:
The direct-labor rate variance is $7,500, favorable (= 15,000($14.50 $15.00) or AH(AR SR)). The direct-labor efficiency variance is $7,500,

favorable (=$15.00(15,000-15,500) or SR(AH SH)). LO 3

16
INCORRECT

The firm's favorable direct-labor rate variance was $4,800. Actual labor used
was 24,000 direct-labor hours, at a cost of $168,000, for 25,000 units of
finished product that require a standard of 1 hour of direct labor per unit. What
is the standard rate per direct-labor hour?
$7.20
A)
$6.80
B)
$7.00
C)
Cannot be determined from the information given.
D)
Feedback: The actual labor rate was $7.00 (= $168,000/24,000). A favorable
direct-labor rate variance means the actual rate was less than the standard
rate. $4,800 = (X - $7.00) x 24,000. Substituting values, the equation
becomes $4,800 = 24,000X - $168,000. 24,000X = ($168,000 + $4,800). X =
$172,800/24,000 = $7.20, which is the standard rate for labor. LO 3

17
INCORRECT

The organization budgeted $400,000 for 40,000 hours of direct labor to

complete 16,000 units of finished product. The firm used 42,000 direct-labor
hours and completed 17,000 units of finished product. What is the direct-labor
rate variance?
$20,000 unfavorable
A)
$25,000 favorable
B)
$25,000 unfavorable
C)
Cannot be determined from the information provided.
D)
Feedback:
In order to compute the direct-labor rate variance, the actual labor rate and
the standard labor rate must be known. Direct-labor rate variance = AH(AR
– SR). From the information provided, the actual labor rate per hour
cannot be determined. LO 3

18
INCORRECT

Using the variable designations given in the textbook for actual and standard

quantities, prices, hours, and rates, which of the following correctly calculate a
material or labor variance?
SP(AQ - SQ)
A)
SR(AH - SH)
B)
PQ(AP - SP)
C)
All of the above
D)
Feedback:
SP(AQ - SQ) is the used to calculate the direct-material quantity
variance. SR(AH – SH) is used to calculate the direct-labor efficiency
variance. PQ(AP – SP) is used to calculate the direct-material price
variance. AH(AR – SR)  is used to calculate the direct-labor
rate variance. LO 3

19
INCORRECT

Which of the following might be used to determine the significance of a

variance?
Size of variance
A)
Recurrence of variance
B)
Trend of variance
C)
All of the above
D)
Feedback: All of the items might be used to determine the significance of a
variance and the process leading to its control. LO 4

20
INCORRECT

Which of the following statements is false?

A manager is more likely to follow up on a variance that should be
controllable than a variance that is not controllable by anyone in the
A) organization.
It is important to investigate only significant unfavorable variances.
B)
The decision whether to investigate a variance is a cost-benefit decision.
C)

A trend in a variance may also call for investigation.

D)
Feedback: It is just as important to investigate significant favorable
variances as significant unfavorable variances. LO 4

21
INCORRECT

Which of the following might be used to apply the concept of management by

exception?
The size of variance
A)
The recurrence of variance
B)
The trend of variance
C)
All of the above
D)
Feedback:
All of the items are useful for applying the concept of management by
exception, a process of following up only significant cost variances. LO 1, 4.

22
INCORRECT

A statistical control chart plots cost variances across time and compares them
with a statistically determined critical value that triggers an investigation. Which
of the following is false regarding this critical value?

A)

It is a value determined by assuming that cost variances have a normal

probability distribution with a mean of zero.
It is set at some multiple of the distribution's standard deviation.

