Deck 8: Flexible Budgets, Variances, and Management Control: II

Question 1

An unfavourable production volume variance (a result of lower-than-budgeted output)should be expensed (to COGS)in the period it arises rather than be allocated to inventory.

Answer 1

True

Question 2

The fixed overhead flexible budget variance is the same as the fixed overhead static budget variance.

Answer 2

True

Question 3

The difference between budgeted fixed overhead and fixed overhead allocated for actual output units achieved, is the production-volume variance.

Answer 3

True

Question 4

In the journal entry that records overhead variances, the manufacturing overhead allocated accounts are closed.

Question 5

Fixed overhead costs are a lump sum that does not change in total despite changes in the cost driver.

Question 6

The production-volume variance arises because the actual output level differs from the output level used as the denominator to calculate the budgeted fixed overhead rate.

Question 7

The budgeted fixed overhead rate per output unit is computed by dividing budgeted fixed overhead costs by the level of input units.

Question 8

A favourable production-volume variance arises when manufacturing capacity planned for is not used.

Question 9

The (production)denominator level is the quantity of the allocation base used to allocate fixed overhead costs to a cost object in developing a budgeted fixed overhead rate.

Question 10

Fixed Manufacturing Overhead Variances that are not material should only be written off to Cost of Goods Sold.

Question 11

Capacity refers to the quantity of outputs that can be produced from long-term resources available to the company.

Question 12

Capacity cost is a variable overhead cost.

Question 13

Capacity decisions are considered operating decisions because they involve the long-term acquisition of assets by purchase or lease.

Question 14

Human capital refers to the intangible skills provided by people and is an inventoriable cost under ASPE/IFRS.

Question 15

Managers should use unitized fixed manufacturing overhead costs for planning and control.

Question 16

The production -volume overhead variance is favourable when actual outputs exceed the denominator level.

Question 17

An unfavourable fixed setup overhead rate variance could be due to higher lease costs of new setup equipment or higher salaries paid to engineers and supervisors.

Question 18

Which decisions are most likely to have been made by the start of the accounting period?

A)decisions affecting value-added costs
B)decisions affecting non-value-added costs
C)decisions affecting variable overhead costs
D)decisions affecting both fixed and variable overhead costs
E)decisions affecting fixed overhead costs

Question 19

A favourable production volume variance, if it is the result of an unusual fluctuation in production output, should be credited to COGS in the period that it arises.

Question 20

The fixed manufacturing overhead efficiency variance is used to analyze overhead costs.

Question 21

A favourable production-volume variance indicates that the company

A)has good management.
B)produced more than it has sold.
C)has a total economic gain from using excess capacity.
D)should increase capacity.
E)has allocated more fixed overhead costs than budgeted.

Question 22

In variance analysis, fixed manufacturing overhead will have

A)an efficiency variance.
B)a flexible-budget variance.
C)a rate variance.
D)a static-budget variance.
E)no variance, because it is fixed.

Question 23

Use the information below to answer the following question(s).Regal Company uses a single cost pool for fixed manufacturing overhead.The amount for June 2019 was budgeted at $500,000; however, the actual amount was $700,000.Actual production for June was 12,500 units, and actual machine hours were 10,000.Budgeted production included 17,750 units and 12,375 machine hours.
What is Regal Company's budgeted fixed overhead rate per machine hour?

A)$28.17 per machine hour
B)$39.44 per machine hour
C)$40.40 per machine hour
D)$56.56 per machine hour
E)$65.17 per machine hour

Question 24

When machine-hours are used as a cost allocation base, the item MOST likely to contribute to a favourable production-volume variance is

A)an increase in the selling price of the product.
B)the purchase of a new manufacturing machine costing considerably less than expected.
C)a decline in the cost of energy.
D)strengthened demand for the product.
E)a competitor lowering the price of a similar product.

