Question

Ture/False

1. Standard costs are used in budgeting and inventory costing. T/F

2. A price variance is the difference between the actual unit cost of an input and the standard unit cost of the input, multiplied by the standard input quantity. T/F

3. Fixed costs, while generally irrelevant in the decision-making process, may change and become relevant T/F

4. It the standard quantity allowed is less than the actual quantity used, the efficiency variance is favorable. T/F

Thank you! :)

Answer 1

1). True, Standard costs are used in budgeting and inventory costing . As you know budgets are based on the expectation and forecasting on the basis of previous data and growth prospects. Here while making budgets standard costs are taken for arriving at the values of Material, labour and overhead. Same for inventory, if company uses company uses the perpetual inventory system and that it carries all of its inventory accounts at standard cost (including Direct Materials Inventory or Stores), then the standard cost of a finished product is the sum of the standard costs of the inputs:
Direct Material
Direct Labour
Manufacturing overhead (Variable and Fixed)

2). False, Price variance is the difference between the standard unit cost and the actual unit cost of input, multiplied by the actual input quantity

3).True, Fixed Cost are generally irrelevant in the decision making process, but when it comes to making a decision out of two or more alternatives where there is different fixed costs, then it becomes relevant in identifying the best alternative. Suppose, there are two alternatives of types of product to be manufactured and both the production has different requirements and involves different fixed costs then while evaluating the alternatives it needs to be considered.

4). False, When the standard quantity allowed is less than the actual qty used, then the efficiency variance is Unfavourable.