Deck 8: Flexible Budgets, Overhead Cost Variances, and Management Control

Question 1

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 1

B

Question 2

At the start of the budget period, management will have made most decisions regarding the level of fixed overhead costs to be incurred.

Answer 2

True

Question 3

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 3

B

Question 4

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

Question 5

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

Question 6

Variable overhead costs include:

A)plant-leasing costs
B)the plant manager's salary
C)depreciation on plant equipment
D)machine maintenance

Question 7

Answer the following questions using the information below:
Willis Corporation manufactures industrial-sized gas furnaces and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

What is the budgeted variable overhead cost rate per output unit?

A)$10.75
B)$11.00
C)$32.25
D)$48.40

Question 8

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.

Question 9

The planning of fixed overhead costs does NOT differ from the planning of variable overhead costs.

Question 10

Jael Equipment uses a flexible budget for its indirect manufacturing costs. For 20X5, the company anticipated that it would produce 18,000 units with 3,500 machine-hours and 7,200 employee days. The costs and cost drivers were to be as follows:
During the year, the company processed 20,000 units, worked 7,500 employee days, and had 4,000 machine-hours. The actual costs for 20X5 were:
Required:
a. Prepare the static budget using the overhead items above and then compute the static-budget variances.
b. Prepare the flexible budget using the overhead items above and then compute the flexible-budget variances.

Question 11

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.

Question 12

Answer the following questions using the information below:
Christine Corporation manufactures baseball uniforms and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

What is the budgeted variable overhead cost rate per output unit?

A)$12.00
B)$12.21
C)$18.00
D)$19.00

Question 13

Fixed overhead costs include:

A)the cost of sales commissions
B)property taxes paid on plant facilities
C)energy costs
D)indirect materials

Question 14

Overhead costs are a major part of costs for most companiesmore than 50% of all costs for some companies.

Question 15

Which of the following is NOT a step in developing budgeted fixed overhead rates?

A)Choose the period to use for the budget.
B)Select the cost-allocation bases to use in allocating fixed overhead costs to output produced.
C)Identify the fixed overhead costs associated with each cost-allocation base.
D)All of the above are steps in developing budgeted fixed overhead rates.

Question 16

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

Question 17

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.

Question 18

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

Question 19

One way to manage both variable and fixed overhead costs is to eliminate value-adding activities.

Question 20

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

Question 21

Answer the following questions using the information below:
Fearless Frank's Fertilizer Farm produces fertilizer and distributes the product by using his tanker trucks. Frank's uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

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

Question 22

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.

Question 23

Answer the following questions using the information below:
Willis Corporation manufactures industrial-sized gas furnaces and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

Variable manufacturing overhead costs were ________ for actual output.

A)higher than expected
B)the same as expected
C)lower than expected
D)indeterminable

Question 24

Answer the following questions using the information below:
Fearless Frank's Fertilizer Farm produces fertilizer and distributes the product by using his tanker trucks. Frank's uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

What is the flexible-budget amount for variable manufacturing overhead?

A)$80,000
B)$78,750
C)$75,000
D)$76,500

Question 25

Answer the following questions using the information below:
Christine Corporation manufactures baseball uniforms and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

What is the flexible-budget amount for variable manufacturing overhead?

A)$162,000
B)$171,000
C)$190,000
D)None of these answers is correct.

Question 26

Answer the following questions using the information below:
Fearless Frank's Fertilizer Farm produces fertilizer and distributes the product by using his tanker trucks. Frank's uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

What is the budgeted variable overhead cost rate per output unit?

A)$120.00
B)$125.00
C)$166.67
D)$175.00

Question 27

For calculating the cost of products and services, a standard costing system must track actual costs.

Question 28

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

Question 29

Answer the following questions using the information below:
Willis Corporation manufactures industrial-sized gas furnaces and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

What is the flexible-budget variance for variable manufacturing overhead?

A)$11,000 favorable
B)$11,000 unfavorable
C)$8,600 favorable
D)None of these answers is correct.

Question 30

Answer the following questions using the information below:
Fearless Frank's Fertilizer Farm produces fertilizer and distributes the product by using his tanker trucks. Frank's uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

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

Question 31

Answer the following questions using the information below:
Fearless Frank's Fertilizer Farm produces fertilizer and distributes the product by using his tanker trucks. Frank's uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

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

Question 32

Answer the following questions using the information below:
Christine Corporation manufactures baseball uniforms and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

What is the flexible-budget variance for variable manufacturing overhead?

A)$9,000 favorable
B)$9,000 unfavorable
C)zero
D)None of these answers is correct.

Question 33

Answer the following questions using the information below:
Willis Corporation manufactures industrial-sized gas furnaces and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

What is the flexible-budget amount for variable manufacturing overhead?

A)$330,000
B)$473,000
C)$484,000
D)None of these answers is correct.

Question 34

Standard costing is a cost system that allocates overhead costs on the basis of overhead cost rates based on actual overhead costs times the standard quantities of the allocation bases allowed for the actual outputs produced.

Question 35

Standard costing is a costing system that allocates overhead costs on the basis of the standard overhead-cost rates times the standard quantities of the allocation bases allowed for the actual outputs produced.

Question 36

The budget period for variable-overhead costs is typically less than 3 months.

Question 37

Answer the following questions using the information below:
Fearless Frank's Fertilizer Farm produces fertilizer and distributes the product by using his tanker trucks. Frank's uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

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

Question 38

Answer the following questions using the information below:
Christine Corporation manufactures baseball uniforms and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

Variable-manufacturing overhead costs were ________ for actual output.

A)higher than expected
B)the same as expected
C)lower than expected
D)indeterminable

Question 39

Answer the following questions using the information below:
Fearless Frank's Fertilizer Farm produces fertilizer and distributes the product by using his tanker trucks. Frank's uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

Variable-manufacturing overhead costs were ________ for actual output.

A)higher than expected
B)the same as expected
C)lower than expected
D)indeterminable

Question 40

Answer the following questions using the information below:
Fearless Frank's Fertilizer Farm produces fertilizer and distributes the product by using his tanker trucks. Frank's uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

What is the flexible-budget variance for variable manufacturing overhead?

A)$2,250 favorable
B)$2,250 unfavorable
C)zero
D)None of these answers are correct.

Question 41

Answer the following questions using the information below:
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:

What is the actual variable overhead cost?

A)$49,000
B)$50,000
C)$51,450
D)None of these answers is correct.

Question 42

Answer the following questions using the information below:
Russo Corporation manufactured 16,000 air conditioners during November. The overhead cost-allocation base is $31.50 per machine-hour. The following variable overhead data pertain to November:

What is the total variable overhead variance

A)$7,875 unfavorable
B)$3,937.50 f unfavorable
C)$7,875 favorable
D)$3,937.50 f favorable

Question 43

Answer the following questions using the information below:
Russo Corporation manufactured 16,000 air conditioners during November. The overhead cost-allocation base is $31.50 per machine-hour. The following variable overhead data pertain to November:

What is the flexible-budget amount?

A)$248,033
B)$252,000
C)$248,000
D)$279,000

Question 44

Answer the following questions using the information below:
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:

What is the variable overhead efficiency variance?

A)$3,750 favorable
B)$16,875 unfavorable
C)$13,125 unfavorable
D)$30,375 unfavorable

Question 45

Answer the following questions using the information below:
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:

What is the flexible-budget amount?

A)$49,000
B)$50,000
C)$51,450
D)None of these answers is correct.

Question 46

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

Question 47

Answer the following questions using the information below:
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:

What is the flexible-budget amount?

A)$121,500
B)$151,875
C)$165,000
D)$168,750

Question 48

Answer the following questions using the information below:
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:

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.

Question 49

Answer the following questions using the information below:
Russo Corporation manufactured 16,000 air conditioners during November. The overhead cost-allocation base is $31.50 per machine-hour. The following variable overhead data pertain to November:

What is the actual variable overhead cost?

A)$244,125
B)$ 279,000
C)$248,063
D)$250,000

Question 50

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

Question 51

Answer the following questions using the information below:
Patel Corporation manufactured 1,000 coolers during October. The following variable overhead data pertain to October:

What is the variable overhead flexible-budget variance?

A)$600 favorable
B)$420 unfavorable
C)$780 favorable
D)$600 unfavorable

Question 52

Answer the following questions using the information below:
Brown Corporation manufactured 3,000 chairs during June. The following variable overhead data pertain to June:

What is the variable overhead spending variance?

A)$1,680 unfavorable
B)$2,400 favorable
C)$2,400 unfavorable
D)$3,120 favorable

Question 53

Answer the following questions using the information below:
Brown Corporation manufactured 3,000 chairs during June. The following variable overhead data pertain to June:

What is the variable overhead flexible-budget variance?

A)$2,400 favorable
B)$720 unfavorable
C)$3,120 favorable
D)$2,400 unfavorable

Question 54

Answer the following questions using the information below:
Fearless Frank's Fertilizer Farm produces fertilizer and distributes the product by using his tanker trucks. Frank's uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

For variable manufacturing overhead, there is no:

A)spending variance
B)efficiency variance
C)flexible-budget variance
D)production-volume variance

Question 55

Answer the following questions using the information below:
Russo Corporation manufactured 16,000 air conditioners during November. The overhead cost-allocation base is $31.50 per machine-hour. The following variable overhead data pertain to November:

What is the variable overhead efficiency variance?

A)$3,937.50 favorable
B)$3,937.50 unfavorable
C)$4,500 favorable
D)$4,500 unfavorable

Question 56

Answer the following questions using the information below:
Russo Corporation manufactured 16,000 air conditioners during November. The overhead cost-allocation base is $31.50 per machine-hour. The following variable overhead data pertain to November:

What is the variable overhead spending variance?

A)$4,500 unfavorable
B)$3,937.50 unfavorable
C)$4,500 favorable
D)$3,937.50 favorable

Question 57

Answer the following questions using the information below:
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:

What is the variable overhead spending variance?

A)$3,750 favorable
B)$16,875 unfavorable
C)$13,125 unfavorable
D)$30,375 unfavorable

Question 58

Answer the following questions using the information below:
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:

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.

Question 59

Answer the following questions using the information below:
Patel Corporation manufactured 1,000 coolers during October. The following variable overhead data pertain to October:

What is the variable overhead spending variance?

A)$420 unfavorable
B)$600 favorable
C)$600 unfavorable
D)$780 favorable

Question 60

Answer the following questions using the information below:
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:

What is the actual variable overhead cost?

A)$121,500
B)$151,875
C)$165,000
D)$168,750

Question 61

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

Question 62

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
D)favorable production-volume variance

Question 63

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
D)unfavorable production-volume variance

Question 64

If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be a favorable variable overhead efficiency variance.

Question 65

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

Question 66

Briefly explain why a favorable variable overhead spending variance may not always be desireable.

Question 67

Can the variable overhead efficiency variance
a. be computed the same way as the efficiency variance for direct-cost items?
b. be interpreted the same way as the efficiency variance for direct-cost items? Explain.

Question 68

Amy's Weathervane Company manufactures weathervanes. The 2011 operating budget is based on the production of 5,000 weathervanes with 1.25 machine-hour allowed per weathervane. Variable manufacturing overhead is anticipated to be $150,000.
Actual production for 2011 was 5,500 weathervanes using 6,050 machine-hours. Actual variable costs were $23.75 per machine-hour.
Required:
Calculate the variable overhead spending and the efficiency variances.

Question 69

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.

Question 70

Causes of a favorable variable overhead efficiency variance might include using lower-skilled workers than expected.

Question 71

An unfavorable variable overhead efficiency variance indicates that the company used more than planned of the cost-allocation base.

Question 72

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.

Question 73

Briefly explain the meaning of the variable overhead efficiency variance and the variable overhead spending variance.

Question 74

A favorable variable overhead spending variance can be the result of paying lower prices than budgeted for variable overhead items such as energy.

Question 75

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

Question 76

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

Question 77

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

Question 78

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

Question 79

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

Question 80

Kelly's Pillow Company manufactures pillows. The 2011 operating budget is based on production of 40,000 pillows with 0.5 machine-hour allowed per pillow. Variable manufacturing overhead is anticipated to be $440,000.
Actual production for 2011 was 36,000 pillows using 19,000 machine-hours. Actual variable costs were $20 per machine-hour.
Required:
Calculate the variable overhead spending and efficiency variances.