CPA Bar Quiz: Apply Standard Costing And Variance Analysis
20 questions · exam conditions
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Apply Standard Costing And Variance AnalysisQuestion 1 of 20

A manufacturing plant, North Ridge Plastics, applies variable manufacturing overhead based on machine-hours and tracks spending and efficiency variances monthly. The variable overhead standard is $6.00 per machine-hour, and the standard machine-hours allowed are 1.5 hours per unit. In June, the plant produced 8,000 units; actual machine-hours were 13,200 and actual variable overhead was $85,800. Management wants to address the overhead variance to improve budget accuracy, focusing on variable overhead spending rather than efficiency. How should the overhead variance be addressed to improve budget accuracy?

Increase the standard machine-hours per unit to eliminate the variable overhead spending variance
Investigate variable overhead cost drivers (indirect supplies, utilities, minor maintenance) and update the variable overhead rate or controls if the actual cost per machine-hour is persistently higher than standard
Reclassify variable overhead as fixed overhead so that spending variances are no longer reported
Ignore the variance because production volume was close to plan and overhead variances self-correct over time
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CPA Bar Quiz

CPA Bar Quiz: Apply Standard Costing And Variance Analysis

Practice Apply Standard Costing And Variance Analysis in CPA Bar with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Apply Standard Costing And Variance Analysis, giving you a quick way to practice the rules, question types, and explanations that matter most for CPA Bar.

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Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

A manufacturing plant, North Ridge Plastics, applies variable manufacturing overhead based on machine-hours and tracks spending and efficiency variances monthly. The variable overhead standard is $6.00 per machine-hour, and the standard machine-hours allowed are 1.5 hours per unit. In June, the plant produced 8,000 units; actual machine-hours were 13,200 and actual variable overhead was $85,800. Management wants to address the overhead variance to improve budget accuracy, focusing on variable overhead spending rather than efficiency. How should the overhead variance be addressed to improve budget accuracy?

  1. Increase the standard machine-hours per unit to eliminate the variable overhead spending variance
  2. Investigate variable overhead cost drivers (indirect supplies, utilities, minor maintenance) and update the variable overhead rate or controls if the actual cost per machine-hour is persistently higher than standard (correct answer)
  3. Reclassify variable overhead as fixed overhead so that spending variances are no longer reported
  4. Ignore the variance because production volume was close to plan and overhead variances self-correct over time

Explanation: The question focuses on variable overhead spending variance, calculated as the difference between actual variable overhead and the standard rate applied to actual activity. Key data points are the standard rate of 6.00permachine−hourfor13,200actualhours(6.00 per machine-hour for 13,200 actual hours (79,200 standard) versus $85,800 actual, resulting in a $6,600 unfavorable spending variance. Choice B aligns with principles by investigating cost drivers to improve accuracy, as spending variance reflects rate differences. Choice A targets efficiency, not spending; choice C improperly reclassifies costs; and choice D dismisses the variance without analysis. In practice, use variance thresholds to trigger investigations and update standards annually. A strategy involves budgeting flexible overhead rates and monitoring market changes in indirect costs.

Question 2

A manufacturing company, Apex Tools, uses a standard costing system with variance tracking by purchase order and production batch. The standard for Alloy A is $5.00 per pound, and 2.0 pounds are allowed per finished unit. During May, Apex produced 10,000 units; it purchased and used 20,500 pounds of Alloy A at $5.30 per pound. The materials price variance was flagged as significant versus policy thresholds and management asked for a corrective action focused specifically on the price variance. What corrective action should be taken based on the material price variance analysis?

  1. Revise the bill of materials to allow more pounds per finished unit to reduce the unfavorable price variance
  2. Work with procurement to renegotiate supplier pricing or seek alternate qualified suppliers because the actual purchase price exceeded the standard price (correct answer)
  3. Increase direct labor training to reduce scrap and rework that caused the unfavorable price variance
  4. Treat the unfavorable price variance as immaterial because production volume met plan and no action is needed

Explanation: This question tests the concept of material price variance in standard costing, which isolates the difference between actual and standard purchase prices. The key data includes the standard price of $5.00 per pound and actual price of $5.30 per pound for 20,500 pounds purchased, resulting in an unfavorable price variance of $6,150. Choice B aligns with cost accounting principles by addressing the price variance through procurement actions to control input costs without affecting usage efficiency. Choice A is incorrect as it targets quantity variance, not price; choice C misattributes the price variance to labor issues; and choice D ignores materiality thresholds specified in the query. In practice, managers should prioritize variances exceeding policy thresholds and implement root cause analysis to prevent recurrence. A strategy for managing price variances includes regular supplier reviews and long-term contracts to stabilize costs.

