Chap 010

Chapter 10 - Standard Costing, Operational Performance Measures, and the Balanced Scorecard
Chapter 10
Standard Costing, Operational Performance Measures, and the Balanced
Scorecard
True / False Questions
1. Variances are computed by taking the difference between the product cost and standard
cost.
True False
2. Normal defect rates in an assembly process would be considered if a company desires to

establish a series of practical manufacturing standards.
True False
3. A favorable labor efficiency variance is created when actual labor hours worked exceed
standard hours allowed.
True False
4. The Purchasing Department would normally begin an investigation regarding an

unfavorable materials quantity variance.
True False
5. The typical balanced scorecard is best described as containing both financial and
nonfinancial performance measures.
True False
Multiple Choice Questions
10-1
6. A standard cost:
A. is the "true" cost of a unit of production.
B. is a budget for the production of one unit of a product or service.
C. can be useful in calculating equivalent units.
D. is normally the average cost within an industry.
E. is almost always the actual cost from previous years.
7. Which of the following is a predetermined estimated cost that can be used in the calculation
of a variance?
A. Product cost.
B. Actual cost.
C. Standard cost.
D. Differential cost.
E. Marginal cost.
8. Variances are computed by taking the difference between which of the following?
A. Product cost and period cost.
B. Actual cost and differential cost.
C. Price factors and rate factors.
D. Actual cost and standard cost.
E. Product cost and standard cost.
9. The term "management by exception" is best defined as:

A. choosing exceptional managers.
B. controlling actions of subordinates through acceptance of management techniques.
C. investigating unfavorable variances.
D. devoting management time to investigate significant variances.
E. controlling costs so that non-zero variances are treated as "exceptional."
10-2
10. Which of the following are methods for setting standards?

A. Analysis of historical data and goal congruence.
B. Task analysis and matrix application forms.
C. Task analysis and the analysis of historical data.
D. Matrix application forms and analysis of historical data.
E. Goal congruence and task analysis.
11. Which of the following individuals is least likely to become involved in the setting of
either direct material standards or direct labor standards?
A. The purchasing manager.
B. A production supervisor.
C. An engineer.
D. A machine operator.
E. A company's president.
12. A perfection standard:

A. tends to motivate employees over a long period of time.
B. is attainable in an ideal operating environment.
C. would make allowances for normal amounts of scrap and waste.
D. is generally preferred by behavioral scientists.
E. will result in a number of favorable variances on a performance report.
13. Consider the following statements:

I. Behavioral scientists find that perfection standards often discourage employees and result in
low worker morale.
II. Practical standards are also known as attainable standards.
III. Practical standards incorporate a certain amount of inefficiency such as that caused by an
occasional machine breakdown.
Which of the above statements is (are) true?
A. I only.
B. II only.
C. III only.
D. II and III.
E. I, II, and III.
10-3
14. Which of the following would be considered if a company desires to establish a series of
practical manufacturing standards?
A. The productivity loss associated with a short-term worker slowdown.
B. Normal defect rates in an assembly process.
C. Highly unusual spoilage rates of direct materials.
D. Quantity discounts associated with purchases of direct materials.
E. Both "B" and "D."
15. Which of the following would not be considered if a company desires to establish a series
of practical manufacturing standards?
A. Production time lost during unusual machinery breakdowns.
B. Normal worker fatigue.
C. Freight charges on incoming raw materials.
D. Production time lost during setup procedures for new manufacturing runs.
E. The historical 2% defect rate associated with raw material inputs.
16. Which of the following choices correctly notes a characteristic associated with perfection
standards and one associated with practical standards?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
10-4

I. The standard cost per unit of materials is used to calculate a materials price variance.
II. The standard cost per unit of materials is used to calculate a materials quantity variance.
III. The standard cost per unit of materials cannot be determined until the end of the period.
A. I only.
B. II only.
C. III only.
D. I and II.
E. I, II, and III.
18. Which of the following choices correctly notes the use of the standard price per unit of
direct material when calculating the materials price variance and the material quantity
variance?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
19. Most companies base the calculation of the material price variance on the:
A. quantity of direct materials purchased.
B. quantity of direct materials spoiled.
C. quantity of direct materials that should have been used in achieving actual production.
D. quantity of direct materials actually used.
E. quantity of direct materials to be purchased during the next accounting period.
10-5
20. When the quantity of materials purchased is not equal to the quantity of material used,
most companies base the calculation of the material quantity variance on the:
E. Leave answer E as originally written.
21. Which of the following correctly lists all the information needed to calculate a labor rate
variance?
A. Standard labor rate and actual hours worked.
B. Actual hours worked and actual units produced.
C. Standard labor rate, actual labor rate, and actual units produced.
D. Actual labor rate and actual hours worked.
E. Actual labor rate, standard labor rate, and actual hours worked.
22. Which of the following variances are most similar with respect to the manner in which
they are calculated?
A. Labor rate variance and labor efficiency variance.
B. Material price variance and material quantity variance.
C. Material price variance, material quantity variance, and total material variance.
D. Material price variance and labor efficiency variance.
E. Material quantity variance and labor efficiency variance.
D. Material price variance and labor rate variance.
E. Material price variance and labor efficiency variance.
10-6
24. Which of the following variances cannot occur together during the same accounting
period?
A. Unfavorable labor rate variance and favorable labor efficiency variance.
B. Unfavorable labor efficiency variance and favorable material quantity variance.
C. Favorable labor rate variance and unfavorable total labor variance.
D. Favorable labor efficiency variance and favorable material quantity variance.
E. None of these, because all of these variance combinations are possible.
25. If a company has an unfavorable direct-material quantity variance, then:

A. the direct-material price variance is favorable.
B. the total direct-material variance is unfavorable.
C. the total direct-material variance is favorable.
D. the direct-labor efficiency variance is unfavorable.
E. any of the above variances can occur.
26. A favorable labor efficiency variance is created when:

A. actual labor hours worked exceed standard hours allowed.
B. actual hours worked are less than standard hours allowed.
C. actual wages paid are less than amounts that should have been paid.
D. actual units produced exceed budgeted production levels.
E. actual units produced exceed standard hours allowed.
27. An unfavorable labor efficiency variance is created when:

10-7
28. A favorable labor rate variance is created when:

C. actual wages paid are less than amounts that should have been paid for the number of hours
worked.
29. An unfavorable labor rate variance is created when:

E. actual wages paid exceed amounts that should have been paid for the number of hours
worked.
30. Dana, Inc. recently completed 56,000 units of a product that was expected to consume
four pounds of direct material per finished unit. The standard price of the direct material was
$8.50 per pound. If the firm purchased and consumed 228,000 pounds in manufacturing (cost
= $1,881,000), the direct-material quantity variance would be figured as:
A. $34,000U.
B. $34,000F.
C. $57,000U.
D. $57,000F.
E. None of these.
31. Soloman Corporation recently purchased 25,000 gallons of direct material at $5.60 per
gallon. Usage by the end of the period amounted to 23,000 gallons. If the standard cost is
$6.00 per gallon and the company believes in computing variances at the earliest point
possible, the direct-material price variance would be calculated as:
A. $800F.
B. $9,200F.
C. $9,200U.
D. $10,000F.
E. $10,000U.
10-8
The following data relate to product no. 89 of Des Moines Corporation:

Direct material standard: 3 square feet at $2.50 per square foot
Direct material purchased: 30,000 square feet at $2.60 per square foot
Direct material consumed: 29,200 square feet
Manufacturing activity: 9,600 units completed
Assume that the company computes variances at the earliest point in time.
32. The direct-material quantity variance is:

A. $1,000F.
B. $1,000U.
C. $1,040F.
D. $1,040U.
E. $2,000F.
33. The direct-material price variance is:

A. $2,880U.
B. $2,920F.
C. $2,920U.
D. $3,000F.
E. $3,000U.
34. Consider the following information:

Direct material purchased and used, 80,000 gallons
Standard quantity of direct material allowed for May production, 76,000 gallons
Actual cost of direct materials purchased and used, $176,000
Unfavorable direct-material quantity variance, $9,400
The direct-material price variance is:
A. $11,400F.
B. $11,400U.
C. $12,000F.
D. $12,000U.
E. None of these.
10-9
35. Courtney purchased and consumed 50,000 gallons of direct material that was used in the
production of 11,000 finished units of product. According to engineering specifications, each
finished unit had a manufacturing standard of five gallons. If a review of Courtney's
accounting records at the end of the period disclosed a material price variance of $5,000U and
a material quantity variance of $3,000F, determine the actual price paid for a gallon of direct
material.
A. $0.50.
B. $0.60.
C. $0.70.
D. An amount other than those shown above.
E. Not enough information to judge.
36. Newbill Enterprises recently used 24,000 labor hours to produce 8,600 completed units.
According to manufacturing specifications, each unit is anticipated to take 2.75 hours to
complete. The company's actual payroll cost amounted to $456,000. If the standard labor cost
per hour is $19.20, Newhart's labor rate variance is:
A. $1,920U.
B. $1,920F.
C. $4,800U.
D. $4,800F.
E. None of these.
37. Denver Enterprises recently used 14,000 labor hours to produce 7,500 completed units.
According to manufacturing specifications, each unit is anticipated to take two hours to
per hour is $11, Denver's labor efficiency variance is:
A. $11,000U.
B. $11,000F.
C. $11,300U.
D. $11,300F.
E. None of these.
10-10
38. Dover Enterprises recently used 14,000 labor hours to produce 7,500 completed units.
per hour is $11, Dover's labor rate variance is:
A. $4,200U.
B. $4,000F.
C. $4,300U.
D. $4,300F.
E. None of these.
Alexis Company recently completed 10,600 units of its single product, consuming 32,000
labor hours that cost the firm $480,000. According to manufacturing specifications, each unit
should have required 3 hours of labor time at $15.40 per hour.
39. On the basis of this information, determine Alexis's labor rate variance and labor
efficiency variance.
A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
40. On the basis of this information, determine Alexis's total labor variance.
A. $15,880U
B. $9,720F
C. $15,720F
D. $9,720U
E. $15,880F
10-11
The following data relate to product no. 33 of La Quinta Corporation:

Direct labor standard: 5 hours at $14 per hour
Direct labor used in production: 45,000 hours at a cost of $639,000
41. The direct-labor rate variance is:

