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# Ch08 MC Questions.doc

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McMaster University

Commerce

COMMERCE 2AB3

Aadil Merali Juma

Winter

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CHAPTER 8
FLEXIBLE BUDGETS, OVERHEAD COSTS,
VARIANCES, AND MANAGEMENT CONTROL
TRUE/FALSE
1. Overhead costs are a major part of costs for most companies — more than 50% of
all costs for some companies.
Answer: True Difficulty: 1 Objective: 1
Terms to Learn: total-overhead variance
2. At the start of the budget period, management will have made most decisions
regarding the level of variable costs to be incurred.
Answer: False Difficulty: 1 Objective: 1
Terms to Learn: total-overhead variance
At the start of the budget period, management will have made most decisions
regarding the level of fixed costs to be incurred.
3. One way to manage both variable and fixed overhead costs is to eliminate
nonvalue-adding activities.
Answer: True Difficulty: 1 Objective: 1
Terms to Learn: total-overhead variance
4. In a standard costing system, the variable-overhead rate per unit is generally
expressed as a standard cost per output unit.
Answer: True Difficulty: 1 Objective: 2
Terms to Learn: standard costing
5. For calculating the cost of products and services, a standard costing system does not
have to track actual costs.
Answer: True Difficulty: 3 Objective: 2
Terms to Learn: standard costing
6. The budget period for variable-overhead costs is typically less than 3 months.
Answer: False Difficulty: 1 Objective: 3
Terms to Learn: total-overhead variance
The budget period for variable-overhead costs is typically 12 months.
8-1 7. A favorable variable overhead spending variance can be the result of paying lower
prices than budgeted for variable overhead items such as energy.
Answer: True Difficulty: 1 Objective: 3
Terms to Learn: variable overhead spending variance
8. The variable overhead efficiency variance is computed in a different way than the
efficiency variance for direct-cost items.
Answer: False Difficulty: 1 Objective: 3
Terms to Learn: variable overhead efficiency variance
The variable overhead efficiency variance is computed the same way as the
efficiency variance for direct-cost items.
9. The variable overhead flexible-budget variance measures the difference between
standard variable overhead costs and flexible-budget variable overhead costs.
Answer: False Difficulty: 1 Objective: 3
Terms to Learn: variable overhead flexible-budget variance
The variable overhead flexible-budget variance measures the difference between the
actual variable overhead costs and the flexible-budget variable-overhead costs.
10. The variable overhead efficiency variance measures the efficiency with which the
cost-allocation base is used.
Answer: True Difficulty: 1 Objective: 3
Terms to Learn: variable overhead efficiency variance
11. The variable overhead efficiency variance can be interpreted the same way as the
efficiency variance for direct-cost items.
Answer: False Difficulty: 2 Objective: 4
Terms to Learn: variable overhead efficiency variance
The interpretations are different. The variable overhead efficiency variance focuses
on the quantity of allocation-base used, while the efficiency variance for direct-cost
items focuses on the quantity of materials and labor-hours used.
12. An unfavorable variable overhead efficiency variance indicates that variable
overhead costs were wasted and inefficiently used.
Answer: False Difficulty: 3 Objective: 4
Terms to Learn: variable overhead efficiency variance
An unfavorable variable overhead efficiency variance indicates that the company
used more than planned of the cost-allocation base.
8-2 13. Causes of a favorable variable overhead efficiency variance might include using
lower-skilled workers than expected.
Answer: False Difficulty: 2 Objective: 4
Terms to Learn: variable overhead efficiency variance
Possible causes of a favorable variable overhead efficiency variance might include
using higher-skilled workers that are more efficient than expected.
14. For fixed overhead costs, the flexible-budget amount is always the same as the
static-budget amount.
Answer: True Difficulty: 2 Objective: 5
Terms to Learn: fixed overhead flexible-budget variance
15. The fixed overhead flexible-budget variance is the difference between actual fixed
overhead costs and the fixed overhead costs in the flexible budget.