Question 3

A manufacturing plant, Orion Metals, applies fixed manufacturing overhead based on normal capacity machine-hours and tracks budget and volume variances. The fixed overhead budget is $420,000 per month at a denominator level of 70,000 machine-hours, yielding a fixed overhead rate of $6.00 per machine-hour. In November, actual fixed overhead was $435,000 and actual machine-hours were 63,000; standard hours allowed equaled actual hours because output matched the standard routing. Management wants to improve budget accuracy and asks how to address the fixed overhead variances. How should the overhead variance be addressed to improve budget accuracy?

  1. Reduce the denominator level to 63,000 machine-hours solely to eliminate the unfavorable volume variance without evaluating capacity assumptions
  2. Investigate fixed overhead spending drivers (maintenance contracts, salaries, depreciation) for the budget variance and reassess normal capacity assumptions for the volume variance (correct answer)
  3. Reclassify fixed overhead as variable overhead to avoid volume variances in the future
  4. Increase the standard machine-hours per unit to reduce the fixed overhead spending variance

Explanation: This question examines fixed overhead budget and volume variances, based on normal capacity. Key data includes budgeted 420,000at70,000hours(420,000 at 70,000 hours (6 rate) versus actual $435,000 and 63,000 hours, with $15,000 budget unfavorable and $42,000 volume unfavorable. Choice B correctly addresses both by investigating spending and capacity, per absorption costing principles. Choice A manipulates denominator improperly; choice C reclassifies incorrectly; choice D targets spending via standards. Professionals should review capacity utilization annually. A strategy is flexible budgeting and variance decomposition for targeted improvements.

Question 4

A manufacturing company, CedarWorks Furniture, uses standard costing and reports quarterly variances to management. For Q1, the company reported: materials price variance $40,000 unfavorable; materials quantity variance $10,000 favorable; labor efficiency variance $22,000 unfavorable; fixed overhead budget variance $8,000 unfavorable. Actual gross profit was $1,180,000 versus budgeted $1,230,000. Management wants to prioritize the single variance most responsible for the gross profit shortfall. Which variance indicates the greatest impact on profitability?

  1. Materials quantity variance of $10,000 favorable
  2. Fixed overhead budget variance of $8,000 unfavorable
  3. Labor efficiency variance of $22,000 unfavorable
  4. Materials price variance of $40,000 unfavorable (correct answer)

Explanation: This question prioritizes variance impacting profitability most. The $40,000 unfavorable materials price is largest, aligning with choice D. Choice A favorable; choices B and C smaller. Compare to profit shortfall. Focus investigations on high-impact areas.

Question 5

A manufacturing plant, Keystone Glass, applies variable manufacturing overhead based on machine-hours and tracks spending variances. The standard variable overhead rate is $4.50 per machine-hour. In August, actual variable overhead was $198,000 and actual machine-hours were 40,000; standard machine-hours allowed for actual output were 38,000. Management asks how to address overhead variance to improve budget accuracy, emphasizing the spending variance component. How should the overhead variance be addressed to improve budget accuracy?

  1. Analyze whether the actual variable overhead cost per machine-hour exceeded the standard due to higher utility rates, indirect materials usage, or maintenance, and update controls or the standard rate if warranted (correct answer)
  2. Increase the standard machine-hours allowed per unit so that the efficiency variance becomes favorable
  3. Shift machine-hour-based overhead application to direct labor-hours to eliminate spending variances
  4. Defer the spending variance to the next period because overhead variances are only recognized at year-end

Explanation: The question addresses variable overhead spending for accuracy. Key data: 4.50rateon40,000hours(4.50 rate on 40,000 hours (180,000 standard) vs $198,000 actual, $18,000 unfavorable. Choice A analyzes causes, aligning with spending. Choice B targets efficiency; choice C shifts base; choice D defers incorrectly. Update rates as needed. Trend analysis aids control.

Question 6

A manufacturing company, Summit Cabinets, uses standard costing and reports variances by component each month. For Hardwood Panels, the standard is $12.00 per panel and 1 panel is allowed per cabinet. In July, Summit produced 3,500 cabinets and used 3,850 panels purchased at $11.50 per panel. The cost accounting system reports a favorable material price variance and an unfavorable material quantity variance for this component. Management asked what the variance analysis suggests about the company's cost management practices related to this material. What does the variance analysis suggest about the company's cost management practices?