A. $8,900F.
B. $8,900U.
C. $9,000F.
D. $9,000U.
E. None of these.
42. The direct-labor efficiency variance is:

A. $7,000F.
B. $7,000U.
C. $7,100F.
D. $7,100U.
E. None of these.
The direct-labor rate variance is:

A. $17,250U.
B. $20,700U.
C. $20,700F.
D. $21,000F.
E. None of these.
10-12
44. Sammons Corporation had a favorable direct-labor efficiency variance of $6,000 for the
period just ended. The actual wage rate was $0.50 more than the standard rate of $12.00. If
the company's standard hours allowed for actual production totaled 9,500, how many hours
did the firm actually work?
A. 9,000.
B. 9,020.
C. 9,980.
D. 10,000.
E. None of these.
Taylor Enterprises purchased 56,000 pounds (cost = $420,000) of direct material to be used
in the manufacture of the company's sole product. According the production specifications,
each completed unit requires five pounds of direct material at a standard cost of $7.80 per
pound. Direct materials consumed by the end of the period totaled 53,500 pounds in the
manufacture of 10,900 finished units.
An examination of Taylor's payroll records revealed that the company worked 22,000 labor
hours (cost = $319,000) during the period, and specifications called for each completed unit
requiring two hours of labor at a standard cost of $14.80 per hour.
45. Taylor's direct-material price variance was:

A. $16,050F.
B. $16,050U.
C. $16,800F.
D. $16,800U.
E. None of these.
46. Taylor's direct-material quantity variance was:

A. $7,800F.
B. $16,800F.
C. $7,800U.
D. $16,800U.
E. None of these.
10-13
47. Taylor's direct-labor efficiency variance was

A. $2,900F.
B. $2,900U.
C. $2,960F.
D. $2,960U.
E. None of these.
48. Taylor's direct-labor rate variance was

A. $6,600F.
B. $6,600U.
C. $2,960F.
D. $2,960U.
E. None of these.

A. $750F.
B. $750U.
C. $6,500U.
D. $7,250U.
E. None of these.
10-14

A. $4,620F.
B. $4,620U.
C. $5,200F.
D. $5,200U.
E. None of these.

A. $7,800F.
B. $7,950F.
C. $8,020F.
D. $8,000U.
E. None of these.

A. $8,000F.
B. $8,000U.
C. $8,250F.
D. $8,250U.
E. None of these.
53. The standard hours allowed for the work performed are:
A. 5.
B. 5.14.
C. 39,000.
D. 40,100.
E. None of these.
10-15
54. When considering whether to investigate a variance, managers should consider all of the
following except the variance's:
A. size.
B. pattern of recurrence.
C. trends over time.
D. nature, namely, whether it is favorable or unfavorable.
E. controllability.
55. Which of the following combinations of direct-material variances might prompt

management to undertake a detailed variance investigation?
A. Price, unfavorable; quantity, unfavorable.
B. Price, unfavorable; quantity, favorable.
C. Price, favorable; quantity, unfavorable.
D. Price favorable; quantity, favorable.
E. All of these.
56. Consider the following statements about variance investigation:

I. Variance investigation involves a look at only unfavorable variances.
II. Variance investigation is typically based on a cost-benefit analysis.
III. Variance investigation is often performed by establishing guidelines similar to the
following: Investigate variances that are greater than $X or greater than Y% of standard cost.
A. I only.
B. II only.
C. III only.
D. II and III.
E. I, II, and III.
57. A statistical control chart is best used for determining:

A. direct-material price variances.
B. direct-labor variances.
C. whether a variance is favorable or unfavorable.
D. who should be held accountable for specific variances.
E. whether a particular variance should be investigated.
10-16
58. The individual generally responsible for the direct-material price variance is the:
A. sales manager.
B. production supervisor.
C. purchasing manager.
D. finance manager.
E. head of the human resources department.
59. A production supervisor generally has little influence over the:

A. direct-material quantity variance.
B. direct-labor efficiency variance.
C. direct-material price variance.
D. number of units produced.
E. All of these items.
60. Which department would normally begin an investigation regarding an unfavorable

materials quantity variance?
A. Quality control.
B. Purchasing.
C. Engineering.
D. Production.
E. Receiving.
61. Cohlsen Corporation has a favorable materials quantity variance. Which department
would likely be asked to explain the cause of this variance?
A. Engineering.
B. Purchasing.
C. Production.
D. Marketing.
E. None, because the variance is favorable.
10-17
62. Rogillo, Inc. had an unfavorable labor efficiency variance and an unfavorable materials
quantity variance. Which department might be held accountable for these variances?
A. Purchasing, because bad materials can harm labor efficiency.
B. Production, because inefficient workers may use more materials than allowed.
C. Marketing.
D. Shipping.
E. Both A and/or B are possible.
63. A direct-material quantity variance can be caused by all of the following except:
A. improper employee training.
B. changes in sales volume.
C. acquisition of materials that are below standard quality.
D. adjustment problems with machines.
E. disgruntled workers.
64. A direct-labor efficiency variance cannot be caused by:

A. inexperienced employees.
B. poor quality raw materials.
C. employee inefficiency.
D. an out-of-date labor time standard.
E. producing fewer finished units than originally planned.
65. Justin Company recently purchased materials from a new supplier at a very attractive
price. The materials were found to be of poor quality, and the company's laborers struggled
significantly as they shaped the materials into finished product. In a desperation move to
make up for some of the time lost, the manufacturing supervisor brought in more-senior
employees from another part of the plant. Which of the following variances would have a
high probability of arising from this situation?
A. Material price variance, favorable.
B. Material quantity variance, unfavorable.
C. Labor rate variance, unfavorable.
D. Labor efficiency variance, unfavorable.
E. All of these.
10-18
66. Listed below are five variances (and possible causes) that are under review by
management of Knox Company. Which of the following is least likely to cause the variance
indicated?
A. The need to ship goods acquired from a distant supplier via FedEx rather than via truck;
material price variance.
B. The need to complete goods on a timely basis during a period of high absenteeism; labor
rate variance.
C. A work-team that is very unhappy with its supervisor; labor efficiency variance.
D. The need to close a plant for two days because of blizzard conditions; material quantity
variance, part no. 542.
E. A malfunctioning piece of manufacturing equipment; labor efficiency variance.
67. Lucie Corporation's purchasing manager obtained a special price on an aluminum alloy
from a new supplier, resulting in a direct-material price variance of $9,500F. The alloy
produced more waste than normal, as evidenced by a direct-material quantity variance of
$2,000U, and was also difficult to use. This slowed worker efficiency, generating a $2,500U
labor efficiency variance. To help remedy the situation, the production manager used senior
line employees, which gave rise to a $900U labor rate variance. If overall product quality did
not suffer, what variance amount is best used in judging the appropriateness of the purchasing
manager's decision to acquire substandard material?
A. $4,100F.
B. $5,000F.
C. $7,000F.
D. $7,500F.
E. $9,500F.
68. Standard costs:

A. allow a manager to assess the efficiency of operations.
B. allow a company to practice management by exception.
C. provide management with a basis for performance evaluations.
D. if set correctly, can provide a motivational tool for employees.
E. All of the above
10-19
69. Which of the following is a criticism of standard costing, as applied to today's

manufacturing environment?
A. Standards tend to be relevant for only a short period of time because of shorter product life
cycles.
B. Variance information is usually aggregated (i.e., combined) rather than associated with a
particular batch of goods or a specific product line.
C. Traditional standard costing has a fairly narrow orientation, failing to focus on broader
issues such as the overall costs of ownership.
D. Standard costing pays considerable attention to labor cost and labor efficiency, which are
becoming a relatively unimportant factor of production.
E. All of these are valid criticisms.
70. To assess how customers perceive a company's products, management may study:
A. the number of customer complaints.
B. the number of warranty claims.
C. the number of products returned.
D. the cost of repairing returned products.
E. All of these measures.
71. The management philosophy known as theory of constraints is most closely tied to:
A. cash management.
B. contribution margin analysis.
C. job costing systems.
D. standard costing systems.
E. organizational bottlenecks.
72. To improve its manufacturing efficiency, companies should strive toward increasing
__________ time as a percentage of processing time + inspection time + waiting time + move
time. The blank is:
A. processing time.
B. lead time.
C. waiting time.
D. move time.
E. inspection time.
10-20
73. In the calculation of manufacturing cycle efficiency, which of the following activities
results in value-added time?
A. Moving.
B. Processing.
C. Inspection.
D. Waiting.
E. All of these.
74. The manufacturing cycle efficiency for PQR Company when the processing time is six
hours and inspection, waiting, and move time are one hour each is:
A. 0.67.
B. 0.75.
C. 0.78.
D. 0.88.
E. an amount other than those shown above.
75. Which of the following would not be a concern of a company that desires to compete in a
global manufacturing arena?
A. Number of new products introduced.
B. Manufacturing cycle efficiency.
C. Number of customer complaints.
D. Number of on-time deliveries.
E. All of these would be concerns.
76. An increasingly popular approach that integrates financial and customer performance
measures with measures in the areas of internal operations and learning and growth is known
as:
A. the integrated performance measurement tool (IPMT).
B. the balanced scorecard.
C. gain sharing.
D. cycle efficiency.
E. overall quality assessment (OQA).
10-21
77. The typical balanced scorecard is best described as containing:

A. financial performance measures.
B. nonfinancial performance measures.
C. neither financial nor nonfinancial performance measures.
D. both financial and nonfinancial performance measures.
E. either financial or nonfinancial performance measures but not both.
78. Swedish Cruise Lines (SCL), which operates in a very competitive marketplace, is
considering four categories of performance measures: (1) profitability measures, (2)
customer-satisfaction measures, (3) efficiency and quality measures, and (4) learning and
growth measures. The company assigns one manager to each ship in its fleet to oversee the
ship's general operations. If SCL desired to adopt a balanced-scorecard approach, which
measures should the firm use in the evaluation of its managers?
A. 1.
B. 1, 2.
C. 2, 3.
D. 1, 2, 4.
E. 1, 2, 3, 4.
79. Lead indicators guide management to:

