N12401 MAD II

Seminar 1 Part 1
Standard costing and variance analysis

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These exercises are meant to confirm your understanding of the topic concerned. You are expected
to have gone through the class materials and directed readings thoroughly before attempting these
exercises. As you work through these questions, you may find new terminologies/ideas popping out
occasionally, dont get worried at all, as these are deliberate to trigger further exploration of the
issues concerned. So be adventurous and have fun!
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1. Which of the following is not considered an advantage of using standard costs?
a. Standard costs make employees "cost-conscious."
b. Standard costs are useful in setting prices for finished goods.
c. Standard costs reduce clerical costs.
d. Standard costs are means of finding fault with an individuals performance.
2. A company has a standard requirement of 3 kg of direct materials at RM5 per kg for its product.
Last year, 2,000 kg of the direct materials were purchased for RM9,700. The direct materials
price variance for that year was
a. RM5,700 favourable.
b. RM300 favourable.
c. RM150 favourable.
d. RM300 unfavourable.
3. DiverCifi Company uses standard costing. It purchases a type of small component to add on to its
production. The component is normally expected to cost 0.85 per unit. In May, the quantity
actually purchased is 6,800 units, though the standard allowance for actual production is 5,440
units. If the accountant reports an adverse purchase price variance of 544, then the actual
purchase price per unit must have been
a. 0.95
b. 0.93
c. 0.77
d. 0.75
4. An unfavourable materials quantity variance would occur if
a. more materials are purchased than are used.
b. actual quantity of materials used were less than the standard quantity allowed.
c. actual labour hours used were greater than the standard labour hours allowed.
d. actual quantity of materials used were greater than the standard quantity allowed.
5. Which of the following is most likely to be the reasons for a favourable material price variance
coupled with an unfavourable material usage variance?
a. Problems with processing machines.
b. Problems with labour efficiency.
c. The purchase of low quality materials.
d. Changes in the product mix.
6. The per-unit standard for direct labour is 4 direct labour hours at RM12 per hour. In producing
1,200 units last year, the actual direct labour cost was RM51,200 for 4,000 direct labour hours
worked, the direct labour efficiency variance is therefore
a. RM6,400 favourable.
b. RM9,600 favourable.
c. RM3,200 unfavourable.
d. RM6,400 unfavourable.

N12401 MAD II

Seminar 1 Part 1
Standard costing and variance analysis

7. If the labour efficiency variance is unfavourable and the cause is inefficient use of direct labour,
the responsibility rests primarily with the
a. sales department.
b. production department.
c. human resource department.
d. accounts department.
8. In
a.
b.
c.
d.

using variance reports, management normally looks for

all unfavourable cost variances.
significant variances both in terms of costs and revenues.
competitors costs in comparison to the company's costs.
all types of variances.

9. A company has budgeted to produce and sell 6,000 units of a single product. The standard cost
per unit is: direct material 20, direct labour 15, variable production overhead 10 and fixed
production overhead 5. The actual results during the budget period shows that production and
sales were 7,000 units and the fixed production overheads were 28,000. The fixed production
overhead expenditure variance is
a. 2,000 favourable.
b. 2,000 adverse.
c. 7,000 favourable.
d. 7,000 adverse.
10. Based on your required readings, and any other relevant materials you may prefer, discuss the
usefulness of standard costing variance analysis in todays manufacturing environment involving
new management approaches (e.g. just-in-time, advanced manufacturing technology and total
quality management).