Question

3. Indicate whether each of the following statement is true or false and why:

a. Product standard cost data are often utilized by managers and analysts in departments other than the accounting department.

b. Standard cost accounting systems are expensive to operate.

c. Wage rate variance information is less useful to a production manager than labor efficiency variance information.

d. When standards cost are set tight and inventories are growing, a standard cost accounting systems tends to report lower operating profits than does an actual cost accounting system.

e. A company could have a zero balance for total material variance for an accounting period while at the same time report credit variances for both the Material Price and Material Usage Variance accounts.

f. Material price variance information is more useful to the purchasing department than is material usage variance data.

g. The contribution margin is defined as the difference between revenue and variable manufacturing costs.

h. An argument against the use of variable costing is that it does not comply with generally accepted accounting methods.

i. When manufactured inventory grows during an accounting period full-absorption costing reports slightly lower earnings than does variable costing.

Answer 1

3.

a. False

Product Standard Cost Data are often utilised by managers and analysts in the accounting department.

b. True

Standard Cost Accounting Systems are expensive to operate and hence the small firms find it difficult to incorporate.

c. True

Labor efficiency variance information is more useful to the production manager because the use of labor and the allocation of skiiled, semi skilled and unskilled labor is the decision the producion manager makes. Hence, the production manager is responsible for the productive use of labor and not as much on the labor rates.

d. True

When Standard Costs are set tight and inventories are growing, a standard cost accounting system tends to report lower operating profits than does an actual cost accounting system.

e. False

Total Material Cost Variance = Material Price Variance + Material Usage Variance. Hence, the total material variance can be zero only when a credit material price variance is offset by a debit material usage variance and vice versa.

f. True

Material Price Variance information is more useful to the purchasing department than is material usage variance.

g. False

Contribution Margin = Revenue - Variable Expenses. Contribution Margin is defines as the difference betwen revenue and variable costs.

h. True

Variable costing considers all overhead costs as period expenses. Hence, Variable costing does not comply with the external reporting requirements as required by GAAP.

i. False

When manufactured inventory grows during an accounting period, full absorption costing reports higher earnings than variable costing.