A. take actions now that will have positive effects on organizational performance now.
B. take actions now that will have positive effects on organizational performance in the future.
C. take actions in the future that will have positive effects on organizational performance now.
D. take actions in the past that will have positive effects on organizational performance in the
future.
E. pursue identical strategies as those implemented with lag indicators.
80. When using a balanced scorecard, a company's market share is typically classified as an
element of the firm's:
B. customer performance measures.
C. learning and growth performance measures.
D. internal-operations performance measures.
E. interdisciplinary performance measures.
10-22
81. When using a balanced scorecard, which of the following is typically classified as an
internal-operations performance measure?
A. Cash flow.
B. Number of customer complaints.
C. Employee training hours.
D. Number of employee suggestions.
E. Number of suppliers used.
82. Which of the following balanced-scorecard perspectives is influenced by a company's

vision and strategy?
A. Financial.
B. Customer.
C. Internal operations.
D. Learning and growth.
E. All of these.
83. Which of the following journal entries definitely contains an error?
A.
B.
C.
D.
E.
10-23
84. At the end of the accounting period, most companies close variance accounts to:
A. Raw-Material Inventory.
B. Work-in-Process Inventory.
C. Finished-Goods Inventory.
D. Cost of Goods Sold.
E. Income Summary.
Essay Questions
85. Cloverleaf, Inc. produces glass shelves that are used in furniture. Each shelf requires 3.6
pounds of raw material at a cost of $2 per pound. Unfortunately, given the nature of the
manufacturing process, one out of every five shelves is chipped, scratched, or broken at the
beginning of production and has to be scrapped.
On average, 20 good shelves are completed during each hour. Laborers who work on these
units are paid $15 per hour.
Required:
A. Distinguish between perfection standards and practical standards.
B. Who within an organization would be in the best position to assist in setting the:
1. direct-material price standard?
2. direct-material quantity standard?
3. direct-labor efficiency standard?
C. Calculate a practical direct-material and direct-labor standard for each good shelf
produced.
10-24
86. Vanderhaus Corporation manufactures a variety of liquid lawn fertilizers, including a very
popular product called Lush 'N Green. Data about Lush 'N Green and Proctol, a major
ingredient, follow.
Expected operations:
· Proctol is purchased in 55-gallon drums at a cost of $65 per drum. A 2% cash discount is
offered by Proctol's manufacturer for prompt payment of invoices, and Vanderhaus takes
advantage of all discounts offered.
· Vanderhaus normally purchases 200 drums of Proctol at a time, paying shipping fees of
$2,660 per shipment.
· Each gallon of Lush 'N Green requires three quarts of Proctol; however, because of
evaporation and spills, Vanderhaus loses 4% of all Proctol that enters production. (Recall that
there are four quarts in a gallon.)
Actual operations:
· For the period just ended, Vanderhaus purchased 1,500 drums of Proctol at a total cost of
$118,100, which reflects discounts and shipping. There was no beginning inventory, but an
end-of-period inventory revealed that 30 drums were still on hand.
· Manufacturing activity output totaled 104,000 gallons of Lush 'N Green.
Required:
A. Compute the standard purchase price for one gallon of Proctol.
B. Compute the standard quantity of Proctol to be used in producing one gallon of Lush 'N
Green. Express your answer in quarts.
C. Compute the direct-material price variance for Proctol.
D. How much Proctol was used in manufacturing activity and how much should have been
used? Express your answer in quarts.
10-25
87. Quicksilver Company has set the following standards for one unit of product:
Direct material
Quantity: 6.2 pounds per unit
Price per pound: $11 per pound
Direct labor
Quantity: 6 hours per unit
Rate per hour: $23 per hour
Actual costs incurred in the production of 2,800 units were as follows:
Direct material: $194,350 ($11.50 per pound)
Direct labor: $393,750 ($22.50 per hour)
All materials purchased were consumed during the period.
Required:
Calculate the direct-material price and quantity variances, and the direct-labor rate and
efficiency variances. Indicate whether each variance is favorable or unfavorable.
10-26
88. Upstart, Inc. manufactures a product that has the following standard costs:
The following information pertains to July:

Direct material purchased: 42,500 yards at $2.78 per yard, or $118,150
Direct material used: 36,000 yards
Direct labor: 7,500 hours at $18.30 per hour, or $137,250
Actual completed production: 1,050 units
Required:
89. Chen Enterprises purchased 67,000 pounds (cost = $616,400) of direct material to be used
in the manufacture of the company's only product. According the production specifications,
each completed unit requires four pounds of direct material at a standard cost of $9 per pound.
Direct materials consumed by the end of the period totaled 65,500 pounds in the manufacture
of 16,050 finished units.
An examination of Chen's payroll records revealed that the company worked 42,000 labor
requiring 2.6 hours of labor at a standard cost of $15 per hour.
Required:
10-27
90. Roberto Ventura operates a commercial painting business in Sacramento, which has a very
tight labor market. Much of his work focuses on newly constructed apartments and
townhouses.
The following data relate to crew no. 5 for a recently concluded period when 85 apartment
units were painted:
· Three new employees were assigned to crew no. 5. Wages averaged $18.80 per hour for each
employee; the crew took 2,550 hours to complete the work.
· Based on his knowledge of the operation, articles in trade journals, and conversations with
other painters, Ventura established the following standards:
Typical hourly wage rate of crew personnel: $15
Anticipated crew time for each unit: 34 hours
· The paint quantity variance was $6,070F.
· The operation did not go as smoothly as planned, with customer complaints and problems
being much higher than expected.
Required:
A. Compute Ventura's direct-labor variances.
B. Is the direct-labor rate variance consistent with what you might expect in a tight labor
market? Explain.
C. Analyze the information given and that you calculated, and determine what likely
happened that would give rise to customer complaints.
10-28
91. DiAngelo Products uses a standard costing system to assist in the evaluation of operations.
The company has had considerable employee difficulties in recent months, so much so that
management has hired a new production supervisor (Joe Simms). Simms has been on the job
for six months and has seemingly brought order to an otherwise chaotic situation.
The vice-president of manufacturing recently commented that "¼ Simms has really done the
trick. Joe's team-building/morale-boosting exercises have truly brought things under control."
The vice-president's comments were based on both a plant tour, where he observed a
contented work force, and review of a performance report that showed a total labor variance
of $14,000F. This variance is truly outstanding, given that it is less than 2% of the company's
budgeted labor cost. Additional data follow.
· Total completed production amounted to 20,000 units.
· A review of the firm's standard cost records found that each completed unit requires 2.75
hours of labor at $14 per hour. DiAngelo's production actually required 42,000 labor hours at
a total cost of $756,000.
Required:
A. As judged by the information contained in the performance report, should the vice-
president be concerned about the company's labor variances? Why?
B. Calculate DiAngelo's direct-labor variances.
C. On the basis of your answers to requirement "B," should DiAngelo be concerned about its
labor situation? Why?
D. Briefly analyze and explain the direct-labor variances.
10-29
92. A manufacturing company is expected to complete a task in 45 minutes. During a recent

accounting period, 3,200 completed units were produced, resulting in the following labor
variances:
Labor rate variance: $520 favorable
Labor efficiency variance: $2,800 unfavorable
The standard labor rate is $14 per hour.
Required:
Calculate (1) the standard hours allowed for the work performed, (2) the actual hours worked,
and (3) the actual wage rate.
93. Halo Enterprises recently experienced a fire, forcing the company to use incomplete
information to analyze operations. Consider the following data and assume that all materials
purchased during the period were used in production:
Direct materials:
Standard price per pound: $9
Actual price per pound: $8
Price variance: $20,000F
Total of direct-material variances: $2,000F
Direct labor:
Actual hours worked: 40,000
Actual rate per hour: $15
Efficiency variance: $28,000F
Total of direct-labor variances: $12,000U
Halo completed 12,000 units.
Required:
Determine the following: (1) actual materials used, (2) direct-material quantity variance, (3)
direct-labor rate variance, (4) standard labor rate per hour, and (5) standard labor time per
finished unit.
10-30
94. Marcie Simone is the long-time catering director of Naples-on-the-Beach, a hotel noted
throughout the industry for quality, profitability, and cost control. The hotel recently catered a
steak dinner for a 2,000-person convention. Strict standards were in place for the dinner: 0.75
pounds of beef per plate at $9 per pound. A review of the accounting records shortly after the
convention showed that 1,680 pounds of beef were purchased and consumed, costing the hotel
$13,440.
Required:
A. Calculate the cost of beef budgeted for the dinner and the total beef variance (i.e., the
difference between budgeted and actual cost). Should this variance be of concern to the hotel?
Why?
B. Assess the job that Simone did in "managing" the beef purchase by performing a variance
analysis. Comment on your findings.
C. Assume that the hotel received a number of complaints shortly after the dinner concluded.
Explain a possible reason behind the conventioneers' unhappiness.
10-31
95. The following events occurred at Crescent Manufacturing (CM), an assembler of engine
parts, during May:
1. Because of a stock shortage at its regular supplier, CM had to rely on a new vendor for two
purchases of raw material parts. The vendor required CM to pay air-freight charges; however,
upon arrival, the company found the goods to be above-average in quality.
2. The local municipality raised its property tax rates by 2%.
3. A flu outbreak on the assembly line forced management to use more experienced, senior
personnel to complete production orders on a timely basis. These workers more than made up
for lost time.
4. A shoddy maintenance program resulted in an abnormally high number of breakdowns on
machine no. 76 and slowed production.
5. The implementation of a new program had positive effects for the company with respect to
material usage and worker productivity.
Required:
Create a table with the following headings: material price variance, material quantity
variance, labor rate variance, and labor efficiency variance. Determine which of these
variances would be affected by the individual events and whether the variance would be
favorable or unfavorable.
10-32
96. The following information for a recent project was taken from the records of Garvin
Company:
Required:
A. How long did it take to complete the project once production commenced?
B. Compute the manufacturing cycle efficiency.
C. As judged by the cycle efficiency, what percentage of the overall production time was
spent on (1) value-adding activities and (2) non-value adding activities?
10-33
97. Balanced scorecards contain a number of factors that are important to the success of a
business. These factors are often divided into four categories: financial, customer, learning
and growth, and internal operations.
Consider the twelve factors that follow.
1. Market share
2. Earnings per share
3. Manufacturing cycle efficiency
4. Machine downtime
5. Number of patents held
6. Employee suggestions
7. Number of repeat sales
8. Levels of inventories held
9. Number of vendors used
10. Cash flow from operations
11. Employee training hours
12. Gross margin
Required:
Determine the proper classification (financial, customer, learning and growth, or internal
operations) for each of the twelve factors listed.
10-34
98. Bob's Burgers and Such, a national fast-food chain, has experienced a number of problems
in the past few years, and management is considering the adoption of a balanced scorecard as
part of a turnaround effort.
Required:
A. Briefly explain the concept of a balanced scorecard. What general factors are included in a
typical balanced scorecard?
B. Independent of your answer in requirement "A," assume that Bob's is very concerned about
customer satisfaction. List four different (and specific) customer-satisfaction measures that
may be appropriate for the firm (and for other fast-food providers).
C. Independent of requirement "A," assume that Bob's wants to return to former levels of
profitability. List several financial measures that would allow management to assess success
or failure with respect to the following goals: (1) pay creditors on a timely basis, (2) keep
shareholders happy, and (3) improve profitability over time at stores that have been open at
least one year.
10-35
99. Howard Company has established the following standards:

