Recording Variances
Easy Practice Test
Cost Accounting
Easy Practice Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. Which of the following statements is false?
a. raw material price variances are not allocated to all inventory accounts
b. raw material quantity variances are allocated to work in process
c. raw material quantity variances are allocated to cost of goods sold
d. raw material price variances are allocated to all inventory accounts
Answer
A. The raw material price variance is allocated to all inventory accounts: Raw materials, work in process and finished goods. Raw materials purchased are part of each type of cost and the price difference is allocated to where the purchased materials are. All other statements are true.
2. An entry to record the use of materials and the quantity variance would include
a. a credit to work in process
b. a debit to cost of goods sold
c. a debit to work in process
d. a debit to raw materials
Answer
C. Using materials means the raw materials are moved from the warehouse to the production line. The production line is work in process. The entry is a debit (increase) to work in process and a credit to raw materials (decrease).
3. An entry to record actual overhead incurred and the efficiency variance would include
a. a debit to manufacturing overhead at actual
b. a debit to work in process
c. a debit to cost of goods sold
d. a debit to manufacturing overhead at standard
Answer
D. When recording variances, inventory costs are recorded at standard. Increasing inventory costs is recorded with a debit. The actual amount paid is recorded as a credit (a.) and the variances are recorded in the middle.
4. An entry to record overhead applied and the efficiency variance will include
a. a debit to manufacturing overhead at actual
b. a debit to work in process at actual
c. a debit to cost of goods sold
d. a debit to work in process at standard
Answer
D. When recording variances, inventory costs (work in process) are recorded at standard. Increasing inventory costs are recorded with a debit. The actual amount paid is recorded as a credit and the variances are recorded in the middle.
5. An entry to record direct labor rate variance will include
a. a credit to work in process
b. a debit to work in process at actual
c. a debit to work in process at standard
d. a debit to salaries payable
Answer
C. When recording variances, inventory costs (work in process) are recorded at standard. Increasing inventory costs is recorded with a debit. The actual amount paid (owed) is recorded as a credit (d.) and the variances are recorded in the middle.
6. Which of the following variances adjust raw materials?
a. direct labor rate variance
b. raw material quantity variance
c. raw material price variance
d. raw material efficiency variance
Answer
C. The variance adjustment is made to the types of inventory where the variance could be. Raw materials are materials that have not yet been used in production. The only variance that changes the raw materials account is the variance that occurs before production occurs – the raw materials price variance.
7. Variance accounts must be closed at the end of the period to
a. adjust actual cost of inventory to standard cost of inventory
b. be able to compute variances
c. adjust the actual cost of the quantity of raw materials on hand to the general ledger account balance
d. adjust the standard cost of inventory to actual cost of inventory
Answer
D. Inventory accounts are initially recorded at standard when variances are recorded. The variance is the difference in actual and standard costs. Closing the variance account to inventory accounts adjusts the balance of the account (originally at standard) to actual cost.
8. The price variance indicates
a. the difference in what quantity of material was used and what was expected to be used
b. the difference in the amount of labor hours used and what was expected to be used
c. the difference in what was paid for materials and what was expected to be paid for the same quantity
d. the difference in what was paid for materials and what was expected to be paid at the standard quantity
Answer
C. The price variance reflects the difference in what was expected to be paid and what was actually paid for the actual quantity purchased. It reflects the difference in the price paid for each quantity purchased.
9. The difference in the amount of hours it was expected to take to make a quantity of product and the amount of hours used to make the same quantity is
a. price variance
b. rate variance
c. efficiency variance
d. spending variance
Answer
C. The direct labor efficiency variance reflects the cost of using more or less hours than was expected to make the actual quantity of products.
10. An unfavorable spending variance is always recorded with a
a. debit to manufacturing overhead
b. debit to spending variance
c. credit to spending variance
d. credit to work in process
Answer
B. An unfavorable spending variance means that more was spent on manufacturing overhead than was expected. Inventory was recorded at the standard, expected, and more cost must be added. Costs are added with a debit. Work in process is credited only when costs are moved to finished goods (d). Manufacturing overhead will be credited (a.).