  1. Procurement obtained a lower purchase price than standard, but production usage exceeded standard allowances, indicating potential waste, spoilage, or quality issues (correct answer)
  2. Production efficiency improved because fewer panels were used than allowed, but procurement paid a higher price than standard
  3. The favorable price variance proves overall profitability increased regardless of the unfavorable quantity variance
  4. The variances indicate a labor rate problem because the standard rate per hour was set too low

Explanation: This question tests material price and quantity variances, separating purchasing efficiency from production usage. Key figures include a favorable price variance of 1,925(1,925 (0.50 savings per panel on 3,850 panels) and unfavorable quantity variance of $4,200 (350 excess panels at $12). Choice A correctly interprets the variances as strong procurement but potential production waste, aligning with cost management isolation. Choice B reverses the variance directions; choice C overlooks net unfavorable impact; and choice D mislinks to labor variances. Managers should evaluate net variance impacts on profitability quarterly. A practical strategy is cross-functional reviews between purchasing and production to balance cost savings with quality controls.

Question 7

A manufacturing company, IronClad Fasteners, uses standard costing and reports variances monthly. In January, the following unfavorable variances were reported: material price variance $12,000, material quantity variance $9,000, labor efficiency variance $4,000, and variable overhead spending variance $3,500. Operating income for the month was $110,000 compared to a budgeted $135,000. Management wants to prioritize investigation based on which single variance most likely had the greatest impact on profitability. Which variance indicates the greatest impact on profitability?

  1. Variable overhead spending variance of $3,500 unfavorable
  2. Labor efficiency variance of $4,000 unfavorable
  3. Material quantity variance of $9,000 unfavorable
  4. Material price variance of $12,000 unfavorable (correct answer)

Explanation: This question identifies the variance with the most significant profitability impact from a list. The largest unfavorable variance is the $12,000 material price variance, directly reducing income by increasing costs. Choice D aligns with principles by focusing on the highest magnitude for prioritization. Choices A, B, and C are smaller; no favorables listed. Professionals should compare variances to budgeted income variances. A management approach is root cause analysis starting with largest variances.

Question 8

A manufacturing plant, Sunrise Textiles, applies variable manufacturing overhead based on direct labor-hours and tracks spending and efficiency variances. The variable overhead standard is $10.00 per labor-hour. In April, actual variable overhead was $312,000 and actual labor-hours were 29,000; standard hours allowed for actual output were 30,000. Management wants to improve budget accuracy and asks how the overhead variance should be addressed, focusing on the spending variance rather than efficiency. How should the overhead variance be addressed to improve budget accuracy?

  1. Investigate whether indirect materials, utilities, or support labor costs per labor-hour increased and update the variable overhead rate or controls accordingly (correct answer)
  2. Increase standard labor-hours allowed per unit to eliminate any unfavorable spending variance
  3. Move all variable overhead costs into fixed overhead to reduce volatility in spending variances
  4. Ignore the spending variance because the efficiency variance is favorable when standard hours exceed actual hours

Explanation: The question addresses variable overhead spending variance for budget improvement. Key data: 10rateon29,000actualhours(10 rate on 29,000 actual hours (290,000 standard) vs $312,000 actual, $22,000 unfavorable spending. Choice A investigates drivers, aligning with spending variance focus. Choice B targets efficiency; choice C reclassifies; choice D ignores. Managers should update rates periodically. A strategy is cost driver analysis and variance trending.

Question 9

A service organization, CityTransit Dispatch, uses standard costing for dispatcher labor and tracks labor efficiency variance monthly. The standard is 0.10 labor-hours per trip dispatched at $22 per hour. In July, CityTransit dispatched 120,000 trips using 13,800 labor-hours; the average actual pay rate equaled the standard rate. Management wants to identify the most likely cause of the unfavorable labor efficiency variance. Which factor most likely caused the labor efficiency variance?

  1. Dispatchers spent more time per trip due to system downtime or increased exception handling, increasing hours relative to the standard (correct answer)
  2. Dispatchers were paid a higher hourly wage rate than standard due to merit increases
  3. Fuel prices increased, raising variable overhead spending per trip
  4. The company negotiated a lower price for software licenses, creating a favorable materials price variance

Explanation: The question identifies labor efficiency variance drivers. Key figures: 0.10 hours per trip for 120,000 (12,000 standard) vs 13,800 actual, unfavorable 1,800 hours. Choice A points to time increases, per efficiency. Choice B rate; choice C overhead; choice D materials. Monitor trends. Training reduces inefficiencies.