Answer: True Difficulty: 1 Objective: 5
Terms to Learn: fixed overhead flexible-budget variance
16. There is never an efficiency variance for fixed costs.
Answer: True Difficulty: 2 Objective: 5
Terms to Learn: total-overhead variance
17. All unfavorable overhead variances decrease operating income compared to the
budget.
Answer: True Difficulty: 2 Objective: 5
Terms to Learn: total-overhead variance
18. A favorable fixed overhead flexible-budget variance indicates that actual fixed costs
exceeded the lump-sum amount budgeted.
Answer: False Difficulty: 1 Objective: 5
Terms to Learn: fixed overhead flexible-budget variance
A favorable fixed overhead flexible-budget variance indicates that actual fixed costs
were less than the lump-sum amount budgeted.
19. Fixed costs for the period are by definition a lump sum of costs that remain
unchanged and therefore the fixed overhead spending variance is always zero.
Answer: False Difficulty: 2 Objective: 5
Terms to Learn: fixed overhead spending variance
Fixed costs for the period are by definition a lump sum of costs, but they can and do
change from the amount that was originally budgeted.
8-3 20. Caution is appropriate before interpreting the production-volume variance as a
measure of the economic cost of unused capacity.
Answer: True Difficulty: 1 Objective: 6
Terms to Learn: production-volume variance
21. The production-volume variance arises whenever the actual level of the
denominator differs from the level used to calculate the budgeted fixed overhead
rate.
Answer: True Difficulty: 1 Objective: 6
Terms to Learn: production-volume variance
22. The lump sum budgeted for fixed overhead will always be the same amount for the
static budget and the flexible budget.
Answer: True Difficulty: 2 Objective: 6
Terms to Learn: fixed overhead flexible-budget variance
23. A favorable production-volume variance arises when manufacturing capacity
planned for is not used.
Answer: False Difficulty: 1 Objective: 6
Terms to Learn: production-volume variance
An unfavorable production-volume variance arises when manufacturing capacity
planned for is not used.
24. The fixed overhead flexible budget variance is the difference between actual fixed
overhead costs and fixed overhead costs in the flexible budget.
Answer: True Difficulty: 2 Objective: 6
Terms to Learn: fixed overhead flexible-budget variance
25. An unfavorable production-volume variance always infers that management made a
bad planning decision regarding the plant capacity.
Answer: False Difficulty: 2 Objective: 6
Terms to Learn: production-volume variance
An unfavorable production-volume variance does not always infer that management
made a bad planning decision regarding the plant capacity.
26. Favorable overhead variances are always recorded with credits in a standard cost
system.
Answer: True Difficulty: 2 Objective: 6
Terms to Learn: standard costing, total-overhead variance
8-4 27. Under activity-based costing, the flexible-budget amount equals the static-budget
amount for fixed overhead costs.
Answer: True Difficulty: 2 Objective: 6
Terms to Learn: fixed overhead flexible-budget variance
28. Managers should use unitized fixed manufacturing overhead costs for planning and
control.
Answer: False Difficulty: 3 Objective: 7
Terms to Learn: production-volume variance
Managers should not use unitized fixed manufacturing overhead costs for planning
and control, but only for inventory costing purposes.
29. Both financial and nonfinancial performance measures are key inputs when
evaluating the performance of managers.
Answer: True Difficulty: 1 Objective: 7
Terms to Learn: total-overhead variance
30. In the journal entry that records overhead variances, the manufacturing overhead
allocated accounts are closed.
Answer: True Difficulty: 1 Objective: 7
Terms to Learn: standard costing
31. Variance analysis of fixed nonmanufacturing costs, such as distribution costs, can
also be useful when planning for capacity.
Answer: True Difficulty: 1 Objective: 7
Terms to Learn: total-overhead variance
32. Variance analysis of fixed overhead costs is also useful when a company uses
activity-based costing.