Direct materials: 2.0 pounds at $4.10
Direct labor: 1.5 hours at $7 per hour
Additional information was extracted from the accounting records:
Actual production: 32,000 completed units
Direct materials purchased: 70,000 pounds at $3.82, or $267,400
Direct materials consumed: 65,000 pounds
Actual labor incurred: 51,000 hours at $6.30, or $321,300
Direct-labor rate variance: $35,700 favorable
Direct-labor efficiency variance: $21,000 unfavorable
Required:
Prepare journal entries to record the:
A. Purchase of direct materials.
B. Usage of direct materials.
C. Incurrence of direct labor costs.
100. Standard costs are said to be useful in performance evaluation. Assume that the standard
direct materials cost per unit of finished product is $6 (three pounds at $2 per pound).
Required:
A. Explain how such a standard can be used to evaluate performance.
B. Why is the degree of controllability important when utilizing standard costs to evaluate
performance?
10-36
101. For the quarter just ended, Bojangles, Inc. reported the following variances in one of its
manufacturing departments:
Material price variance, U
Material quantity variance, F
Labor efficiency variance, F
Labor rate variance, negligible
Machine hours efficiency, F
The sum of the favorable variances exceeded the unfavorable materials price variance by a
considerable amount. The quality of the output from the department was the same as usual.
Bojangles operates very close to a JIT system for materials purchases, with virtually all
material acquired during the quarter being used in manufacturing activities.
Required:
Is there any connection among these variances? If so, explain.
10-37
102. Standard cost systems can have motivational effects; some are desirable, some are not.
Consider the following situation:
The materials purchasing manager is paid a salary plus a bonus based on the net favorable
materials price variance. Generally, this bonus amounts to 30 - 40% of the manager's total
compensation. Due to the bankruptcy of a company in a related field, there is an opportunity
to buy a key raw material. The standards for this material call for grade 2A, usually purchased
for $56 per ton. Because of the bankruptcy, the company can obtain a higher grade, 4A, for
$62 per ton. While the quality of the final product will be the same regardless of the grade of
material used, there will be substantial savings in material yield and labor productivity if 4A is
used. These savings are expected to be two-to-three times the additional cost of $6 per ton.
Required:
A. How would an unfavorable price variance on a particular purchase affect the overall price
variance for the year and the manager's bonus?
B. Would the use of the materials price variance as a basis for the manager's bonus lead to a
desirable or undesirable behavioral outcome? Explain, being sure to note whether the manager
would likely pursue acquisition of the grade 4A material.
103. Manufacturing cycle time is a popular nonfinancial measure used to evaluate

performance.
Required:
A. Define manufacturing cycle time and indicate the optimal value (i.e., number) for this
measure.
B. Provide examples of two changes in a manufacturing process that would help improve a
company's cycle time.
Chapter 10 Standard Costing, Operational Performance Measures, and the

Balanced Scorecard Answer Key
10-38
True / False Questions
1. Variances are computed by taking the difference between the product cost and standard
cost.
FALSE
AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Research
Bloom's: RC
Difficulty: Easy
Learning Objective: 10-01 Explain how standard costing is used to help manage costs.
2. Normal defect rates in an assembly process would be considered if a company desires to

establish a series of practical manufacturing standards.
TRUE

AICPA FN: Research
Bloom's: RC, N
Difficulty: Medium
Learning Objective: 10-02 Describe two ways to set standards and distinguish between perfection and practical standards.
3. A favorable labor efficiency variance is created when actual labor hours worked exceed
standard hours allowed.
FALSE

AICPA FN: Research
Bloom's: N
Difficulty: Medium
Learning Objective: 10-03 Compute and interpret the direct-material price and quantity variances and the direct-labor rate and efficiency
variances.
10-39
4. The Purchasing Department would normally begin an investigation regarding an

unfavorable materials quantity variance.
FALSE

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
Learning Objective: 10-05 Describe some behavioral effects of standard costing.
5. The typical balanced scorecard is best described as containing both financial and
nonfinancial performance measures.
TRUE

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
Learning Objective: 10-10 Describe the balanced scorecard concept and explain the reasoning behind it.
Multiple Choice Questions
6. A standard cost:
A. is the "true" cost of a unit of production.
B. is a budget for the production of one unit of a product or service.
C. can be useful in calculating equivalent units.
D. is normally the average cost within an industry.
E. is almost always the actual cost from previous years.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
10-40
7. Which of the following is a predetermined estimated cost that can be used in the calculation
of a variance?
A. Product cost.
B. Actual cost.
C. Standard cost.
D. Differential cost.
E. Marginal cost.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
8. Variances are computed by taking the difference between which of the following?
A. Product cost and period cost.
B. Actual cost and differential cost.
C. Price factors and rate factors.
D. Actual cost and standard cost.
E. Product cost and standard cost.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
9. The term "management by exception" is best defined as:

A. choosing exceptional managers.
B. controlling actions of subordinates through acceptance of management techniques.
C. investigating unfavorable variances.
D. devoting management time to investigate significant variances.
E. controlling costs so that non-zero variances are treated as "exceptional."

AICPA FN: Research
Bloom's: RC, N
Difficulty: Easy
10-41
10. Which of the following are methods for setting standards?

A. Analysis of historical data and goal congruence.
B. Task analysis and matrix application forms.
C. Task analysis and the analysis of historical data.
D. Matrix application forms and analysis of historical data.
E. Goal congruence and task analysis.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
11. Which of the following individuals is least likely to become involved in the setting of
either direct material standards or direct labor standards?
A. The purchasing manager.
B. A production supervisor.
C. An engineer.
D. A machine operator.
E. A company's president.

AICPA FN: Research
Bloom's: N
Difficulty: Easy
12. A perfection standard:

A. tends to motivate employees over a long period of time.
B. is attainable in an ideal operating environment.
C. would make allowances for normal amounts of scrap and waste.
D. is generally preferred by behavioral scientists.
E. will result in a number of favorable variances on a performance report.

AICPA FN: Research
Bloom's: RC, N
Difficulty: Easy
10-42

I. Behavioral scientists find that perfection standards often discourage employees and result in
low worker morale.
II. Practical standards are also known as attainable standards.
III. Practical standards incorporate a certain amount of inefficiency such as that caused by an
occasional machine breakdown.
A. I only.
B. II only.
C. III only.
D. II and III.
E. I, II, and III.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
14. Which of the following would be considered if a company desires to establish a series of
practical manufacturing standards?
A. The productivity loss associated with a short-term worker slowdown.
B. Normal defect rates in an assembly process.
C. Highly unusual spoilage rates of direct materials.
D. Quantity discounts associated with purchases of direct materials.
E. Both "B" and "D."

AICPA FN: Research
Bloom's: RC, N
Difficulty: Medium
10-43
15. Which of the following would not be considered if a company desires to establish a series
of practical manufacturing standards?
A. Production time lost during unusual machinery breakdowns.
B. Normal worker fatigue.
C. Freight charges on incoming raw materials.
D. Production time lost during setup procedures for new manufacturing runs.
E. The historical 2% defect rate associated with raw material inputs.

AICPA FN: Research
Bloom's: RC, N
Difficulty: Medium
16. Which of the following choices correctly notes a characteristic associated with perfection
standards and one associated with practical standards?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E

AICPA FN: Research
Bloom's: RC, N
Difficulty: Easy
10-44

I. The standard cost per unit of materials is used to calculate a materials price variance.
II. The standard cost per unit of materials is used to calculate a materials quantity variance.
III. The standard cost per unit of materials cannot be determined until the end of the period.
A. I only.
B. II only.
C. III only.
D. I and II.
E. I, II, and III.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
variances.
18. Which of the following choices correctly notes the use of the standard price per unit of
direct material when calculating the materials price variance and the material quantity
variance?
A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
variances.
10-45
19. Most companies base the calculation of the material price variance on the:
E. quantity of direct materials to be purchased during the next accounting period.
Units may not be the unit of measure for direct materials.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
variances.
20. When the quantity of materials purchased is not equal to the quantity of material used,
most companies base the calculation of the material quantity variance on the:
E. Leave answer E as originally written.
Units may not be the unit of measure for direct materials.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
variances.
10-46
21. Which of the following correctly lists all the information needed to calculate a labor rate
variance?
A. Standard labor rate and actual hours worked.
B. Actual hours worked and actual units produced.
C. Standard labor rate, actual labor rate, and actual units produced.
D. Actual labor rate and actual hours worked.
E. Actual labor rate, standard labor rate, and actual hours worked.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
variances.
D. Material price variance and labor efficiency variance.
E. Material quantity variance and labor efficiency variance.

AICPA FN: Research
Bloom's: N
Difficulty: Medium
variances.
10-47
D. Material price variance and labor rate variance.
E. Material price variance and labor efficiency variance.

AICPA FN: Research
Bloom's: N
Difficulty: Medium
variances.
24. Which of the following variances cannot occur together during the same accounting
period?
A. Unfavorable labor rate variance and favorable labor efficiency variance.
B. Unfavorable labor efficiency variance and favorable material quantity variance.
C. Favorable labor rate variance and unfavorable total labor variance.
D. Favorable labor efficiency variance and favorable material quantity variance.
E. None of these, because all of these variance combinations are possible.

AICPA FN: Research
Bloom's: N
Difficulty: Medium
variances.
10-48
25. If a company has an unfavorable direct-material quantity variance, then:

A. the direct-material price variance is favorable.
B. the total direct-material variance is unfavorable.
C. the total direct-material variance is favorable.
D. the direct-labor efficiency variance is unfavorable.
E. any of the above variances can occur.