B)
The critical value is set at the mean (zero) on a statistical control chart.
C)
The cost variance must be unfavorable to reach the critical value.
D)
Feedback:
If the critical value is set at some multiple of the distribution's standard
deviation.  If the critical value is set at 1 standard deviation, a cost
variance that falls further than 1 standard deviation either above or below
the mean (zero) is investigated. LO 4

23

INCORRECT

Where in the organization does responsibility for the direct-material price

variance usually lie?
Production supervisor
A)
Chief financial officer
B)
Purchasing manager
C)
Vendors
D)
Feedback: The purchasing manager is generally in the best position to
influence material price variances. LO 5

24
INCORRECT

Where in the organization does responsibility for the direct-material quantity

variance lie?
Production supervisor
A)
Chief financial officer
B)
Purchasing manager
C)
Vendors
D)
Feedback: The production supervisor is generally in the best position to
influence material quantity variances. LO 5

25
INCORRECT

Where in the organization does responsibility for the direct-labor efficiency

variance lie?
Production supervisor
A)
Chief financial officer
B)
Purchasing manager
C)
Vendors
D)

Feedback: The production supervisor is usually most responsible for the

efficient use of employee time. LO 5

26
CORRECT

Which of the following is true about an unfavorable direct-material price

variance?
It will always cause an unfavorable direct-material quantity variance.
A)
It may create a favorable direct-material quantity variance.
B)
It is related to the direct-labor rate variance.
C)
It is related to the direct-labor efficiency variance.
D)
Feedback:
An unfavorable direct-material price variance might occur from purchasing a
higher grade of material, which could reduce waste, and thus create a
favorable direct-material quantity variance. LO 5

27
INCORRECT

The purchase of off-standard materials may result in which of the following?

An unfavorable direct-material quantity variance.
A)
An unfavorable direct-labor efficiency variance.
B)
A favorable direct-material price variance.
C)
All of the above.
D)
Feedback:
The purchase of off-standard materials may result in an unfavorable directmaterial quantity variance, an unfavorable direct-labor efficiency
variance,  a favorable direct-material price variance, and an
unfavorable labor-rate variance if skilled labor is required to work with the
materials. LO 5

28
INCORRECT

What type of cost system is being used?

Normal costing
A)
Product costing
B)
Actual costing
C)
Standard costing
D)
Feedback:
In a standard costing system the costs of direct material and direct labor are
entered into the Work-in-Process Inventory account at standard costs and
quantities. LO 6

29
INCORRECT

Which of the following is not an advantage of standard costing?

It provides a basis for sensible cost comparisons.
A)
It enables managers to employee management by exception.
B)
It provides a means of performance evaluation and employee rewards.
C)
It is more expensive than an actual or normal product-costing system.
D)
Feedback:
A standard costing system is less expensive than an actual or normal
product-costing system. LO 7

30
CORRECT

Which of the following is not a criticism of standard costing in today's

manufacturing environment?
With automation, variances tend to be very large.
A)

Shorter product life cycles mean standards are relevant for only a short
time.

B)
Too much emphasis on cost and efficiency of direct labor.
C)
Calculated variances come to late to be useful.
D)
Feedback: With automation, variances tend to very small or nonexistent. In
today's manufacturing environment, direct labor is becoming less useful as a
cost driver. LO 8

31
INCORRECT

Which of the following is not a criticism of a standard-costing system?

It is more expensive than other systems.
A)
Variances calculated under standard-costing come too late to be useful.
B)
It can cause dysfunctional behavior in a JIT/FMS environment.
C)
Traditional cost variances are not tied to specific product lines.
D)
Feedback: A standard-costing system is usually less expensive than an actual
or normal product-costing system. The major criticisms of the traditional
standard-costing system are its limitations in today's manufacturing
environment of changing products and production methods. LO 8

32
INCORRECT

Regarding manufacturing firms that have adopted advanced manufacturing

methods, and still continue use of standard costing, what changes have been
required to reflect the various features of the advanced manufacturing
environment?
Reduce the importance of labor standards and variances
A)
Emphasize material and overhead costs
B)
Shift cost drivers
C)
All of the above
D)
Feedback:
The changes in their use of standard costing needed to reflect the various
features of the advanced manufacturing environment include:

33
INCORRECT

Which of the following is true about a bottleneck operation?

It limits the operation of a particular production segment.
A)
It is related to the operational performance measure of productivity.
B)
It limits the production capacity of the entire facility.
C)

D)

It is related to the operational performance measure of production and

delivery.

