Recording Variances
Medium Practice Test
Cost Accounting
Medium Practice Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
a. report a lower cost of goods sold than actual
b. report a higher cost of goods sold than actual
c. report a lower income than actual
d. report higher inventory costs than actual
Answer
A. Unfavorable variances mean that actual costs were higher than standard. If the costs are not adjusted higher to actual, inventory accounts will be lower (d.) and cost of goods sold will be lower (b.). A lower cost of goods sold gives a higher income (c.)
a. cost of goods sold as a percentage of sales
b. percentage of total inventory costs
c. the value of raw material cost is included in the product
d. product costs as a percentage of period costs
Answer
B. Significant variance amounts are allocated to all inventory accounts (RM, WIP, FG, CGS) based on the percentage of the total of the inventory accounts.
a. a debit to price variance
b. a debit to efficiency variance
c. a credit to efficiency variance
d. a credit to spending variance
Answer
B. An unfavorable variance is always recorded with a debit. A debit adds costs to increase the standard costs to actual costs. Differences in quantity used is the efficiency variance (or quantity variance which is not listed).
a. minimize the cost per unit to produce a product
b. provide a basis for cost control
c. make manufacturing the product easier
d. make sure actual cost is recorded to inventory accounts
Answer
B. Using a standard cost system provides a basis to compare actual costs to estimated costs. How costs are accounted for does not change the cost per unit or how the product is manufactured. (a. & c.). All cost systems will end up at actual cost reported on the financial statements. A standard cost system also allows for cost of goods sold to be recorded at the time of sale using estimated cost per unit.
a. cost of goods sold
b. raw material
c. work in process, finished goods and cost of goods sold
d. raw material, work in process, finished goods and cost of goods sold
Answer
C. A material quantity usage variance occurs only with the manufacturing of the product. It does not occur when material sits on the shelf and should not be allocated to raw materials.
a. separate line items so the user can see efficiencies related to the company’s manufacturing operations
b. always included of cost of goods sold
c. always included in finished goods
d. none of the above
Answer
D. Variance accounts are included in cost of goods sold when they total an immaterial amount. When the amount is material, the amount is allocated to all inventory accounts and a part is included in each. Variances are not ever reported separately; the cost is added to the affected accounts.
a. labor efficiency variance
b. material quantity variance
c. overhead spending variance
d. overhead volume variance
Answer
D. The overhead volume variance indicates how many products were produced compared to how many were expected to be produced. An unfavorable variance indicates the plant was not utilized as efficiently as expected.
a. debit to salaries payable
b. debit to labor efficiency variance
c. credit to work in process
d. credit to labor efficiency variance
Answer
D. Favorable variances are recorded with a credit. Favorable means less cost was incurred than expected and standard cost is reduced with a credit to get to actual cost. Salaries payable is a credit when recording labor variances (a.). Work in process is only credited when inventory is transferred to finished goods (c).
a. debit material quantity variance
b. debit material price variance
c. credit material quantity variance
d. credit material price variance
Answer
D. This situation results in a favorable price variance. The amount paid will be less than expected. The standard cost of materials previously recorded must be reduced with a credit to get to the actual cost.
a. debits labor rate variance
b. credits labor rate variance
c. debits labor efficiency variance
d. credits labor efficiency variance
Answer
C. Working more hours than expected is an unfavorable labor efficiency variance. Unfavorable variances are recorded with a debit. More cost is added.
11. The company provided the following information:
| Material purchases: | $450,000 |
| Material quantity variance | $ 7,000 unfavorable |
| Material price variance | $ 13,900 favorable |
| Material standard allowed – qty | $426,000 |
| Actual labor costs | $219,000 |
| Total labor variance | $ 28,000 favorable |
| Labor difference due to hours worked | $ 16,000 unfavorable |
| Total Manufacturing overhead applied | $298,000 |
| Total spending/budget variance | $ 15,300 unfavorable |
| Plant underutilization cost | $ 4,500 unfavorable |
Record all variances using a standard cost systems
Answer
| Raw Materials Inventory 463,900 RM purchase price variance 13,900 A/P 450,000 |
| WIP 426,000 Material quantity variance 7,000 Raw Materials Inventory 433,000 |
| WIP 247,000 Labor Efficiency Variance 16,000 Labor Rate Variance 44,000 Wages Payable 219,000 |
| WIP 298,000 Spending Variance 15,300 Volume Variance 4,500 Manufacturing Overhead 317,800 |
12. The company provided the following information:
Material:
| AQ x AP AQ x SP AQ x SP SQ x SP (purch) Purchased Used used 70,200 x $3.75 70,200 x $3.50 69,700 x $3.50 18,000 x 4 x $3.50 Variance $17,550 U $8,050 F |
Labor:
| AQ x AP AQ x SP SQ x SP
29,400 x $7.40 29,400 x $8.50 18,000 x 1.5 x $8.50 Variance $32,340 F $20,400 U |
Variable Overhead:
| AQ x AP AQ x SP SQ x SP
$61,980 29,400 x $2 18,000 x 1.5 x $2 Variance $3,180 U $4,800 U |
| A. Record journal entries that record the variance under a standard cost system.