AICPA FN: Research
Bloom's: N
Difficulty: Easy
variances.
26. A favorable labor efficiency variance is created when:


AICPA FN: Research
Bloom's: N
Difficulty: Medium
variances.
27. An unfavorable labor efficiency variance is created when:


AICPA FN: Research
Bloom's: N
Difficulty: Medium
variances.
10-49
28. A favorable labor rate variance is created when:

C. actual wages paid are less than amounts that should have been paid for the number of
hours worked.

AICPA FN: Research
Bloom's: N
Difficulty: Medium
variances.
29. An unfavorable labor rate variance is created when:

E. actual wages paid exceed amounts that should have been paid for the number of hours
worked.

AICPA FN: Research
Bloom's: N
Difficulty: Medium
variances.
10-50
30. Dana, Inc. recently completed 56,000 units of a product that was expected to consume
four pounds of direct material per finished unit. The standard price of the direct material was
$8.50 per pound. If the firm purchased and consumed 228,000 pounds in manufacturing (cost
= $1,881,000), the direct-material quantity variance would be figured as:
A. $34,000U.
B. $34,000F.
C. $57,000U.
D. $57,000F.
E. None of these.
AACSB: Analytic
AICPA FN: Measurement
Bloom's: A
Difficulty: Hard
variances.
31. Soloman Corporation recently purchased 25,000 gallons of direct material at $5.60 per
gallon. Usage by the end of the period amounted to 23,000 gallons. If the standard cost is
$6.00 per gallon and the company believes in computing variances at the earliest point
possible, the direct-material price variance would be calculated as:
A. $800F.
B. $9,200F.
C. $9,200U.
D. $10,000F.
E. $10,000U.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
The following data relate to product no. 89 of Des Moines Corporation:

Direct material standard: 3 square feet at $2.50 per square foot
Direct material purchased: 30,000 square feet at $2.60 per square foot
Direct material consumed: 29,200 square feet
10-51

A. $1,000F.
B. $1,000U.
C. $1,040F.
D. $1,040U.
E. $2,000F.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.

A. $2,880U.
B. $2,920F.
C. $2,920U.
D. $3,000F.
E. $3,000U.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
10-52

Direct material purchased and used, 80,000 gallons
Standard quantity of direct material allowed for May production, 76,000 gallons
Actual cost of direct materials purchased and used, $176,000
Unfavorable direct-material quantity variance, $9,400
The direct-material price variance is:
A. $11,400F.
B. $11,400U.
C. $12,000F.
D. $12,000U.
E. None of these.
AACSB: Analytic
Bloom's: A, N
Difficulty: Hard
variances.
35. Courtney purchased and consumed 50,000 gallons of direct material that was used in the
production of 11,000 finished units of product. According to engineering specifications, each
finished unit had a manufacturing standard of five gallons. If a review of Courtney's
accounting records at the end of the period disclosed a material price variance of $5,000U and
a material quantity variance of $3,000F, determine the actual price paid for a gallon of direct
material.
A. $0.50.
B. $0.60.
C. $0.70.
D. An amount other than those shown above.
E. Not enough information to judge.
AACSB: Analytic
Bloom's: A, N
Difficulty: Hard
variances.
10-53
36. Newbill Enterprises recently used 24,000 labor hours to produce 8,600 completed units.
According to manufacturing specifications, each unit is anticipated to take 2.75 hours to
per hour is $19.20, Newhart's labor rate variance is:
A. $1,920U.
B. $1,920F.
C. $4,800U.
D. $4,800F.
E. None of these.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
37. Denver Enterprises recently used 14,000 labor hours to produce 7,500 completed units.
per hour is $11, Denver's labor efficiency variance is:
A. $11,000U.
B. $11,000F.
C. $11,300U.
D. $11,300F.
E. None of these.
AACSB: Analytic
Bloom's: A
Difficulty: Medium
variances.
10-54
38. Dover Enterprises recently used 14,000 labor hours to produce 7,500 completed units.
per hour is $11, Dover's labor rate variance is:
A. $4,200U.
B. $4,000F.
C. $4,300U.
D. $4,300F.
E. None of these.
AACSB: Analytic
Bloom's: A
Difficulty: Medium
variances.
Alexis Company recently completed 10,600 units of its single product, consuming 32,000
labor hours that cost the firm $480,000. According to manufacturing specifications, each unit
should have required 3 hours of labor time at $15.40 per hour.
10-55
39. On the basis of this information, determine Alexis's labor rate variance and labor
efficiency variance.
A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
AACSB: Analytic
Bloom's: A
Difficulty: Medium
variances.
40. On the basis of this information, determine Alexis's total labor variance.
A. $15,880U
B. $9,720F
C. $15,720F
D. $9,720U
E. $15,880F
AACSB: Analytic
Bloom's: A
Difficulty: Medium
variances.
The following data relate to product no. 33 of La Quinta Corporation:

Direct labor standard: 5 hours at $14 per hour
Direct labor used in production: 45,000 hours at a cost of $639,000
10-56

A. $8,900F.
B. $8,900U.
C. $9,000F.
D. $9,000U.
E. None of these.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.

A. $7,000F.
B. $7,000U.
C. $7,100F.
D. $7,100U.
E. None of these.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
10-57
The direct-labor rate variance is:

A. $17,250U.
B. $20,700U.
C. $20,700F.
D. $21,000F.
E. None of these.
AACSB: Analytic
Bloom's: A, N
Difficulty: Hard
variances.
44. Sammons Corporation had a favorable direct-labor efficiency variance of $6,000 for the
period just ended. The actual wage rate was $0.50 more than the standard rate of $12.00. If
the company's standard hours allowed for actual production totaled 9,500, how many hours
did the firm actually work?
A. 9,000.
B. 9,020.
C. 9,980.
D. 10,000.
E. None of these.
AACSB: Analytic
Bloom's: A, N
Difficulty: Medium
variances.
10-58
Taylor Enterprises purchased 56,000 pounds (cost = $420,000) of direct material to be used
in the manufacture of the company's sole product. According the production specifications,
each completed unit requires five pounds of direct material at a standard cost of $7.80 per
pound. Direct materials consumed by the end of the period totaled 53,500 pounds in the
manufacture of 10,900 finished units.
An examination of Taylor's payroll records revealed that the company worked 22,000 labor
requiring two hours of labor at a standard cost of $14.80 per hour.
45. Taylor's direct-material price variance was:

A. $16,050F.
B. $16,050U.
C. $16,800F.
D. $16,800U.
E. None of these.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
46. Taylor's direct-material quantity variance was:

A. $7,800F.
B. $16,800F.
C. $7,800U.
D. $16,800U.
E. None of these.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
10-59
47. Taylor's direct-labor efficiency variance was

A. $2,900F.
B. $2,900U.
C. $2,960F.
D. $2,960U.
E. None of these.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
48. Taylor's direct-labor rate variance was

A. $6,600F.
B. $6,600U.
C. $2,960F.
D. $2,960U.
E. None of these.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
10-60

A. $750F.
B. $750U.
C. $6,500U.
D. $7,250U.
E. None of these.
AACSB: Analytic
Bloom's: A
Difficulty: Medium
variances.

A. $4,620F.
B. $4,620U.
C. $5,200F.
D. $5,200U.
E. None of these.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.

A. $7,800F.
B. $7,950F.
C. $8,020F.
D. $8,000U.
E. None of these.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
10-61

A. $8,000F.
B. $8,000U.
C. $8,250F.
D. $8,250U.
E. None of these.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
53. The standard hours allowed for the work performed are:
A. 5.
B. 5.14.
C. 39,000.
D. 40,100.
E. None of these.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
54. When considering whether to investigate a variance, managers should consider all of the
following except the variance's:
A. size.
B. pattern of recurrence.
C. trends over time.
D. nature, namely, whether it is favorable or unfavorable.
E. controllability.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
Learning Objective: 10-04 Explain several methods for determining the significance of cost variances.
10-62
55. Which of the following combinations of direct-material variances might prompt

management to undertake a detailed variance investigation?
A. Price, unfavorable; quantity, unfavorable.
B. Price, unfavorable; quantity, favorable.
C. Price, favorable; quantity, unfavorable.
D. Price favorable; quantity, favorable.
E. All of these.

AICPA FN: Research
Bloom's: N
Difficulty: Easy
56. Consider the following statements about variance investigation:

I. Variance investigation involves a look at only unfavorable variances.
II. Variance investigation is typically based on a cost-benefit analysis.
III. Variance investigation is often performed by establishing guidelines similar to the
following: Investigate variances that are greater than $X or greater than Y% of standard cost.
A. I only.
B. II only.
C. III only.
D. II and III.
E. I, II, and III.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
10-63
57. A statistical control chart is best used for determining:

A. direct-material price variances.
B. direct-labor variances.
C. whether a variance is favorable or unfavorable.
D. who should be held accountable for specific variances.
E. whether a particular variance should be investigated.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
58. The individual generally responsible for the direct-material price variance is the:
A. sales manager.
B. production supervisor.
C. purchasing manager.
D. finance manager.
E. head of the human resources department.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
59. A production supervisor generally has little influence over the:

A. direct-material quantity variance.
B. direct-labor efficiency variance.
C. direct-material price variance.
D. number of units produced.
E. All of these items.

AICPA FN: Research
Bloom's: N
Difficulty: Easy
10-64
60. Which department would normally begin an investigation regarding an unfavorable

materials quantity variance?
A. Quality control.
B. Purchasing.
C. Engineering.
D. Production.
E. Receiving.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
61. Cohlsen Corporation has a favorable materials quantity variance. Which department
would likely be asked to explain the cause of this variance?
A. Engineering.
B. Purchasing.
C. Production.
D. Marketing.
E. None, because the variance is favorable.

AICPA FN: Research
Bloom's: N
Difficulty: Easy
10-65
62. Rogillo, Inc. had an unfavorable labor efficiency variance and an unfavorable materials
quantity variance. Which department might be held accountable for these variances?
A. Purchasing, because bad materials can harm labor efficiency.
B. Production, because inefficient workers may use more materials than allowed.
C. Marketing.
D. Shipping.
E. Both A and/or B are possible.

AICPA FN: Research
Bloom's: N
Difficulty: Medium
63. A direct-material quantity variance can be caused by all of the following except:
A. improper employee training.
B. changes in sales volume.
C. acquisition of materials that are below standard quality.
D. adjustment problems with machines.
E. disgruntled workers.