Feedback:
A bottleneck operation limits the production capacity of the entire facility. It
is one of the machinery operational performance measures in today's
manufacturing environment. LO 9

34
INCORRECT

Manufacturing cycle time is relates to which operational performance measure in

today's manufacturing environment?
Product quality
A)
Production and delivery
B)
Machinery
C)
Productivity
D)
Feedback:
Manufacturing cycle time is a production and delivery performance measure.
LO 9

35
INCORRECT

Customer-acceptance measures focus on which issue?

Delivery cycle time.
A)
Customer's perception of product quality.
B)
Number of defects found
C)
Percentage of orders filled.
D)
Feedback:
Customer-acceptance measures focus on the extent to which a firm's
customers perceive its product to be of high quality. Customer acceptance is
a product quality operational performance measure in today's manufacturing
environment. LO 9

36
CORRECT

The number of process improvements made relates to which operational

performance measure in today's manufacturing environment?
Innovation and learning
A)
Product and delivery.
B)
Productivity
C)
Machinery
D)
Feedback:
The number of process improvements made is an innovation and
learning operational performance measure. LO 9

37
INCORRECT

Which of the following is not a denominator in the formula for calculating

the manufacturing cycle efficiency (MCE)?
Processing time
A)
Move time

B)
Waiting time
C)
Delivery time
D)
Feedback: The formula for calculating the MCE is: Processing time/
(Processing time + Inspection time + Waiting time + Move time). Delivery
time is not a processing function. LO 9

38
INCORRECT

At the end of the accounting period, time spent on the production of 10,000
complete units involved the following: process time, 12,000 hours; waiting time,
5,000 hours; move time, 1,000 hours; and inspection time, 180 hours. What
was the manufacturing cycle efficiency (MCE) for the production accomplished?
66.0 percent
A)
194.1 percent
B)
51.5 percent
C)
Cannot be determined from the information.
D)
Feedback: The MCE is calculated by dividing processing time by the total of
processing time and the non-value-added activities of waiting time,
inspection time, and move time. 12,000/(12,000 + 5,000 + 1,000 + 180) =
66%; which is relatively high considering that for many manufacturers the
MCE is less than 10 percent. LO 9

39
INCORRECT

Which of the following is not a perspective under the balanced scorecard?

Financial
A)
Customer
B)
Vendor
C)
Internal operations
D)
Feedback: The four perspectives of the balanced scorecard are: Financial,
Customer, Internal Operations, and Learning and Growth. LO 10

40
INCORRECT

On a balanced scorecard, decreasing cycle time is a measure in which

perspective?
Financial perspective.
A)
Customer perspective.
B)
Learning and growth perspective.
C)
Internal operations perspective.
D)
Feedback:
The measures under the internal operations perspective include, but are not
limited to, reducing or eliminating product/quality defects, decreasing cycle
time, and reducing the cost of inventories held. LO 10

41
INCORRECT

On a balanced scorecard, market share is a measure in which perspective?

Financial perspective.
A)
Customer perspective.
B)
Learning and growth perspective.
C)
Internal operations perspective.
D)
Feedback:
The measures under the customer perspectives include, but are not limited
to, market share, customer contacts, new customers, and reducing customer
complaints. LO 10

42
INCORRECT

On balanced scorecard, the goal of increasing employee retention is a measure

in which perspective?
Financial perspective.
A)
Customer perspective.
B)

Learning and growth perspective.

C)
Internal operations perspective.
D)
Feedback:
The measures under the learning and growth perspective include, but are not
limited to, retaining employees, increasing employee promotion rates, and
creating new processes. LO 10

43
INCORRECT

On a balanced scorecard, the goal of increasing earnings per share is a measure

in which perspective?
Financial perspective.
A)
Customer perspective.
B)
Learning and growth perspective.
C)
Internal operations perspective.
D)
Feedback:
The measures under the financial perspective include, but are not limited to,
increasing earnings per share, increasing earnings, and providing adequate
cash flows. LO 10

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