Question 10

A manufacturing company, NovaChem, uses standard costing and records material price variances at the time of purchase. The standard price for Solvent S is $7.50 per liter. In October, NovaChem purchased 18,000 liters at $7.20 per liter due to a temporary market discount, and the discount is not expected to continue. Management asks what corrective action is appropriate based on the favorable material price variance. What corrective action should be taken based on the material price variance analysis?

  1. Immediately lower the standard price permanently to $7.20 per liter without further analysis because the variance is favorable
  2. Document the favorable variance and evaluate whether it is sustainable; if temporary, retain the current standard and focus on maintaining approved supplier terms (correct answer)
  3. Increase the standard quantity allowed per unit to ensure future favorable price variances continue
  4. Reclassify the favorable material price variance as a favorable labor rate variance because both reduce cost

Explanation: The question examines actions for favorable material price variance. Key data: standard $7.50, actual $7.20 on 18,000 liters, $5,400 favorable, temporary. Choice B evaluates sustainability, per standard stability. Choice A lowers prematurely; choice C addresses quantity; choice D reclassifies. Retain standards for consistency. Monitor market for adjustments.

Question 11

A manufacturing company, SilverLine Batteries, uses standard costing and reports monthly variances. In February, actual operating income was $520,000 versus budgeted $560,000. The variance summary shows: materials price variance $28,000 unfavorable; materials quantity variance $6,000 unfavorable; labor rate variance $4,000 favorable; labor efficiency variance $9,000 unfavorable; fixed overhead budget variance $3,000 unfavorable. Management wants to focus on the single variance with the greatest negative impact on profitability. Which variance indicates the greatest impact on profitability?

  1. Labor rate variance of $4,000 favorable
  2. Fixed overhead budget variance of $3,000 unfavorable
  3. Materials price variance of $28,000 unfavorable (correct answer)
  4. Labor efficiency variance of $9,000 unfavorable

Explanation: The question prioritizes variance with greatest negative impact. The $28,000 unfavorable materials price is largest, per choice C. Choice A favorable; choices B and D smaller. Aligns with income variance. Prioritize accordingly in reviews.

Question 12

A manufacturing company, ClearWave Electronics, uses standard costing and variance tracking for direct materials. The standard calls for 1.2 kilograms of Resin X per unit at $9.00 per kilogram. In December, ClearWave produced 15,000 units and used 19,500 kilograms purchased at $8.70 per kilogram. The cost accountant reports a favorable material price variance but an unfavorable material quantity variance. Management wants a conclusion focused on cost management practices for this material. What does the variance analysis suggest about the company's cost management practices?

  1. Materials were purchased below standard price, but usage exceeded the standard allowance, suggesting potential process waste or lower-quality inputs (correct answer)
  2. Materials were used more efficiently than standard, but the purchasing price exceeded standard, indicating purchasing inefficiency
  3. The favorable price variance offsets all other costs, indicating no need to investigate production usage
  4. The variance pattern indicates a labor rate issue because the standard wage rate was set too high

Explanation: The question tests interpretation of material price and quantity variances for cost management insights. Key figures are favorable price variance of 5,850(5,850 (0.30 savings on 19,500 kg) and unfavorable quantity variance of $13,500 (1,500 excess kg at $9). Choice A accurately suggests good purchasing but usage issues, aligning with variance isolation. Choice B swaps variance types; choice C ignores net impact; choice D links erroneously to labor. Managers should net variances for overall assessment. A strategy includes quality checks and training to minimize quantity variances.

Question 13

A manufacturing company, Polar HVAC, uses standard costing and variance tracking for direct materials. The standard for Copper Coil is $48 per coil, 1 coil allowed per unit. In September, Polar produced 2,200 units and used 2,090 coils purchased at $52 per coil. The variance report shows an unfavorable price variance and a favorable quantity variance. Management wants to understand what this suggests about cost management practices for this material. What does the variance analysis suggest about the company's cost management practices?

  1. Purchasing paid more than the standard price, but production used fewer coils than the standard allowance, indicating improved yield or fewer defects (correct answer)
  2. Purchasing paid less than the standard price, but production used more coils than allowed, indicating waste
  3. The unfavorable price variance must be caused by labor overtime premiums, not purchasing
  4. The favorable quantity variance indicates the standard price should be increased to match actual market prices

Explanation: The question interprets material variances. Key figures: unfavorable price 8,360(8,360 (4 on 2,090 coils) and favorable quantity $5,280 (110 saved at $48). Choice A indicates purchasing issue but production efficiency, per analysis. Choice B reverses; choice C misattributes; choice D assumes incorrectly. Assess net impact. Balance purchasing with quality.