AICPA FN: Research
Bloom's: N
Difficulty: Medium
64. A direct-labor efficiency variance cannot be caused by:

A. inexperienced employees.
B. poor quality raw materials.
C. employee inefficiency.
D. an out-of-date labor time standard.
E. producing fewer finished units than originally planned.

AICPA FN: Research
Bloom's: N
Difficulty: Medium
10-66
65. Justin Company recently purchased materials from a new supplier at a very attractive
price. The materials were found to be of poor quality, and the company's laborers struggled
significantly as they shaped the materials into finished product. In a desperation move to
make up for some of the time lost, the manufacturing supervisor brought in more-senior
employees from another part of the plant. Which of the following variances would have a
high probability of arising from this situation?
A. Material price variance, favorable.
B. Material quantity variance, unfavorable.
C. Labor rate variance, unfavorable.
D. Labor efficiency variance, unfavorable.
E. All of these.

AICPA FN: Research
Bloom's: N
Difficulty: Hard
66. Listed below are five variances (and possible causes) that are under review by
management of Knox Company. Which of the following is least likely to cause the variance
indicated?
A. The need to ship goods acquired from a distant supplier via FedEx rather than via truck;
material price variance.
B. The need to complete goods on a timely basis during a period of high absenteeism; labor
rate variance.
C. A work-team that is very unhappy with its supervisor; labor efficiency variance.
D. The need to close a plant for two days because of blizzard conditions; material quantity
variance, part no. 542.
E. A malfunctioning piece of manufacturing equipment; labor efficiency variance.

AICPA FN: Research
Bloom's: N
Difficulty: Hard
10-67
67. Lucie Corporation's purchasing manager obtained a special price on an aluminum alloy
from a new supplier, resulting in a direct-material price variance of $9,500F. The alloy
produced more waste than normal, as evidenced by a direct-material quantity variance of
$2,000U, and was also difficult to use. This slowed worker efficiency, generating a $2,500U
labor efficiency variance. To help remedy the situation, the production manager used senior
line employees, which gave rise to a $900U labor rate variance. If overall product quality did
not suffer, what variance amount is best used in judging the appropriateness of the purchasing
manager's decision to acquire substandard material?
A. $4,100F.
B. $5,000F.
C. $7,000F.
D. $7,500F.
E. $9,500F.
AACSB: Analytic
Bloom's: A, N
Difficulty: Hard
68. Standard costs:

A. allow a manager to assess the efficiency of operations.
B. allow a company to practice management by exception.
C. provide management with a basis for performance evaluations.
D. if set correctly, can provide a motivational tool for employees.
E. All of the above

AICPA FN: Research
Bloom's: RC, N
Difficulty: Easy
Learning Objective: 10-07 Summarize some advantages of standard costing.
10-68
69. Which of the following is a criticism of standard costing, as applied to today's

manufacturing environment?
A. Standards tend to be relevant for only a short period of time because of shorter product life
cycles.
B. Variance information is usually aggregated (i.e., combined) rather than associated with a
particular batch of goods or a specific product line.
C. Traditional standard costing has a fairly narrow orientation, failing to focus on broader
issues such as the overall costs of ownership.
D. Standard costing pays considerable attention to labor cost and labor efficiency, which are
becoming a relatively unimportant factor of production.
E. All of these are valid criticisms.

AICPA FN: Research
Bloom's: RC
Difficulty: Medium
Learning Objective: 10-08 Explain several common criticisms of standard costing.
70. To assess how customers perceive a company's products, management may study:
A. the number of customer complaints.
B. the number of warranty claims.
C. the number of products returned.
D. the cost of repairing returned products.
E. All of these measures.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
Learning Objective: 10-09 Describe the operational performance measures appropriate for today's manufacturing environment.
10-69
71. The management philosophy known as theory of constraints is most closely tied to:
A. cash management.
B. contribution margin analysis.
C. job costing systems.
D. standard costing systems.
E. organizational bottlenecks.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
72. To improve its manufacturing efficiency, companies should strive toward increasing
__________ time as a percentage of processing time + inspection time + waiting time + move
time. The blank is:
A. processing time.
B. lead time.
C. waiting time.
D. move time.
E. inspection time.

AICPA FN: Research
Bloom's: RC
Difficulty: Medium
10-70
73. In the calculation of manufacturing cycle efficiency, which of the following activities
results in value-added time?
A. Moving.
B. Processing.
C. Inspection.
D. Waiting.
E. All of these.

AICPA FN: Research
Bloom's: RC
Difficulty: Medium
74. The manufacturing cycle efficiency for PQR Company when the processing time is six
hours and inspection, waiting, and move time are one hour each is:
A. 0.67.
B. 0.75.
C. 0.78.
D. 0.88.
E. an amount other than those shown above.

AICPA FN: Research
Bloom's: A
Difficulty: Hard
10-71
75. Which of the following would not be a concern of a company that desires to compete in a
global manufacturing arena?
A. Number of new products introduced.
B. Manufacturing cycle efficiency.
C. Number of customer complaints.
D. Number of on-time deliveries.
E. All of these would be concerns.

AICPA FN: Research
Bloom's: RC
Difficulty: Medium
76. An increasingly popular approach that integrates financial and customer performance
measures with measures in the areas of internal operations and learning and growth is known
as:
A. the integrated performance measurement tool (IPMT).
B. the balanced scorecard.
C. gain sharing.
D. cycle efficiency.
E. overall quality assessment (OQA).

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
10-72
77. The typical balanced scorecard is best described as containing:

B. nonfinancial performance measures.
C. neither financial nor nonfinancial performance measures.
D. both financial and nonfinancial performance measures.
E. either financial or nonfinancial performance measures but not both.
Two correct answers!

"D" is also a correct answer, albeit not as thorough. (See your own T/F question #5).

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
78. Swedish Cruise Lines (SCL), which operates in a very competitive marketplace, is
considering four categories of performance measures: (1) profitability measures, (2)
customer-satisfaction measures, (3) efficiency and quality measures, and (4) learning and
growth measures. The company assigns one manager to each ship in its fleet to oversee the
ship's general operations. If SCL desired to adopt a balanced-scorecard approach, which
measures should the firm use in the evaluation of its managers?
A. 1.
B. 1, 2.
C. 2, 3.
D. 1, 2, 4.
E. 1, 2, 3, 4.

AICPA FN: Research
Bloom's: N
Difficulty: Medium
10-73
79. Lead indicators guide management to:

A. take actions now that will have positive effects on organizational performance now.
B. take actions now that will have positive effects on organizational performance in the future.
C. take actions in the future that will have positive effects on organizational performance now.
D. take actions in the past that will have positive effects on organizational performance in the
future.
E. pursue identical strategies as those implemented with lag indicators.

AICPA FN: Research
Bloom's: RC
Difficulty: Medium
80. When using a balanced scorecard, a company's market share is typically classified as an
element of the firm's:
B. customer performance measures.
C. learning and growth performance measures.
D. internal-operations performance measures.
E. interdisciplinary performance measures.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
10-74
81. When using a balanced scorecard, which of the following is typically classified as an
internal-operations performance measure?
A. Cash flow.
B. Number of customer complaints.
C. Employee training hours.
D. Number of employee suggestions.
E. Number of suppliers used.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
82. Which of the following balanced-scorecard perspectives is influenced by a company's

vision and strategy?
A. Financial.
B. Customer.
C. Internal operations.
D. Learning and growth.
E. All of these.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
10-75
83. Which of the following journal entries definitely contains an error?
A.
B.
C.
D.
E.
AACSB: Analytic
Bloom's: N
Difficulty: Medium
Learning Objective: 10-11 Prepare journal entries to record and close out cost variances (appendix).
84. At the end of the accounting period, most companies close variance accounts to:
A. Raw-Material Inventory.
B. Work-in-Process Inventory.
C. Finished-Goods Inventory.
D. Cost of Goods Sold.
E. Income Summary.

AICPA FN: Research
Bloom's: RC
Difficulty: Easy
Essay Questions
10-76
85. Cloverleaf, Inc. produces glass shelves that are used in furniture. Each shelf requires 3.6
pounds of raw material at a cost of $2 per pound. Unfortunately, given the nature of the
manufacturing process, one out of every five shelves is chipped, scratched, or broken at the
beginning of production and has to be scrapped.
On average, 20 good shelves are completed during each hour. Laborers who work on these
units are paid $15 per hour.
Required:
A. Distinguish between perfection standards and practical standards.
B. Who within an organization would be in the best position to assist in setting the:
1. direct-material price standard?
2. direct-material quantity standard?
3. direct-labor efficiency standard?
C. Calculate a practical direct-material and direct-labor standard for each good shelf
produced.
A. Perfection standards, or those achieved under nearly perfect operating conditions, assume
peak efficiency at minimum cost. Employees are pushed to reach these ideal measures, often
becoming discouraged. Practical standards, on the other hand, are high but attainable, thus
presenting a realistic target for personnel. Such standards incorporate allowances for normal
downtime and other typical inefficiencies.
B. 1. The purchasing manager.
2. The production supervisor as well as production engineers.
3. The production supervisor as well as industrial engineers.
C.

