1. Standards are performance goals. Manufacturing companies normally use standard cost for each of the three following product costs, a. Direct materials b. Direct labor c. Factory overhead
2. Reporting by the “principle of exceptions” is the reporting of only variances (or “exceptions”) between standard and actual costs to the individual responsible for cost control. This reporting allows management to focus on correcting cost variances.
3. The two variances in direct materials cost are, a. Direct materials price b. Direct materials quantity
4. The offsetting variances might have been caused by the purchase of low-priced, inferior materials. The low price of the materials would generate a favorable materials price variance, while the inferior quality of the materials would cause abnormal spoilage and waste, thus generating an unfavorable materials quantity variance.
5. a. The two variances in direct labor costs are: (1) Direct labor rate (2) Direct labor time b. The direct labor cost variance is usually under the control of the production supervisor.
6. No. Even though the assembly workers are covered by union contracts, direct labor cost variances still might result. For example, direct labor rate variances could be caused by scheduling overtime to meet production demands or by assigning higher-paid workers to jobs normally performed by lower-paid workers. Likewise, direct labor time variances could result during the training of new workers or from a shortage of skilled employees.
7. Standards can be very appropriate in repetitive service operations. Fast-food restaurants can use standards for evaluating the productivity of the counter and food preparation employees. In addition, standards could be used to plan staffing patterns around various times of the day (e.g., increasing staff during the lunch hour).
8. a. The variable factory overhead controllable variance results from incurring a total amount of variable factory overhead...