Question 14

A service organization, AeroMaint Field Service, uses standard costing for technician labor and tracks labor efficiency variance by job type. The standard is 3.0 labor-hours per service call at $35 per hour. In March, the company completed 900 service calls using 3,150 labor-hours at an average rate of $35 per hour. Management wants to know what most likely caused the unfavorable labor efficiency variance when the labor rate variance is essentially zero. Which factor most likely caused the labor efficiency variance?

  1. Technicians were paid at a higher hourly rate than standard due to overtime premiums
  2. Service calls took longer than standard due to additional diagnostics, travel delays, or repeat visits (correct answer)
  3. The purchasing team paid more than standard for replacement parts used on service calls
  4. Fixed overhead was underapplied due to lower than normal capacity utilization

Explanation: This question investigates causes of labor efficiency variance with zero rate variance. Key figures: 3.0 hours per call for 900 calls (2,700 standard) vs 3,150 actual, unfavorable 450 hours at 35(35 (15,750). Choice B identifies usage drivers, per efficiency principles. Choice A is rate-related; choice C materials; choice D overhead. Professionals should analyze job logs. A strategy includes performance feedback and process improvements.

Question 15

A service organization, BrightCall Support, uses standard costing for direct labor hours per customer ticket and tracks variances weekly in its cost accounting system. The standard allows 0.50 labor-hours per ticket at a standard rate of $24 per hour. In Week 6, BrightCall completed 4,000 tickets using 2,400 labor-hours at an average actual rate of $23 per hour; overhead is applied based on labor-hours but is not part of this question. Management observed an unfavorable labor efficiency variance and wants to identify the most likely operational driver. Which factor most likely caused the labor efficiency variance?

  1. Agents spent more time per ticket than the standard due to higher-than-expected call complexity or increased after-call documentation (correct answer)
  2. The average hourly wage rate was lower than standard due to hiring more entry-level agents
  3. The purchasing department paid more than the standard price for software licenses used by agents
  4. The company reduced its fixed overhead budget for supervision during the week

Explanation: This question examines labor efficiency variance, which measures the difference between actual and standard labor hours used. Key figures are the standard of 0.50 hours per ticket for 4,000 tickets (2,000 standard hours) versus actual 2,400 hours, yielding an unfavorable efficiency variance of $9,600 at the standard rate. Choice A correctly identifies operational drivers like call complexity aligning with efficiency variance principles that focus on usage, not rates. Choice B relates to rate variance, which is favorable here; choice C pertains to material or overhead variances; and choice D involves fixed overhead, unrelated to labor efficiency. Professionals should monitor efficiency trends and conduct process audits to identify inefficiencies. Effective variance management includes employee training and workflow optimization to align actual performance with standards.

Question 16

A manufacturing company, Titan Springs, uses standard costing and reports the following May variances: direct materials price variance $7,000 unfavorable; direct materials quantity variance $2,500 favorable; direct labor efficiency variance $9,500 unfavorable; variable overhead spending variance $1,000 unfavorable. Budgeted operating income was $260,000 and actual operating income was $245,000. Management wants to focus on the variance with the greatest negative impact on profitability. Which variance indicates the greatest impact on profitability?

  1. Direct materials quantity variance of $2,500 favorable
  2. Variable overhead spending variance of $1,000 unfavorable
  3. Direct labor efficiency variance of $9,500 unfavorable (correct answer)
  4. Direct materials price variance of $7,000 unfavorable

Explanation: This question prioritizes the variance with greatest negative profitability impact. The $9,500 unfavorable labor efficiency is largest, reducing income. Choice C aligns by highlighting magnitude. Choice A favorable; choices B and D smaller unfavorable. Rank by impact. Integrate into KPIs for management.

Question 17

A manufacturing company, RiverStone Appliances, uses standard costing and variance tracking by department. For Component Z, the standard is $22 per unit and 1 unit is allowed per finished product. In May, RiverStone produced 6,000 finished products and used 6,600 units of Component Z purchased at $21 per unit. The variance report shows a favorable material price variance and an unfavorable material quantity variance for Component Z. Management asks for an interpretation of cost management practices related to this component. What does the variance analysis suggest about the company's cost management practices?