AICPA FN: Research
Bloom's: A, N
Difficulty: Hard
variances.
10-77
86. Vanderhaus Corporation manufactures a variety of liquid lawn fertilizers, including a very
popular product called Lush 'N Green. Data about Lush 'N Green and Proctol, a major
ingredient, follow.
Expected operations:
· Proctol is purchased in 55-gallon drums at a cost of $65 per drum. A 2% cash discount is
offered by Proctol's manufacturer for prompt payment of invoices, and Vanderhaus takes
advantage of all discounts offered.
· Vanderhaus normally purchases 200 drums of Proctol at a time, paying shipping fees of
$2,660 per shipment.
· Each gallon of Lush 'N Green requires three quarts of Proctol; however, because of
evaporation and spills, Vanderhaus loses 4% of all Proctol that enters production. (Recall that
there are four quarts in a gallon.)
Actual operations:
· For the period just ended, Vanderhaus purchased 1,500 drums of Proctol at a total cost of
$118,100, which reflects discounts and shipping. There was no beginning inventory, but an
end-of-period inventory revealed that 30 drums were still on hand.
· Manufacturing activity output totaled 104,000 gallons of Lush 'N Green.
Required:
A. Compute the standard purchase price for one gallon of Proctol.
B. Compute the standard quantity of Proctol to be used in producing one gallon of Lush 'N
Green. Express your answer in quarts.
C. Compute the direct-material price variance for Proctol.
D. How much Proctol was used in manufacturing activity and how much should have been
used? Express your answer in quarts.
10-78
A.
B. Three quarts of Proctol are required for each gallon of Lush 'N Green; however, 4% of
Proctol input is lost through evaporation and spills. Thus, the standard input is 3.125 quarts (3
 0.96).
C.
D. Actual usage: (1,500 - 30) = 1,470 drums; 1,470 drums  55 gallons  4 quarts = 323,400
quarts
Standard usage: 104,000 gallons  3.125 = 325,000 quarts
AACSB: Analytic
Bloom's: A, N
Difficulty: Hard
variances.
10-79
87. Quicksilver Company has set the following standards for one unit of product:
Direct material
Quantity: 6.2 pounds per unit
Price per pound: $11 per pound
Direct labor
Quantity: 6 hours per unit
Rate per hour: $23 per hour
Actual costs incurred in the production of 2,800 units were as follows:
Direct material: $194,350 ($11.50 per pound)
Direct labor: $393,750 ($22.50 per hour)
All materials purchased were consumed during the period.
Required:
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
10-80
88. Upstart, Inc. manufactures a product that has the following standard costs:
The following information pertains to July:

Direct material purchased: 42,500 yards at $2.78 per yard, or $118,150
Direct material used: 36,000 yards
Direct labor: 7,500 hours at $18.30 per hour, or $137,250
Actual completed production: 1,050 units
Required:
10-81
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
10-82
89. Chen Enterprises purchased 67,000 pounds (cost = $616,400) of direct material to be used
in the manufacture of the company's only product. According the production specifications,
each completed unit requires four pounds of direct material at a standard cost of $9 per pound.
Direct materials consumed by the end of the period totaled 65,500 pounds in the manufacture
of 16,050 finished units.
An examination of Chen's payroll records revealed that the company worked 42,000 labor
requiring 2.6 hours of labor at a standard cost of $15 per hour.
Required:
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
10-83
90. Roberto Ventura operates a commercial painting business in Sacramento, which has a very
tight labor market. Much of his work focuses on newly constructed apartments and
townhouses.
The following data relate to crew no. 5 for a recently concluded period when 85 apartment
units were painted:
· Three new employees were assigned to crew no. 5. Wages averaged $18.80 per hour for each
employee; the crew took 2,550 hours to complete the work.
· Based on his knowledge of the operation, articles in trade journals, and conversations with
other painters, Ventura established the following standards:
Typical hourly wage rate of crew personnel: $15
Anticipated crew time for each unit: 34 hours
· The paint quantity variance was $6,070F.
· The operation did not go as smoothly as planned, with customer complaints and problems
being much higher than expected.
Required:
A. Compute Ventura's direct-labor variances.
B. Is the direct-labor rate variance consistent with what you might expect in a tight labor
market? Explain.
C. Analyze the information given and that you calculated, and determine what likely
happened that would give rise to customer complaints.
A.
B. Yes. A tight labor market often means that premium wages are needed to attract qualified
employees. These wages would give rise to an unfavorable rate variance.
C. Ventura has two favorable variances: labor efficiency and material (paint) quantity. The
favorable efficiency variance indicates that the crew is spending less time than budgeted,
perhaps rushing the jobs and being a bit sloppy. It is also possible that employees are being
somewhat skimpy in their use of paint, using less than expected (e.g., applying one coat rather
than two in certain applications).
10-84
AACSB: Analytic
Bloom's: A, N
Difficulty: Hard
variances.
10-85
91. DiAngelo Products uses a standard costing system to assist in the evaluation of operations.
The company has had considerable employee difficulties in recent months, so much so that
management has hired a new production supervisor (Joe Simms). Simms has been on the job
for six months and has seemingly brought order to an otherwise chaotic situation.
The vice-president of manufacturing recently commented that "¼ Simms has really done the
trick. Joe's team-building/morale-boosting exercises have truly brought things under control."
The vice-president's comments were based on both a plant tour, where he observed a
contented work force, and review of a performance report that showed a total labor variance
of $14,000F. This variance is truly outstanding, given that it is less than 2% of the company's
budgeted labor cost. Additional data follow.
· Total completed production amounted to 20,000 units.
· A review of the firm's standard cost records found that each completed unit requires 2.75
hours of labor at $14 per hour. DiAngelo's production actually required 42,000 labor hours at
a total cost of $756,000.
Required:
A. As judged by the information contained in the performance report, should the vice-
president be concerned about the company's labor variances? Why?
B. Calculate DiAngelo's direct-labor variances.
C. On the basis of your answers to requirement "B," should DiAngelo be concerned about its
labor situation? Why?
D. Briefly analyze and explain the direct-labor variances.
10-86
A. No. The variance is favorable and small, being less than 2% of the budgeted amount.
B.
C. Yes. Although the combined variance of $14,000F is small, a more detailed analysis reveals
the presence of sizable, offsetting variances. Both the rate variance and the efficiency variance
are in excess of 21% of budgeted amounts ($770,000). A variance investigation should be
undertaken if benefits of the investigation exceed the costs. Put simply, things are not going as
smoothly as the vice-president believes.
D. The favorable efficiency variance means that the company is producing units by
consuming fewer hours than expected. This may be the result of the team-building/morale-
boosting exercises, as a contented, well-trained work force tends to be efficient in nature.
However, another totally plausible explanation could be that DiAngelo is paying premium
wages (as indicated by the unfavorable rate variance) to hire laborers with above-average skill
levels.
AACSB: Analytic
Bloom's: A, N
Difficulty: Hard
variances.
10-87
92. A manufacturing company is expected to complete a task in 45 minutes. During a recent

accounting period, 3,200 completed units were produced, resulting in the following labor
variances:
Labor rate variance: $520 favorable
Labor efficiency variance: $2,800 unfavorable
The standard labor rate is $14 per hour.
Required:
Calculate (1) the standard hours allowed for the work performed, (2) the actual hours worked,
and (3) the actual wage rate.
1. Standard hours allowed: 2,400

2. Actual hours worked: 2,600
3. Actual wage rate: $13.80
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
10-88
93. Halo Enterprises recently experienced a fire, forcing the company to use incomplete
information to analyze operations. Consider the following data and assume that all materials
purchased during the period were used in production:
Direct materials:
Standard price per pound: $9
Actual price per pound: $8
Price variance: $20,000F
Total of direct-material variances: $2,000F
Direct labor:
Actual hours worked: 40,000
Actual rate per hour: $15
Efficiency variance: $28,000F
Total of direct-labor variances: $12,000U
Halo completed 12,000 units.
Required:
Determine the following: (1) actual materials used, (2) direct-material quantity variance, (3)
direct-labor rate variance, (4) standard labor rate per hour, and (5) standard labor time per
finished unit.
1. Actual materials used: 20,000 pounds

2. Direct-material quantity variance: $18,000U
3. Direct-labor rate variance: $40,000U
4. Standard labor rate per hour: $14
5. Standard labor time per finished unit: 3.5 hours (42,000 hours  12,000 units)
10-89
AACSB: Analytic
Bloom's: A
Difficulty: Hard
variances.
10-90
94. Marcie Simone is the long-time catering director of Naples-on-the-Beach, a hotel noted
throughout the industry for quality, profitability, and cost control. The hotel recently catered a
steak dinner for a 2,000-person convention. Strict standards were in place for the dinner: 0.75
pounds of beef per plate at $9 per pound. A review of the accounting records shortly after the
convention showed that 1,680 pounds of beef were purchased and consumed, costing the hotel
$13,440.
Required:
A. Calculate the cost of beef budgeted for the dinner and the total beef variance (i.e., the
difference between budgeted and actual cost). Should this variance be of concern to the hotel?
Why?
B. Assess the job that Simone did in "managing" the beef purchase by performing a variance
analysis. Comment on your findings.
C. Assume that the hotel received a number of complaints shortly after the dinner concluded.
Explain a possible reason behind the conventioneers' unhappiness.
A.
The variance should not be a concern to the hotel because it is both favorable and less than
1% of the budget.
B. Simone did a marginal job in managing the purchase. Although the total variance is only
$60F, it is composed of two sizable, offsetting amounts. She saved the hotel a considerable
amount of money in the acquisition but much of the savings were consumed in excess usage.
C. It is possible that Simone bought a marginal product. The price variance and quantity
variance may indicate that she purchased cheap beef, which turned out to be of poor quality,
resulting in greater waste (trimming) than normal by the kitchen staff. The beef's overall
quality (perhaps, toughness) may be the underlying reason behind the conventioneers'
complaints.
10-91
AACSB: Analytic
Bloom's: A, N
Difficulty: Hard
variances.
95. The following events occurred at Crescent Manufacturing (CM), an assembler of engine
parts, during May:
1. Because of a stock shortage at its regular supplier, CM had to rely on a new vendor for two
purchases of raw material parts. The vendor required CM to pay air-freight charges; however,
upon arrival, the company found the goods to be above-average in quality.
2. The local municipality raised its property tax rates by 2%.
3. A flu outbreak on the assembly line forced management to use more experienced, senior
personnel to complete production orders on a timely basis. These workers more than made up
for lost time.
4. A shoddy maintenance program resulted in an abnormally high number of breakdowns on
machine no. 76 and slowed production.
5. The implementation of a new program had positive effects for the company with respect to
material usage and worker productivity.
Required:
Create a table with the following headings: material price variance, material quantity
variance, labor rate variance, and labor efficiency variance. Determine which of these
variances would be affected by the individual events and whether the variance would be
favorable or unfavorable.