Answer: True Difficulty: 1 Objective: 8
Terms to Learn: total-overhead variance
33. An unfavorable fixed setup overhead spending variance could be due to higher
lease costs of new setup equipment.
Answer: True Difficulty: 2 Objective: 8
Terms to Learn: fixed overhead spending variance
8-5 34. A favorable variable setup overhead efficiency variance could be due to actual
setup-hours exceeding the setup-hours planned for the units produced.
Answer: False Difficulty: 2 Objective: 8
Terms to Learn: variable overhead efficiency variance
An unfavorable variable setup overhead efficiency variance could be due to actual
setup-hours exceeding the setup-hours planned for the units produced.
MULTIPLE CHOICE
35. Overhead costs have been increasing due to all of the following EXCEPT:
a. increased automation
b. more complexity in distribution processes
c. tracing more costs as direct costs with the help of technology
d. product proliferation
Answer: c Difficulty: 3 Objective: 1
Terms to Learn: total-overhead variance
36. Effective planning of variable overhead costs means that a company performs those
variable overhead costs that primarily add value for:
a. the current shareholders
b. the customer using the products or services
c. plant employees
d. major suppliers of component parts
Answer: b Difficulty: 2 Objective: 1
Terms to Learn: total-overhead variance
37. Variable overhead costs include:
a. plant-leasing costs
b. the plant manager’s salary
c. depreciation on plant equipment
d. machine maintenance
Answer: d Difficulty: 1 Objective: 1
Terms to Learn: total-overhead variance
38. Fixed overhead costs include:
a. the cost of sales commissions
b. property taxes paid on plant facilities
c. energy costs
d. indirect materials
Answer: b Difficulty: 1 Objective: 1
Terms to Learn: total-overhead variance
8-6 39. Effective planning of fixed overhead costs includes all of the following EXCEPT:
a. planning day-to-day operational decisions
b. eliminating nonvalue-added costs
c. planning to be efficient
d. choosing the appropriate level of capacity
Answer: a Difficulty: 3 Objective: 1
Terms to Learn: total-overhead variance
40. Effective planning of variable overhead includes all of the following EXCEPT:
a. choosing the appropriate level of capacity
b. eliminating nonvalue-adding costs
c. redesigning products to use fewer resources
d. redesigning the plant layout for more efficient processing
Answer: a Difficulty: 2 Objective: 1
Terms to Learn: total-overhead variance
41. Choosing the appropriate level of capacity:
a. is a key strategic decision
b. may lead to loss of sales if overestimated
c. may lead to idle capacity if underestimated
d. All of these answers are correct.
Answer: a Difficulty: 2 Objective: 1
Terms to Learn: production-volume variance
42. The MAJOR challenge when planning fixed overhead is:
a. calculating total costs
b. calculating the cost-allocation rate
c. choosing the appropriate level of capacity
d. choosing the appropriate planning period
Answer: c Difficulty: 3 Objective: 1
Terms to Learn: production-volume variance
43. In a standard costing system, a cost-allocation base would MOST likely be:
a. actual machine-hours
b. normal machine-hours
c. standard machine-hours
d. Any of these answers is correct.
Answer: c Difficulty: 3 Objective: 2
Terms to Learn: standard costing
8-7 44. For calculating the costs of products and services, a standard costing system:
a. only requires a simple recording system
b. uses standard costs to determine the cost of products
c. does not have to keep track of actual costs
d. All of these answers are correct.
Answer: d Difficulty: 3 Objective: 2
Terms to Learn: standard costing
45. The variable overhead flexible-budget variance measures the difference between:
a. actual variable overhead costs and the static budget for variable overhead
costs
b. actual variable overhead costs and the flexible budget for variable overhead
costs
c. the static budget for variable overhead costs and the flexible budget for
variable overhead costs
d. None of these answers is correct.