  1. Purchasing achieved cost savings on price, but production used more components than standard, indicating possible defects, rework, or poor handling (correct answer)
  2. Production used fewer components than standard, indicating improved yield, but purchasing paid more than standard
  3. The favorable price variance means the total material cost must be favorable, so production usage does not require review
  4. The variance pattern indicates a variable overhead spending issue rather than a materials issue

Explanation: The question interprets material variances for cost practices. Key figures: favorable price 6,600(6,600 (1 savings on 6,600 units) and unfavorable quantity $13,200 (600 excess at $22). Choice A suggests purchasing strength but production issues, per variance analysis. Choice B reverses; choice C assumes net favorable incorrectly; choice D misattributes. Net variances guide decisions. Cross-department collaboration minimizes variances.

Question 18

A manufacturing company, Harbor Foods, uses standard costing with material variances tracked at the time of purchase. The standard price for Packaging Film is $1.80 per pound. In September, Harbor purchased 60,000 pounds at $1.95 per pound; the film was not yet issued to production. The purchasing manager argues no variance should be recognized until the material is used. Under standard costing variance practices, what corrective action should be taken based on the material price variance analysis?

  1. Record the material price variance at purchase and investigate supplier pricing or purchasing controls because the actual purchase price exceeded the standard price (correct answer)
  2. Defer recognition of the material price variance until the film is issued to production because variances are only recognized at usage
  3. Record the variance as a labor efficiency variance because packaging film affects line speed
  4. Eliminate the standard price and use actual costing to prevent future price variances

Explanation: This question tests the timing of material price variance recognition in standard costing systems. Key data is the purchase of 60,000 pounds at $1.95 versus $1.80 standard, yielding a $9,000 unfavorable price variance at purchase. Choice A aligns with principles by recording at purchase for timely control, independent of usage. Choice B defers incorrectly; choice C misclassifies as labor; and choice D abandons standard costing. Managers should enforce consistent variance recognition policies. A strategy involves automating variance flags in ERP systems and reviewing purchasing processes regularly.

Question 19

A manufacturing company, BluePeak Paints, uses standard costing with material variances tracked by lot. The standard for Pigment P is $14.00 per gallon and 0.30 gallons are allowed per finished unit. In February, BluePeak produced 40,000 units and used 13,000 gallons purchased at $15.20 per gallon. The controller asks the newly licensed CPA to recommend a corrective action focused specifically on the unfavorable material price variance. What corrective action should be taken based on the material price variance analysis?

  1. Increase the standard quantity allowed per unit to reduce the unfavorable material price variance
  2. Investigate supplier price increases, purchasing approvals, and alternative sources because the actual purchase price exceeded the standard price (correct answer)
  3. Reallocate the unfavorable material price variance to labor efficiency to reflect production responsibility
  4. Reduce the fixed overhead budget to offset the unfavorable material price variance

Explanation: The question focuses on corrective actions for unfavorable material price variance. Key data: standard $14/gallon, actual $15.20 on 13,000 gallons, unfavorable price $15,600; quantity unfavorable as 13,000 > 12,000 standard (0.3*40,000). Choice B targets purchasing, aligning with price variance responsibility. Choice A addresses quantity; choice C reallocates improperly; choice D offsets incorrectly. Managers should segregate variances by responsibility. A strategy is supplier diversification and price monitoring.

Question 20

A manufacturing company, GreenField Packaging, uses standard costing and tracks material price variances by supplier. The standard price for Paper Roll is $0.80 per pound. In June, GreenField purchased 500,000 pounds at $0.86 per pound after a supplier changed freight terms from FOB destination to FOB shipping point, and the company began paying inbound freight separately. The purchasing manager asks how to respond to the unfavorable material price variance. What corrective action should be taken based on the material price variance analysis?

  1. Investigate whether the standard price should include the normal freight component and update purchasing terms or the standard to reflect expected delivered cost (correct answer)
  2. Increase the standard quantity allowed per finished unit to eliminate the unfavorable price variance
  3. Charge the unfavorable material price variance to labor efficiency because production scheduling caused the freight change
  4. Ignore the variance because freight is a fixed overhead cost and does not affect material price variance

Explanation: The question tests responses to material price variance causes. Key data: standard $0.80/lb, actual $0.86 on 500,000 lbs, $30,000 unfavorable due to freight. Choice A evaluates standard inclusion, aligning with accurate standards. Choice B addresses quantity; choice C mischarges; choice D misclassifies. Review standards yearly. Negotiate terms to control variances.