11. The cost accountant has computed the following variances. Record the variances using a standard cost system.
Material:
|
AQ x AP AQ x SP AQ x SP SQ x SP 5,200 x $7 5,100 x $7 5,200 x 1 x $7 Variance $320 $700 |
Labor:
|
AQ x AP AQ x SP SQ x SP 7,000 x $12.30 7,000 x $12 5,200 x 1.5 x $12 Variance $2,100 $9,600 |
Variable Overhead:
|
AQ x AP AQ x SP SQ x SP $56,170 7,000 x $10 5,200 x 1.5 x $10 Variance $ 13,830 $8,000 |
Answer
| Raw Materials Inventory 36,400 RM purchase price variance 320 A/P 36,720 |
| WIP 36,400 Material quantity variance 700 Raw Materials Inventory 35,700 |
| WIP 93,600 Labor Rate Variance 2,100 Labor Efficiency Variance 9,600 Wages Payable 86,100 |
| WIP 78,000 Spending Variance 13,830 Efficiency Variance 8,000 Manufacturing Overhead 56,170 |
12. The cost accountant has computed the following variances.
A. Record the variances using a standard cost system.
B. Close the variances to cost of goods sold given the variances are not material.
Material:
|
AQ x AP AQ x SP AQ x SP SQ x SP 25,000 x $13 25,000 x $14 22,000 x $14 8,000 x 1.8 x $14 Variance $25,000 F $106,400 U |
Labor:
|
AQ x AP AQ x SP SQ x SP 12,000 x $10 12,000 x $11.50 8,000 x .9 x $11.50 Variance $18,000 F $ 55,200 U |
Variable Overhead:
|
AQ x AP AQ x SP SQ x SP $68,150 12,000 x $7 8,000 x .9 x $7 Variance $15,850 F $33,600 U |
Fixed Overhead:
|
Actual Budget Applied $19,680 $31,500 5,200 x 1.5 $3.50 Variance $11,820 F $4,200 U |
Answer
A. Record entries….
| Raw Materials Inventory 350,000 RM purchase price variance 25,000 A/P 325,000 |
| WIP 201,600 Material quantity variance 106,400 Raw Materials Inventory 308,000 |
| WIP 82,800 Labor Efficiency Variance 55,200 Labor Rate Variance 18,000 Wages Payable 120,000 |
| WIP 50,400 Efficiency Variance 33,600 Spending Variance 15,850 Manufacturing Overhead 68,150 |
| WIP 27,300 Volume Variance 4,200 Budget Variance 11,820 Manufacturing Overhead 19,680 |
B. Close out variances to CGS.
| CGS | 128,730 |
| RM purchase price variance | 25,000 |
| Labor Rate Variance | 18,000 |
| Spending Variance | 15,850 |
| Budget Variance | 11,820 |
| Material quantity variance | 106,400 |
| Labor Efficiency Variance | 55,200 |
| Efficiency Variance | 33,600 |
| Volume Variance | 4,200 |
Note:
Cost of Goods Sold (CGS) is the amount required to balance the journal entry (plug it).
Record debits for those that were credited and record credits for those that were debited in the original journal entries. Recording the opposite takes the account to 0.
13. The cost accountant has computed the following variances.
A. Record the variances using a standard cost system.
B. The variances are considered to be immaterial. Cost of Goods sold is $350,000 before variances. What is the amount of Cost of Goods Sold that will be reported on the income statement?
Material:
|
AQ x AP AQ x SP AQ x SP SQ x SP 130,000 x $2.10 130,000 x $2 110,000 x $2 20,000 x 6 x $2 Variance $13,000 U $20,000 F |
Labor:
|
AQ x AP AQ x SP SQ x SP 115,000 x $3.25 115,000 x $3 20,000 x 5 x $3 Variance $28,750 U $45,000 U |
Variable Overhead:
|
AQ x AP AQ x SP SQ x SP $112,500 115,000 x $1 20,000 x 5 x $1 Variance $ 2,500 F $15,000 U |
Answer
A. Record entries….
| Raw Materials Inventory 260,000 RM purchase price variance 13,000 A/P 273,000 |
| WIP 240,000 Material quantity variance 20,000 Raw Materials Inventory 220,000 |
| WIP 300,000 Labor Rate Variance 28,750 Labor Efficiency Variance 45,000 Wages Payable 373,750 |
| WIP 100,000 Efficiency Variance 15,000 Spending Variance 2,500 Manufacturing Overhead 112,500 |
B. Cost of Goods sold would be adjusted and reported as follows:
| Unadjusted CGS | 350,000 | |
| RM purchase price variance | 13,000 | U Increases CGS |
| Material quantity variance | (20,000) | F Decreases CGS |
| Labor Rate Variance | 28,750 | U Increases CGS |
| Labor Efficiency Variance | 45,000 | U Increases CGS |
| Efficiency Variance | 15,000 | U Increases CGS |
| SpendingVariance | (2,500) | F Decreases CGS |
| Adjusted / Reported CGS: | 429,250 | |
| ======= |