Answer: b Difficulty: 2 Objective: 2
Terms to Learn: variable overhead flexible-budget variance
46. A $5,000 unfavorable flexible-budget variance indicates that:
a. the flexible-budget amount exceeded actual variable manufacturing overhead
by $5,000
b. the actual variable manufacturing overhead exceeded the flexible-budget
amount by $5,000
c. the flexible-budget amount exceeded standard variable manufacturing
overhead by $5,000
d. the standard variable manufacturing overhead exceeded the flexible-budget
amount by $5,000
Answer: b Difficulty: 2 Objective: 2
Terms to Learn: variable overhead flexible-budget variance
47. Which of the following is NOT a step in developing budgeted variable overhead
rates?
a. identifying the variable overhead costs associated with each cost-allocation
base
b. estimating the budgeted denominator level based on expected utilization of
available capacity
c. selecting the cost-allocation bases to use
d. choosing the period to be used for the budget
Answer: b Difficulty: 2 Objective: 2
Terms to Learn: denominator level
8-8 48. In flexible budgets, costs that remain the same regardless of the output levels within
the relevant range are:
a. allocated costs
b. budgeted costs
c. fixed costs
d. variable costs
Answer: c Difficulty: 1 Objective: 2
Terms to Learn: total-overhead variance
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 49 THROUGH 52:
Shimon Corporation manufactures industrial-sized water coolers and uses budgeted
machine-hours to allocate variable manufacturing overhead. The following information
pertains to the company's manufacturing overhead data:
Budgeted output units 15,000 units
Budgeted machine-hours 5,000 hours
Budgeted variable manufacturing overhead costs for 15,000 units $161,250
Actual output units produced 22,000 units
Actual machine-hours used 7,200 hours
Actual variable manufacturing overhead costs $242,000
49. What is the budgeted variable overhead cost rate per output unit?
a. $10.75
b. $11.00
c. $32.25
d. $48.40
Answer: a Difficulty: 2 Objective: 2
Terms to Learn: total-overhead variance
$161,250/15,000 = $10.75
50. What is the flexible-budget amount for variable manufacturing overhead?
a. $165,000
b. $236,500
c. $242,000
d. None of these answers is correct.
Answer: b Difficulty: 3 Objective: 2
Terms to Learn: variable overhead flexible-budget variance
22,000 x ($161,250/15,000) = $236,500
8-9 51. What is the flexible-budget variance for variable manufacturing overhead?
a. $5,500 favorable
b. $5,500 unfavorable
c. $4,300 favorable
d. None of these answers is correct.
Answer: b Difficulty: 3 Objective: 2
Terms to Learn: variable overhead flexible-budget variance
$242,000 – [22,000 x ($161,250/15,000)] = $5,500 unfavorable
52. Variable manufacturing overhead costs were __________ for actual output.
a. higher than expected
b. the same as expected
c. lower than expected
d. indeterminable
Answer: a Difficulty: 2 Objective: 2
Terms to Learn: variable overhead flexible-budget variance
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 53 THROUGH 56:
White Corporation manufactures football jerseys and uses budgeted machine-hours to
allocate variable manufacturing overhead. The following information pertains to the
company's manufacturing overhead data:
Budgeted output units 20,000 units
Budgeted machine-hours 30,000 hours
Budgeted variable manufacturing overhead costs for 20,000 units $360,000
Actual output units produced 18,000 units
Actual machine-hours used 28,000 hours
Actual variable manufacturing overhead costs $342,000
53. What is the budgeted variable overhead cost rate per output unit?
a. $12.00
b. $12.21
c. $18.00
d. $19.00
Answer: c Difficulty: 2 Objective: 2
Terms to Learn: total-overhead variance
$360,000/20,000 = $18.00
8-10 54. What is the flexible-budget amount for variable manufacturing overhead?
a. $324,000
b. $342,000
c. $380,000
d. None of these answers is correct.
Answer: a Difficulty: 3 Objective: 2
Terms to Learn: variable overhead flexible-budget variance
18,000 x ($360,000/20,000) = $324,000
55. What is the flexible-budget variance for variable manufacturing overhead?
a. $18,000 favorable
b. $18,000 unfavorable
c. zero
d. None of these answers is correct.
Answer: b Difficulty: 3 Objective: 2
Terms to Learn: variable overhead flexible-budget variance
$342,000 – [18,000 x ($360,000/20,000)] = $18,000 unfavorable
56. Variable-manufacturing overhead costs were __________ for actual output.
a. higher than expected
b. the same as expected
c. lower than expected
d. indeterminable
Answer: a Difficulty: 2 Objective: 2
Terms to Learn: variable overhead flexible-budget variance
57. The variable overhead flexible-budget variance can be further subdivided into the:
a. price variance and the efficiency variance
b. static-budget variance and sales-volume variance
c. spending variance and the efficiency variance
d. sales-volume variance and the spending variance
Answer: c Difficulty: 1 Objective: 3
Terms to Learn: variable overhead flexible-budget variance
58. An unfavorable variable overhead spending variance indicates that:
a. variable overhead items were not used efficiently
b. the price of variable overhead items was more than budgeted
c. the variable overhead cost-allocation base was not used efficiently
d. the denominator level was not accurately determined
Answer: b Difficulty: 2 Objective: 3
Terms to Learn: variable overhead spending variance
8-11 59. When machine-hours are used as an overhead cost-allocation base, the MOST
likely cause of a favorable variable overhead spending variance is:
a. excessive machine breakdowns
b. the production scheduler efficiently scheduled jobs
c. a decline in the cost of energy
d. strengthened demand for the product
Answer: c Difficulty: 3 Objective: 3
Terms to Learn: fixed overhead spending variance
60. When machine-hours are used as an overhead cost-allocation base and the
unexpected purchase of a new machine results in fewer expenditures for machine
maintenance, the MOST likely result would be to report a(n):
a. favorable variable overhead spending variance
b. unfavorable variable overhead efficiency variance
c. favorable fixed overhead flexible-budget variance
d. unfavorable production-volume variance
Answer: a Difficulty: 3 Objective: 3
Terms to Learn: variable overhead spending variance
61. For variable manufacturing overhead, there is no:
a. spending variance
b. efficiency variance
c. flexible-budget variance
d. production-volume variance
Answer: d Difficulty: 2 Objective: 3
Terms to Learn: production-volume variance
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 62 AND 63:
Kellar Corporation manufactured 1,500 chairs during June. The following variable
overhead data pertain to June:
Budgeted variable overhead cost per unit $ 12.00
Actual variable manufacturing overhead cost $16,800
Flexible-budget amount for variable manufacturing overhead $18,000
Variable manufacturing overhead efficiency variance $360 unfavorable
8-12 62. What is the variable overhead flexible-budget variance?
a. $1,200 favorable
b. $360 unfavorable
c. $1,560 favorable
d. $1,200 unfavorable
Answer: a Difficulty: 2 Objective: 3
Terms to Learn: variable overhead flexible-budget variance
$16,800 – $18,000 = $1,200 (F)
63. What is the variable overhead spending variance?
a. $840 unfavorable
b. $1,200 favorable
c. $1,200 unfavorable
d. $1,560 favorable
Answer: d Difficulty: 2 Objective: 3
Terms to Learn: variable overhead spending variance
$1,200 (F) – $360 (U) = $1,560 (F)
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 64 AND 65:
Patel Corporation manufactured 1,000 coolers during October. The following variable
overhead data pertain to October:
Budgeted variable overhead cost per unit $ 9.00
Actual variable manufacturing overhead cost $8,400
Flexible-budget amount for variable manufacturing overhead $9,000
Variable manufacturing overhead efficiency variance $180 unfavorable
64. What is the variable overhead flexible-budget variance?
a. $600 favorable
b. $420 unfavorable
c. $780 favorable
d. $600 unfavorable
Answer: a Difficulty: 2 Objective: 3
Terms to Learn: variable overhead flexible-budget variance
$8,400 – $9,000 = $600 (F)
8-13 65. What is the variable overhead spending variance?
a. $420 unfavorable
b. $600 favorable
c. $600 unfavorable
d. $780 favorable
Answer: d Difficulty: 2 Objective: 3
Terms to Learn: variable overhead spending variance
$600 (F) – $180 (U) = $780 (F)
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 66 THROUGH 69:
Roberts Corporation manufactured 100,000 buckets during February. The overhead cost-
allocation base is $5.00 per machine-hour. The following variable overhead data pertain
to February:
Actual Budgeted
Production 100,000 units 100,000 units
Machine-hours 9,800 hours 10,000 hours
Variable overhead cost per machine-hour $5.25 $5.00
66. What is the actual variable overhead cost?
a. $49,000
b. $50,000
c. $51,450
d. None of these answers is correct.
Answer: c Difficulty: 1 Objective: 3
Terms to Learn: total-overhead variance
9,800 mh x $5.25 = $51,450
67. What is the flexible-budget amount?
a. $49,000
b. $50,000
c. $51,450
d. None of these answers is correct.
Answer: b Difficulty: 2 Objective: 3
Terms to Learn: variable overhead flexible-budget variance
10,000 mh x $5.00 = $50,000
8-14 68. What is the variable overhead spending variance?
a. $1,000 favorable
b. $1,450 unfavorable
c. $2,450 unfavorable
d. None of these answers is correct.
Answer: c Difficulty: 2 Objective: 3
Terms to Learn: variable overhead spending variance
($5.25 – $5.00) x 9,800 mh = $2,450 unfavorable
69. What is the variable overhead efficiency variance?
a. $1,000 favorable
b. $1,450 unfavorable
c. $2,450 unfavorable
d. None of these answers is correct.
Answer: a Difficulty: 2 Objective: 3
Terms to Learn: variable overhead efficiency variance
[9,800 – 10,000] x $5.00 = $1,000 favorable
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 70 THROUGH 73:
Roberson Corporation manufactured 30,000 ice chests during September. The overhead
cost-allocation base is $11.25 per machine-hour. The following variable overhead data
pertain to September:
Actual Budgeted
Production 30,000 units 24,000 units
Machine-hours 15,000 hours 10,800 hours
Variable overhead cost per machine-hour: $11.00 $11.25
70. What is the actual variable overhead cost?
a. $121,500
b. $151,875
c. $165,000
d. $168,750
Answer: c Difficulty: 1 Objective: 3
Terms to Learn: total-overhead variance
15,000 mh x $11.00 = $165,000
8-15 71. What is the flexible-budget amount?
a. $121,500
b. $151,875
c. $165,000
d. $168,750
Answer: b Difficulty: 3 Objective: 3
Terms to Learn: variable overhead flexible-budget variance
30,000 x (10,800/24,000) x $11.25 = $151,875
72. What is the variable overhead spending variance?
a. $3,750 favorable
b. $16,875 unfavorable
c. $13,125 unfavorable
d. $30,375 unfavorable
Answer: a Difficulty: 3 Objective: 3
Terms to Learn: variable overhead spending variance
($11.00 – $11.25) x 15,000 mh = $3,750 favorable
73. What is the variable overhead efficiency variance?
a. $3,750 favorable
b. $16,875 unfavorable
c. $13,125 unfavorable
d. $30,375 unfavorable
Answer: b Difficulty: 3 Objective: 3
Terms to Learn: variable overhead efficiency variance
[15,000 – (30,000 x 10,800/24,000) mh] x $11.25 = $16,875 unfavorable
74. The variable overhead efficiency variance is computed __________ and interpreted
__________ the direct-cost efficiency variance.
a. the same as; the same as
b. the same as; differently than
c. differently than; the same as
d. differently than; differently than
Answer: b Difficulty: 2 Objective: 4
Terms to Learn: variable overhead efficiency variance
8-16 75. An unfavorable variable overhead efficiency variance indicates that:
a. variable overhead items were not used efficiently
b. the price of variable overhead items was less than budgeted
c. the variable overhead cost-allocation base was not used efficiently
d. the denominator level was not accurately determined
Answer: c Difficulty: 2 Objective: 4
Terms to Learn: variable overhead efficiency variance
76. Variable overhead costs can be managed by:
a. reducing the consumption of the cost-allocation base
b. eliminating nonvalue-adding variable costs
c. planning for appropriate capacity levels
d. Both a and b are correct.
Answer: d Difficulty: 2 Objective: 4
Terms to Learn: total-overhead variance
77. When machine-hours are used as a cost-allocation base, the item MOST likely to
contribute to a favorable variable overhead efficiency variance is:
a. excessive machine breakdowns
b. the production scheduler’s impressive scheduling of machines
c. a decline in the cost of energy
d. strengthened demand for the product
Answer: b Difficulty: 3 Objective: 4
Terms to Learn: variable overhead efficiency variance
78. When machine-hours are used as a cost-allocation base, the item MOST likely to
contribute to an unfavorable variable overhead efficiency variance is:
a. using more machine hours than budgeted
b. workers wastefully using variable overhead items
c. unused capacity
d. more units being produced than planned
Answer: a Difficulty: 3 Objective: 4
Terms to Learn: variable overhead efficiency variance
8-17 79. When machine-hours are used as an overhead cost-allocation base, a rush order
resulting in unplanned overtime that used less-skilled workers on the machines
would MOST likely contribute to reporting a(n):
a. favorable variable overhead spending variance
b. unfavorable variable overhead efficiency variance
c. favorable fixed overhead flexible-budget variance
b. unfavorable production-volume variance
Answer: b Difficulty: 3 Objective: 4
Terms to Learn: variable overhead efficiency variance
80. When machine-hours are used as an overhead cost-allocation base and annual
leasing costs for equipment unexpectedly increase, the MOST likely result would
be to report a(n):
a. unfavorable variable overhead spending variance
b. favorable variable overhead efficiency variance
c. unfavorable fixed overhead flexible-budget variance
b. favorable production-volume variance
Answer: c Difficulty: 3 Objective: 4,5
Terms to Learn: fixed overhead flexible-budget variance
81. The fixed overhead cost variance can be further subdivided into the:
a. price variance and the efficiency variance
b. spending variance and flexible-budget variance
c. production-volume variance and the efficiency variance
d. flexible-budget variance and the production-volume variance
Answer: d Difficulty: 1 Objective: 5
Terms to Learn: total-overhead variance
82. The amount reported for fixed overhead on the static budget is also reported:
a. as actual fixed costs
b. as allocated fixed overhead
c. on the flexible budget
d. Both b and c are correct.
Answer: c Difficulty: 1 Objective: 5
Terms to Learn: fixed overhead flexible-budget variance
8-18 83. An unfavorable fixed overhead spending variance indicates that:
a. there was more excess capacity than planned
b. the price of fixed overhead items cost more than budgeted
c. the fixed overhead cost-allocation base was not used efficiently
d. the denominator level was more than planned
Answer: b Difficulty: 2 Objective: 5
Terms to Learn: fixed overhead spending variance
84. A favorable fixed overhead spending variance might indicate that:
a. more capacity was used than planned
b. the denominator level was less than planned
c. the fixed overhead cost-allocation base was not used efficiently
d. a plant expansion did not proceed as originally planned
Answer: d Difficulty: 3 Objective: 5
Terms to Learn: fixed overhead spending variance
85. For fixed manufacturing overhead, there is no:
a. spending variance
b. efficiency variance
c. flexible-budget variance
d. production-volume variance
Answer: b Difficulty: 2 Objective: 5
Terms to Learn: total-overhead variance
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 86 THROUGH 89:
Jenny’s Corporation manufactured 25,000 grooming kits for horses during March. The
fixed-overhead cost-allocation rate is $20.00 per machine-hour. The following fixed
overhead data pertain to March:
Actual Static Budget
Production 25,000 units 24,000 units
Machine-hours 6,100 hours 6,000 hours
Fixed overhead costs for March $123,000 $120,000
86. What is the flexible-budget amount?
a. $120,000
b. $122,000
c. $123,000
d. $125,000
Answer: a Difficulty: 2 Objective: 5
Terms to Learn: total-overhead variance
$120,000, the same lump sum as the static budget
8-19 87. What is the amount of fixed overhead allocated to production?
a. $120,000
b. $122,000
c. $123,000
d. $125,000
Answer: d Difficulty: 3 Objective: 5
Terms to Learn: production-volume variance
25,000 x (6,000/24,000) x $20.00 = $125,000
88. What is the fixed overhead spending variance?
a. $1,000 unfavorable
b. $2,000 favorable
c. $3,000 unfavorable
d. $5,000 favorable
Answer: c Difficulty: 3 Objective: 5
Terms to Learn: fixed overhead spending variance
$123,000 actual costs – $120,000 budgeted cost = $3,000 unfavorable
89. What is the fixed overhead production-volume variance?
a. $1,000 unfavorable
b. $2,000 favorable
c. $3,000 unfavorable
d. $5,000 favorable
Answer: d Difficulty: 3 Objective: 5
Terms to Learn: production-volume variance
$120,000 – [25,000 x (6,000/24,000) x $20.00] = $5,000 favorable
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 90 THROUGH 93:
Matthew’s Corporation manufactured 10,000 golf bags during March. The fixed
overhead cost-allocation rate is $20.00 per machine-hour. The following fixed overhead
data pertain to March:
Actual Static Budget
Production 10,000 units 12,000 units
Machine-hours 5,100 hours 6,000 hours
Fixed overhead cost for March $122,000 $120,000
8-20 90. What is the flexible-budget amount?
a. $100,000
b. $102,000
c. $120,000
d. $122,000
Answer: c Difficulty: 2 Objective: 5
Terms to Learn: total-overhead variance
$120,000, the same lump sum as the static budget
91. What is the amount of fixed overhead allocated to production?
a. $100,000
b. $102,000
c. $120,000
d. $122,000
Answer: a Difficulty: 3 Objective: 5
Terms to Learn: production-volume variance
10,000 x (6,000/12,000) x $20.00 = $100,000
92. What is the fixed overhead production-volume variance?
a. $2,000 unfavorable
b. $18,000 favorable
c. $20,000 unfavorable
d. $22,000 unfavorable
Answer: c Difficulty: 3 Objective: 5
Terms to Learn: production-volume variance
$120,000 – [10,000 x (6,000/12,000) x $20.00] = $20,000 unfavorable
93. Fixed overhead is:
a. overallocated by $2,000
b. underallocated by $2,000
c. overallocated by $22,000
d. underallocated by $22,000
Answer: d Difficulty: 3 Objective: 5
Terms to Learn: production-volume variance
$122,000 - [10,000 x (6,000/12,000) x $20.00] = $22,000 underallocated
8-21 94. The production-volume variance may also be referred to as the:
a. flexible-budget variance
b. denominator-level variance
c. spending variance
d. efficiency variance
Answer: b Difficulty: 1 Objective: 6
Terms to Learn: denominator level, denominator-level variance
95. A favorable production-volume variance indicates that the company:
a. has good management
b. has allocated more fixed overhead costs than budgeted
c. has a total economic gain from using excess capacity
d. should increase capacity
Answer: b Difficulty: 2 Objective: 6
Terms to Learn: production-volume variance
96. An unfavorable production-volume variance of $40,000 indicates that the company
has:
a. unused fixed manufacturin

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