Question 25

Use the information below to answer the following question(s).Regal Company uses a single cost pool for fixed manufacturing overhead.The amount for June 2019 was budgeted at $500,000; however, the actual amount was $700,000.Actual production for June was 12,500 units, and actual machine hours were 10,000.Budgeted production included 17,750 units and 12,375 machine hours.
Budgeted output for DuCane Small Engines Inc.was 20,000 engines during February 2019.Budgeted fixed overhead per output unit was $2.50, and 30,000 engines were actually produced.Actual fixed overhead was allocated at $3.00 per engine.What is the production-volume variance?

A)$33,500 favourable
B)$25,000 unfavourable
C)$30,000 favourable
D)$30,000 unfavourable
E)$25,000 favourable

Question 26

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.
E)estimated costs.

Question 27

Use the information below to answer the following question(s).Regal Company uses a single cost pool for fixed manufacturing overhead.The amount for June 2019 was budgeted at $500,000; however, the actual amount was $700,000.Actual production for June was 12,500 units, and actual machine hours were 10,000.Budgeted production included 17,750 units and 12,375 machine hours.
What is Regal Company's budgeted fixed overhead rate per output unit?

A)$28.17 per unit
B)$39.44 per unit
C)$40.40 per unit
D)$56.56 per unit
E)$65.17 per unit

Question 28

Davis Company produced 20,000 cases of beer.Machinery usage is 1.5 hours per case.Budget outputs are 22,000 cases.What are the required static budget machine hour inputs and flexible budget machine hour inputs, respectively?

A)30,000 Machine hours, 33,000 Machine hours
B)33,000 Machine hours, 30,000 Machine hours
C)39,000 Machine hours, 34,000 Machine hours
D)34,000 Machine hours, 39,000 Machine hours
E)39,000 Machine hours, 33,000 Machine hours

Question 29

When machine-hours are used as a cost allocation base, the item MOST likely to contribute to an unfavourable production-volume variance is

A)a new competitor gaining market share.
B)a new manufacturing machine costing considerably more than expected.
C)an increase in the cost of energy.
D)strengthened demand for the product.
E)an increase in the number of direct-labour hours.

Question 30

Randy's Production Company uses a single cost pool for fixed manufacturing overhead.The amount for May 2018 was budgeted at $250,000; however, the actual amount was $350,000.Actual production for May was 12,500 units, and actual machine hours were 10,000.Budgeted production included 17,750 units and 12,375 machine hours.What is the budgeted fixed overhead rate per input unit?

A)$25.00 per unit
B)$35.00 per unit
C)$20.00 per unit
D)$14.09 per unit
E)$14.08 per unit

Question 31

Capacity cost is

A)only an inventoriable cost.
B)only a period cost.
C)never amortized.
D)a variable manufacturing overhead cost.
E)a fixed manufacturing overhead cost.

Question 32

Actual overhead is $700,000, while budgeted overhead is $598,000.What is the fixed overhead static-budget variance if 250,000 units are produced and 225,000 are budgeted?

A)$80,000 favourable
B)$100,000 unfavourable
C)$100,000 favourable
D)$102,000 unfavourable
E)$102,000 favourable

Question 33

In order to properly record a fixed manufacturing overhead rate variance of $30,000 unfavourable and a production-volume overhead variance of $20,000 favourable, what would the appropriate journal entry be if actual fixed overhead is $500,000?

A)
B)
C)
D)
E)

Question 34

Use the information below to answer the following question(s).Regal Company uses a single cost pool for fixed manufacturing overhead.The amount for June 2019 was budgeted at $500,000; however, the actual amount was $700,000.Actual production for June was 12,500 units, and actual machine hours were 10,000.Budgeted production included 17,750 units and 12,375 machine hours.
Leek Company predicted that the fixed overhead would be $200,000 in April 2018.Production amounted to 60,000 actual and 50,000 budgeted decks of cards.Each deck takes approximately 0.20 machine hours to produce.The actual overhead costs per machine hour are $25.What is the production-volume variance?

A)$40,000 unfavourable
B)$40,000 favourable
C)$150,000 unfavourable
D)$150,000 favourable
E)$0

Question 35

The production-volume variance may also be referred to as the

A)flexible-budget variance.
B)static-budget variance.
C)rate variance.
D)efficiency variance.
E)denominator-level variance.

Question 36

Which of the following statements is TRUE?

A)The fixed manufacturing sales-volume variance is rarely zero.
B)The difference between the allocated and the budgeted overhead is the production-volume variance.
C)The production-volume variance arises for both fixed and variable costs.
D)The fixed manufacturing overhead sales-volume variance can be written-off to cost of goods sold.
E)The production-volume variance arises only for variable costs.

Question 37

When the actual output is more than expected and the volume is unusually high then the production volume variance is

A)unfavourable and should be prorated to work-in-process inventory, finished goods inventory, and cost of goods sold.
B)unfavourable and should be charged to cost of goods sold.
C)favourable and should be offset against cost of goods sold.
D)unfavourable and should be applied to inventory.
E)favourable and should be applied to inventory.

Question 38

The production-volume variance

A)only pertains to variable overhead costs.
B)only pertains to fixed overhead costs.
C)is not applicable in analysis of inventory costs.
D)pertains to both fixed and variable overhead costs.
E)equals the rate variance minus the efficiency variance.

Question 39

The difference between budgeted fixed manufacturing overhead and the fixed manufacturing overhead allocated to actual output units achieved is called

A)an efficiency variance.
B)a flexible-budget variance.
C)a manufacturing overhead flexible-budget variance.
D)a production-volume overhead variance.
E)an unallocated variable cost.

Question 40

Decisions about capacity are considered to be

A)operating decisions.
B)best done by plant supervisors.
C)best done during production.
D)more relevant for variable costs.
E)strategic decisions.

Question 41

All Clean of Alberta manufactures individual shampoos for hotel/motel clientele.The fixed manufacturing overhead costs for 2019 will total $576,000.The company uses good units finished for fixed overhead allocation and anticipates 300,000 units of production.Good units finished average 92 percent of total units produced.During January, 20,000 units were produced.Actual fixed overhead cost per good unit averaged $2.82 in January.Required:
a.Determine the fixed overhead rate for 2019.
b.Determine the fixed overhead static-budget variance for January.
c.Determine the fixed overhead production-volume variance for January.
d.Determine the fixed overhead rate variance for January.

Question 42

What are the arguments for prorating a production-volume variance that has been deemed to be material among work-in-process, finished goods, and cost of goods sold, as opposed to writing it all off to cost of goods sold?

Question 43

Answer the following question(s)using the information below.Rutch Corporation manufactured 54,000 door jambs during September.The fixed-overhead cost allocation rate is $50.00 per machine-hour.The following fixed overhead data pertain to September:

What is the fixed overhead rate variance?

A)$5,750 unfavourable
B)$5,750 favourable
C)$4,100 favourable
D)$4,100 unfavourable
E)$1,650 unfavourable

Question 44

Answer the following question(s)using the information below.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:

What is the flexible-budget amount for fixed-overhead?

A)$120,000
B)$122,000
C)$123,000
D)$125,000
E)$120,983

Question 45

Brown Company makes watches.The budgeted fixed overhead costs for 2019 total $324,000.The company uses direct labour-hours for fixed overhead allocation and anticipates 10,800 hours during the year for 540,000 units.An equal number of units are budgeted for each month.During October, 48,000 watches were produced and $28,000 was spent on fixed overhead.Required:
a.Determine the fixed overhead rate for 2019 based on the units of input.
b.Determine the fixed overhead static-budget variance for October.
c.Determine the production-volume overhead variance for October.

Question 46

How is a budgeted fixed overhead cost rate calculated?

Question 47

Answer the following question(s)using the information below.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:

What is the fixed overhead rate variance?

A)$1,000 unfavourable
B)$2,000 favourable
C)$3,000 unfavourable
D)$5,000 favourable
E)$983 unfavourable

Question 48

Answer the following question(s)using the information below.Rutch Corporation manufactured 54,000 door jambs during September.The fixed-overhead cost allocation rate is $50.00 per machine-hour.The following fixed overhead data pertain to September:

What is the production-volume variance?

A)$4,100 unfavourable
B)$4,100 favourable
C)$1,650 unfavourable
D)$5,750 unfavourable
E)$5,750 favourable

Question 49

Mostly Miniatures has just implemented a new cost accounting system that provides two variances for fixed manufacturing overhead.While the company's managers are familiar with the concept of static-budget variance, they are unclear as to how to interpret the production-volume overhead variances.Currently the company has a production capacity of 54,000 miniatures a month although it generally produces only 46,000 cases.However, in any given month the actual production is probably something other than 46,000.Required:
a.Does the production-volume overhead variance measure the difference between the 54,000 and 46,000, or the difference between the 46,000 and the actual monthly production? Explain.
b.What advice can you provide the managers that will help them interpret the production-volume overhead variances?

Question 50

Answer the following question(s)using the information below.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:

What is the production-volume variance?

A)$2,000 unfavourable
B)$3,000 favourable
C)$4,000 unfavourable
D)$5,000 favourable
E)$10,000 favourable

Question 51

Calculate the fixed manufacturing overhead rate variance based on the following data:

Question 52

The Saskatchewan division of a Canadian farm machinery company uses a standard cost system for its machine-based production of grain drying equipment.Data regarding production for April are as follows:
Required:
1.Prepare the necessary journal entries to account for the fixed manufacturing overhead incurred and allocated to production.2.Prepare the journal entry to close the fixed overhead variance accounts assuming that the fluctuation in denominator level is considered to be normal.

Question 53

Johnston Equipment develops food processing equipment.The budgeted fixed overhead costs for 2018 total $768,000.The company uses direct labour-hours for fixed overhead allocation and anticipates 480,000 hours during the year for 960,000 units.An equal number of units are budgeted for each month.During April 84,000 packages (units)were produced and $66,000 was spent on fixed overhead.Required:
a.Determine the fixed overhead rate for 2018 based on direct labour-hours.
b.Determine the fixed overhead static-budget variance for April.
c.Determine the production-volume overhead variance for April.

Question 54

Explain why there is no efficiency variance for fixed manufacturing overhead costs.

Question 55

Answer the following question(s)using the information below.Rutch Corporation manufactured 54,000 door jambs during September.The fixed-overhead cost allocation rate is $50.00 per machine-hour.The following fixed overhead data pertain to September:

A company had the following information pertaining to two different cases: The total fixed overhead variance in Case Y was

A)$4,000 unfavourable.
B)$4,000 favourable.
C)$10,000 unfavourable.
D)$12,000 favourable.
E)$12,000 unfavourable.

Question 56

Explain two concerns when interpreting the production-volume variance as a measure of the economic cost of unused capacity.

Question 57

Answer the following question(s)using the information below.Rutch Corporation manufactured 54,000 door jambs during September.The fixed-overhead cost allocation rate is $50.00 per machine-hour.The following fixed overhead data pertain to September:

What is the flexible-budget amount for fixed overhead?

A)$63,888
B)$53,400
C)$49,250
D)$51,750
E)$57,500

Question 58

Answer the following question(s)using the information below.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:

What is the amount of fixed overhead allocated to production?

A)$120,000
B)$122,000
C)$123,000
D)$125,000
E)$130,000

Question 59

Answer the following question(s)using the information below.Rutch Corporation manufactured 54,000 door jambs during September.The fixed-overhead cost allocation rate is $50.00 per machine-hour.The following fixed overhead data pertain to September:

What is the amount of fixed overhead allocated to production?

A)$51,750
B)$100,000
C)$53,400
D)$57,500
E)$49,250

Question 60

Everjoice Company makes clocks.The budgeted fixed overhead costs for 2018 total $720,000.The company uses direct labour-hours for fixed overhead allocation and anticipates 240,000 hours during the year for 480,000 units.An equal number of units are budgeted for each month.During June, 42,000 clocks were produced and $63,000 were spent on fixed overhead.Required:
a.Determine the fixed overhead rate for 2018 based on units of input.
b.Determine the fixed overhead static-budget variance for June.
c.Determine the production-volume overhead variance for June.

Question 61

An unfavourable variable overhead rate variance can be the result of paying lower prices than budgeted for variable overhead items such as energy.

Question 62

Use the information below to answer the following question(s).Moeller Electric manufactures light fixtures.The following information pertains to the company's manufacturing overhead data.
What is Moeller Electric's variable manufacturing overhead sales-volume variance?

A)$2,750 favourable
B)$37,625 favourable
C)$37,625 unfavourable
D)$40,375 favourable
E)$40,375 unfavourable

Question 63

The variable overhead efficiency variance measures the efficiency with which the cost-allocation base is used.

Question 64

Using a standard costing system makes it possible to use a simple recording system.

Question 65

Variable overhead rate variance is the difference between the actual amount of variable overhead incurred and the budgeted amount allowed for the actual quantity of the variable overhead allocation base used for the actual output units achieved.

Question 66

Use the information below to answer the following question(s).Moeller Electric manufactures light fixtures.The following information pertains to the company's manufacturing overhead data.
What is Moeller Electric's variable manufacturing overhead static-budget variance?

A)$2,750 favourable
B)$2,750 unfavourable
C)$40,375 favourable
D)$40,375 unfavourable
E)$44,000 unfavourable

Question 67

The variable overhead efficiency variance can be interpreted the same way as the efficiency variance for direct-cost items.

Question 68

The variable overhead efficiency variance is computed in a different way than the efficiency variance for direct-cost items.

Question 69

Describe if the production-volume variance is favourable or unfavourable for each of the following situations; and, provide the ASPE/IFRS treatment for the disposition of the variance.
1.actual output is less than expected
2.actual output is more than expected but still considered a usual fluctuation
3.actual output is more than expected and is abnormally high

Question 70

Use the information below to answer the following question(s).Moeller Electric manufactures light fixtures.The following information pertains to the company's manufacturing overhead data.
Assume that variable manufacturing overhead is allocated according to machine-hours.Aladdin Company expects to produce 400 cases of Product A using 400 machine-hours.Each machine hour is expected to take 10 KWH of electricity, which costs $6 per KWH.What is the maximum amount the company would be willing to pay for the new machine based solely on rate and efficiency variances if a new energy-efficient machine only used 8 KWH per machine-hour?

A)$120
B)$4,680
C)$4,920
D)$4,800
E)$4,120

Question 71

Use the information below to answer the following question(s).Moeller Electric manufactures light fixtures.The following information pertains to the company's manufacturing overhead data.
What is the variable manufacturing overhead flexible-budget variance?

A)$387 favourable
B)$2,363 unfavourable
C)$2,363 favourable
D)$2,750 favourable
E)$2,750 unfavourable

Question 72

Explain the meaning of a favourable production-volume variance.

Question 73

There is causal relationship between the variable overhead allocation base and the variable overhead cost pool.

Question 74

Effective planning of variable overhead costs means that a company performs those variable overhead costs that primarily add value

A)for the current shareholders.
B)for the customer using the products or services.
C)for plant employees.
D)for major suppliers of component parts.
E)for management.

Question 75

Two of the primary ways to manage variable overhead costs include

A)eliminating non-value-added costs and reducing the consumption of cost drivers.
B)eliminating non-value-added costs and increasing fixed overhead expenses.
C)reducing the consumption of cost drivers and increasing variable costs.
D)using more energy-efficient equipment and planning for appropriate capacity levels.
E)increasing variable costs and eliminating non-value added costs.

Question 76

The variable overhead flexible-budget variance measures the difference between standard variable overhead costs and flexible-budget variable overhead costs.

Question 77

What is the variable manufacturing overhead static-budget variance given the following information?

A)$20,000 favourable
B)$20,000 unfavourable
C)$50,000 unfavourable
D)$50,000 favourable
E)$55,000 favourable

Question 78

If a manager views the proration approach as not being cost-effective, then adjusting cost of goods sold is acceptable provide the amount is material.

Question 79

When separate variable and fixed manufacturing overhead control accounts are used for job costing, it is not necessary to have separate overhead allocated accounts.

Question 80

If budgeted machine-hours allowed per actual output unit equals 1.0 hour, and budgeted variable manufacturing overhead per machine-hour is $200, what is the budgeted variable manufacturing overhead rate per output unit?

A)$100
B)$200
C)$300
D)$400
E)$500