Bloom's: N
Difficulty: Hard
10-92
96. The following information for a recent project was taken from the records of Garvin
Company:
Required:
A. How long did it take to complete the project once production commenced?
B. Compute the manufacturing cycle efficiency.
C. As judged by the cycle efficiency, what percentage of the overall production time was
spent on (1) value-adding activities and (2) non-value adding activities?
B. Processing time (15.0)  [Processing time (15.0) + inspection time (0.5) + waiting time in
production (3.0) + move time (1.5)] = 0.75
C. 1. 75% (cycle efficiency)
2. 25% (100% - 75%)
AACSB: Analytic
Bloom's: A, N
Difficulty: Medium
10-93
97. Balanced scorecards contain a number of factors that are important to the success of a
business. These factors are often divided into four categories: financial, customer, learning
and growth, and internal operations.
Consider the twelve factors that follow.
1. Market share
2. Earnings per share
3. Manufacturing cycle efficiency
4. Machine downtime
5. Number of patents held
6. Employee suggestions
7. Number of repeat sales
8. Levels of inventories held
9. Number of vendors used
10. Cash flow from operations
11. Employee training hours
12. Gross margin
Required:
Determine the proper classification (financial, customer, learning and growth, or internal
operations) for each of the twelve factors listed.

AICPA FN: Research
Bloom's: RC, N
Difficulty: Medium
10-94
98. Bob's Burgers and Such, a national fast-food chain, has experienced a number of problems
in the past few years, and management is considering the adoption of a balanced scorecard as
part of a turnaround effort.
Required:
A. Briefly explain the concept of a balanced scorecard. What general factors are included in a
typical balanced scorecard?
B. Independent of your answer in requirement "A," assume that Bob's is very concerned about
customer satisfaction. List four different (and specific) customer-satisfaction measures that
may be appropriate for the firm (and for other fast-food providers).
C. Independent of requirement "A," assume that Bob's wants to return to former levels of
profitability. List several financial measures that would allow management to assess success
or failure with respect to the following goals: (1) pay creditors on a timely basis, (2) keep
shareholders happy, and (3) improve profitability over time at stores that have been open at
least one year.
A. A balanced scorecard is a tool that incorporates a variety of different measures, both

financial and non-financial, in the performance-evaluation process. The measures are critical
to a firm's success and are tied to organizational strategy. The goal of a balanced scorecard is
to allow improvement in a number of broad-reaching areas rather than permit a manager to
improve only a small facet of the business at the expense of others. Typical factors are often
divided into four categories: financial, customer, learning and growth, and internal operations.
B. Answers will vary but often include market share, queue time, results of a customer quality
survey, number of customer complaints, number of order errors, and number of repeat
customers.
C. Pay creditors on a timely basis: stipulated end-of-period cash balance and current ratio
Shareholder satisfaction: growth in earnings per share, increases in per-share market price of
Bob's stock, price-earnings ratio
Profitability improvement: gross margin growth rates, earnings growth rates

AICPA FN: Research
Bloom's: RC, N
Difficulty: Medium
10-95
99. Howard Company has established the following standards:

Direct materials: 2.0 pounds at $4.10
Direct labor: 1.5 hours at $7 per hour
Additional information was extracted from the accounting records:
Actual production: 32,000 completed units
Direct materials purchased: 70,000 pounds at $3.82, or $267,400
Direct materials consumed: 65,000 pounds
Actual labor incurred: 51,000 hours at $6.30, or $321,300
Direct-labor rate variance: $35,700 favorable
Direct-labor efficiency variance: $21,000 unfavorable
Required:
Prepare journal entries to record the:
A. Purchase of direct materials.
B. Usage of direct materials.
C. Incurrence of direct labor costs.
In "C" the Direct-Labor Efficiency Variance should be 21,000 and the Direct-Labor Rate
Variance should be 35,700.
AACSB: Analytic
Bloom's: A
Difficulty: Hard
10-96
100. Standard costs are said to be useful in performance evaluation. Assume that the standard
direct materials cost per unit of finished product is $6 (three pounds at $2 per pound).
Required:
A. Explain how such a standard can be used to evaluate performance.
B. Why is the degree of controllability important when utilizing standard costs to evaluate
performance?
A. The standard provides a measure of how much material should be used for a unit of
product and how much each pound of raw material should cost. This standard serves as a
basis for evaluating performance by allowing a comparison to be made of standard cost/usage
against actual cost/usage.
B. The degree of controllability is important because not all factors are subject to the same
amount of control. For example, the market for the raw material may be a seller's market in
which case management would have very little control over the material price variance. On
the other hand, management generally has more control over the usage of materials because of
the ability to influence the amount of scrap and rejected units produced. In short, a manager
should be held accountable only for those items under his/her control.

AICPA FN: Research
Bloom's: RC
Difficulty: Hard
10-97
101. For the quarter just ended, Bojangles, Inc. reported the following variances in one of its
manufacturing departments:
Material price variance, U
Material quantity variance, F
Labor efficiency variance, F
Labor rate variance, negligible
Machine hours efficiency, F
The sum of the favorable variances exceeded the unfavorable materials price variance by a
considerable amount. The quality of the output from the department was the same as usual.
Bojangles operates very close to a JIT system for materials purchases, with virtually all
material acquired during the quarter being used in manufacturing activities.
Required:
Is there any connection among these variances? If so, explain.
While a connection between these variances cannot be guaranteed, the following scenario is
plausible. Better-than-standard quality materials were purchased, leading to an unfavorable
material price variance. When these materials were used during the period (JIT basis for raw
materials purchases), favorable efficiency variances arose because the material was easier for
labor and machines to process.
Also may include that the favorable material quantity variance is due to the better-than-
standard quality materials leading to less spoilage/breakage.

AICPA FN: Research
Bloom's: N
Difficulty: Hard
variances.
10-98
102. Standard cost systems can have motivational effects; some are desirable, some are not.
Consider the following situation:
The materials purchasing manager is paid a salary plus a bonus based on the net favorable
materials price variance. Generally, this bonus amounts to 30 - 40% of the manager's total
compensation. Due to the bankruptcy of a company in a related field, there is an opportunity
to buy a key raw material. The standards for this material call for grade 2A, usually purchased
for $56 per ton. Because of the bankruptcy, the company can obtain a higher grade, 4A, for
$62 per ton. While the quality of the final product will be the same regardless of the grade of
material used, there will be substantial savings in material yield and labor productivity if 4A is
used. These savings are expected to be two-to-three times the additional cost of $6 per ton.
Required:
A. How would an unfavorable price variance on a particular purchase affect the overall price
variance for the year and the manager's bonus?
B. Would the use of the materials price variance as a basis for the manager's bonus lead to a
desirable or undesirable behavioral outcome? Explain, being sure to note whether the manager
would likely pursue acquisition of the grade 4A material.
A. An unfavorable price variance reduces any net favorable variance that may have arisen
during the year. A sufficient number of such events could cause the net material price variance
to be unfavorable and would eliminate the bonus to the materials purchasing manager.
B. The use of the variance in this way would lead to an undesirable behavioral outcome. The
materials purchasing manager is a gatekeeper; that is, this manager observes the purchasing
opportunities available and determines whether or not the company will follow them. In this
case, the manager would be unlikely to pursue the grade 4A material because of the negative
effect on the bonus calculation. As a result, the overall possibility of offsetting higher
purchase costs with savings in yield and productivity would not occur.
AACSB: Ethics
AICPA FN: Research
Bloom's: N
Difficulty: Hard
10-99
103. Manufacturing cycle time is a popular nonfinancial measure used to evaluate

performance.
Required:
A. Define manufacturing cycle time and indicate the optimal value (i.e., number) for this
measure.
B. Provide examples of two changes in a manufacturing process that would help improve a
company's cycle time.
A. Cycle time is defined as processing time divided by the sum of processing, moving,
waiting, and inspection time. The optimal value for this measure is one, that is, a situation
where there is no waiting, moving, or inspection time.
B. There are many such examples:
· Inspection time can be reduced by eliminating the need to inspect materials from suppliers.
This could occur by dealing with better suppliers and placing a greater reliance on the
suppliers' control process.
· Waiting time can be reduced through better scheduling of bottlenecked machinery.
· Moving time can be reduced through improvements in plant layout.

AICPA FN: Research
Bloom's: N
Difficulty: Medium
10-100

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Chapter 10 - Standard Costing, Operational Performance Measures, and the Balanced Scorecard

True / False Questions

2. Normal defect rates in an assembly process would be considered if a company desires to

4. The Purchasing Department would normally begin an investigation regarding an

Multiple Choice Questions

9. The term "management by exception" is best defined as:

10. Which of the following are methods for setting standards?

12. A perfection standard:

13. Consider the following statements:

17. Consider the following statements:

25. If a company has an unfavorable direct-material quantity variance, then:

26. A favorable labor efficiency variance is created when:

27. An unfavorable labor efficiency variance is created when:

28. A favorable labor rate variance is created when:

29. An unfavorable labor rate variance is created when:

The following data relate to product no. 89 of Des Moines Corporation:

32. The direct-material quantity variance is:

33. The direct-material price variance is:

34. Consider the following information:

The following data relate to product no. 33 of La Quinta Corporation:

41. The direct-labor rate variance is:

42. The direct-labor efficiency variance is:

43. Consider the following information:

The direct-labor rate variance is:

45. Taylor's direct-material price variance was:

46. Taylor's direct-material quantity variance was:

47. Taylor's direct-labor efficiency variance was

48. Taylor's direct-labor rate variance was

49. The direct-material quantity variance is:

50. The direct-material price variance is:

51. The direct-labor rate variance is:

52. The direct-labor efficiency variance is:

55. Which of the following combinations of direct-material variances might prompt

56. Consider the following statements about variance investigation:

57. A statistical control chart is best used for determining:

59. A production supervisor generally has little influence over the:

60. Which department would normally begin an investigation regarding an unfavorable

64. A direct-labor efficiency variance cannot be caused by:

68. Standard costs:

69. Which of the following is a criticism of standard costing, as applied to today's

77. The typical balanced scorecard is best described as containing:

79. Lead indicators guide management to:

82. Which of the following balanced-scorecard perspectives is influenced by a company's

83. Which of the following journal entries definitely contains an error?

The following information pertains to July:

92. A manufacturing company is expected to complete a task in 45 minutes. During a recent

99. Howard Company has established the following standards:

103. Manufacturing cycle time is a popular nonfinancial measure used to evaluate

Chapter 10 Standard Costing, Operational Performance Measures, and the

True / False Questions

AACSB: Reflective Thinking

2. Normal defect rates in an assembly process would be considered if a company desires to

AACSB: Reflective Thinking

AACSB: Reflective Thinking

4. The Purchasing Department would normally begin an investigation regarding an

AACSB: Reflective Thinking

AACSB: Reflective Thinking

Multiple Choice Questions

AACSB: Reflective Thinking

AACSB: Reflective Thinking