B. Close out the variance accounts given the following account balances. The variances are considered significant. |
| Raw materials | $ 60,000 |
| Work in process | $ 2,000 |
| Finished Goods | $100,000 |
| Cost of Goods Sold | $350,000 |
Answer
| Raw Materials Inventory 245,700 RM purchase price variance 17,550 A/P 263,250 |
| WIP 252,000 Material quantity variance 8,050 Raw Materials Inventory 243,950 |
| WIP 229,500 Labor Efficiency Variance 20,400 Labor Rate Variance 32,340 Wages Payable 217,560 |
| WIP 54,000 Spending Variance 3,180 Efficiency Variance 4,800 Manufacturing Overhead 61,980 |
B. Close out the variance accounts given the following account balances
1st total all accounts and find the % of each of the total:
| % | ||
| Raw materials | $ 60,000 | .117 |
| Work in process | $ 2,000 | .004 |
| Finished Goods | $100,000 | .195 |
| Cost of Goods Sold | $350,000 | .684 |
| Total | $512,000 | 1.00 |
2nd – Close out the raw material price variance using the % for all 4 accounts above. Credit the debit balance to make it 0 and the other accounts will be the debits to balance the journal entry:
| Raw materials | $ 2,053 |
| Work in process | $ 70 |
| Finished Goods | $ 3,422 |
| Cost of Goods Sold | $12,005 |
| RM purchase price variance | $17,550 |
3rd – Find the % of the total for WIP, FG, and CGS account balances:
| Work in process | $ 2,000 | .004 |
| Finished Goods | $100,000 | .221 |
| Cost of Goods Sold | $350,000 | .775 |
| Total | $452,000 | 1.00 |
4th – Take the journal entries from above and record the opposite debit or credit for each variance account (except material price) to make the account go to 0.
| Material quantity variance | 8,050 |
| Labor Rate Variance | 32,340 |
| Labor Efficiency Variance | 20,400 |
| Spending Variance | 3,180 |
| Efficiency Variance | 4,800 |
| Work In Process | 48 |
| Finished Goods | 2,654 |
| Cost of Goods Sold | 9,308 |
The entry is out of balance and needs $12,010 credit to balance.
The credit for $12,010 is recorded to WIP, FG, and CGS based on the % computed above:
13. The company provided the following information:
Material:
| AQ x AP AQ x SP AQ x SP SQ x SP Purch Purch Used Used $1,260,000 350,000 x $3.40 341,550 x $3.40 99,000 x 3.5 x $3.40 Variance $ 70,000 $16,830 |
Labor:
| AQ x AP AQ x SP SQ x SP
$1,039,000 49,500 x $20 99,000 x .5 x $20 Variance $49,000 $ 0 |
Variable Overhead
| AQ x AP AQ x SP SQ x SP
$350,000 49,500 x $7 99,000 x .5 x $7 Variance $3,500 $ 0 |
A. Record the variances using a standard cost system.
B. Close out the variance accounts given the following account balances
| Raw materials | $ 90,000 |
| Work in process | $ 5,000 |
| Finished Goods | $ 600,000 |
| Cost of Goods Sold | $2,250,000 |
Answer
| Raw Materials Inventory 1,190,000 RM purchase price variance 70,000 A/P 1,260,000 |
| WIP 1,178,100 Material quantity variance 16,830 Raw Materials Inventory 1,161,270 |
| WIP 990,000 Labor Rate Variance 49,000 Wages Payable 1,039,000 |
| WIP 346,500 Spending Variance 3,500 Manufacturing Overhead 350,000 |
B. Close out the variance accounts given the following account balances
1st total all accounts and find the % of each of the total:
| % | ||
| Raw materials | $ 90,000 | .030 |
| Work in process | $ 5,000 | .002 |
| Finished Goods | $ 600,000 | .204 |
| Cost of Goods Sold | $2,250,000 | .764 |
| Total | $2,945,000 | 1.00 |
2nd – Close out the raw material price variance using the % for all 4 accounts above. Credit the debit balance to make it go to 0 and the other accounts will be the debits to balance the journal entry:
| Raw materials | $ 2,100 |
| Work in process | $ 140 |
| Finished Goods | $14,280 |
| Cost of Goods Sold | $53,480 |
| RM purchase price variance | $70,000 |
3rd – Take the WIP, FG, CGS account balances and find the % of the total:
| Work in process | $ 5,000 | .002 |
| Finished Goods | $ 600,000 | .210 |
| Cost of Goods Sold | $2,250,000 | .788 |
| Total | $2,855,000 | 1.00 |
4th – Take the journal entries from above and record the opposite debit or credit for each variance account (except material price) to make the account go to 0.
| Work in Process | 71 |
| Finished Goods | 7,491 |
| Cost of Goods Sold | 28,108 |
| Material quantity variance | 16,830 |
| Labor Rate Variance | 49,000 |
| Spending Variance | 3,500 |
The entry is out of balance and needs $35,670 debit to balance.
The debit for $35,670 will be allocated to WIP, FG, and CGS based on the % computed above: