Chapter 11
Standard Costs and Operating Performance Measures

Solutions to Questions

11-1 A quantity standard indicates how much of an input should be used to make a unit of output. A price standard indicates how much the input should cost.

11-2 Ideal standards assume perfection and do not allow for any inefficiency. Ideal standards are rarely, if ever, attained. Practical standards can be attained by employees working at a reasonable, though efficient pace and allow for normal breaks and work interruptions.

11-3 Under management by exception, managers focus their attention on results that deviate from expectations. It is assumed that results that meet expectations do not require investigation.

11-4 Separating an overall variance into a price variance and a quantity variance provides more information. Moreover, price and quantity variances are usually the responsibilities of different managers.

11-5 The materials price variance is usually the responsibility of the purchasing manager. The materials quantity and labor efficiency variances are usually the responsibility of production managers and supervisors.

11-6 The materials price variance can be computed either when materials are purchased or when they are placed into production. It is usually better to compute the variance when materials are purchased because that is when the purchasing manager, who has responsibility for this variance, has completed his or her work. In addition, recognizing the price variance when materials are purchased allows the company to carry its raw materials in the inventory accounts at standard cost, which greatly simplifies bookkeeping.

11-7 This combination of variances may indicate that inferior quality materials were purchased at a discounted price, but the low-quality materials created production problems.

11-8 If standards are used to find who to blame