Question 1

A manufacturing company that uses standard costs and flexible budgets can break the variable factory overhead flexible-budget variance down into:
A)Volume and efficiency components.
B)Spending and efficiency variances.
C)Spending and production volume variances.
D)Spending variances only.

Accepted Answer

The total variable overhead cost variance can be broken down into two components: spending variance and efficiency variance. The spending variance measures the difference between the actual variable overhead cost incurred and the budgeted amount at the actual level of activity. The efficiency variance measures the difference between the budgeted variable overhead cost at the actual level of activity and the actual cost adjusted for differences in efficiency. Volume variance is not a component of overhead variance in a flexible budgeting system. A selling price variance and sales volume variance are unrelated to variable overhead costs.

Question 2

Among characteristics that distinguish service and manufacturing firms are the:
A)Absence of output inventory in service firms.
B)Existence of labor-intensive products in manufacturing firms.
C)Rendering of identical services in a service firm.
D)Capital intensiveness of service firms.
E)Organizational structure of service firms.

Accepted Answer

The absence of output inventory in service firms is a key characteristic that distinguishes them from manufacturing firms. Service firms produce intangible products and do not store finished products like manufacturing firms do.

Question 3

Many firms feel a strong obligation to establish and use a standard rate for fixed factory overhead for all the following reasons except:
A)Generally accepted accounting principles require full costing for financial reporting.
B)The mandate to include fixed factory overhead in pricing for federal government contract bidding.
C)Because of current income tax provisions in the U.S.
D)Improved performance measurement.

Accepted Answer

Generally accepted accounting principles in the U.S. require full costing of inventories for financial reporting purposes, which includes the use of a standard rate for fixed factory overhead. This standard rate is used to allocate fixed overhead costs to products and is included in the cost of inventory.

Answer: B
 The resulting data from using a standard rate for fixed factory overhead are useful for performance-evaluation purposes. This data can be used to analyze the profitability of products, departments, and the overall business.

Answer: C
 Treating fixed overhead costs as product costs rather than period costs can result in larger income tax deductions, as these costs are deducted when the associated inventory is sold. This can help to lower the tax liability for the business.

Answer: D
 Using a standard rate for fixed factory overhead can improve management's ability to more accurately forecast future overhead costs. By analyzing past trends and adjusting the standard rate as necessary, managers can better estimate future overhead costs and make more informed decisions.

Answer: E
 This statement is not true. While fixed overhead costs can be expensed as period costs, many businesses choose to allocate these costs to products using a standard rate for full costing purposes.

Question 4

Intangible attributes often play dominant roles in determining the value of outputs from a service organization. These characteristics often lead service firms to rely on:
A)Input-related measures for measuring and monitoring operations.
B)Intuitive judgment in monitoring operations.
C)Quantitative measures of output.
D)Qualitative measures exclusively for measuring and monitoring operations.
E)Output-related measures for measuring and monitoring operations.

Accepted Answer

The answer of Intangible attributes often play dominant roles in...

Question 5

Factors contributing to the fixed factory overhead spending variance can include all except:
A)Inaccurate budget estimates for these costs.
B)Inadequate control of fixed overhead costs.
C)Misclassification of cost items by the accounting system.
D)Operating inefficiency.
E)Unanticipated increases in costs such as factory insurance.

Accepted Answer

Operating inefficiency typically affects variable costs rather than fixed costs. Fixed factory overhead spending variance is more concerned with the budgeting, control, and classification of fixed costs, as well as unexpected changes in those costs.

Question 6

Cost behavior for variable overhead is more difficult to predict than for direct material or direct labor cost for all the following reasons except:
A)Multiple cost drivers are involved with variable overhead.
B)Direct material and direct labor contain no semi-variable component.
C)The variable portion of overhead must first be separated from the fixed portion.
D)Variable overhead is a relatively small part of total overhead.

Accepted Answer

Variable overhead can indeed be a significant or small part of total overhead, but this does not inherently make its behavior more difficult to predict compared to direct materials or direct labor. The other options (A, B, C) directly relate to the complexities in predicting variable overhead costs.

Question 7

The fixed factory overhead production-volume variance represents:
A)Money lost or gained because of achieved production levels.
B)An artifact of unitizing fixed overhead costs for product-costing purposes.
C)Information regarding the effectiveness of the organization in meeting sales targets.
D)Information that management can use for cost-control purposes.
E)Important information for companies pursuing a JIT production philosophy.

Accepted Answer

The fixed factory overhead production-volume variance is an artifact of unitizing fixed overhead costs for product-costing purposes. It is a result of dividing the total fixed overhead costs by the expected level of production in order to calculate a fixed overhead rate per unit. The actual level of production may differ from the expected level, resulting in a production-volume variance. It does not represent money lost or gained, information regarding sales targets or effectiveness, or information for JIT production philosophy. However, management can use it for cost-control purposes.

Question 8

Finding a single cost driver that changes in the same proportion as variable factory overhead costs is:
A)Simplified by breaking out the fixed portion of overhead cost.
B)The first step in variable overhead cost assignment.
C)Difficult but manageable using advanced statistical techniques.
D)An important goal of effective cost system design.
E)Virtually impossible because of the underlying nature of variable overhead costs.

Accepted Answer

Variable overhead costs consist of various components that may not change in proportion to a single cost driver, making it difficult to find one that aligns perfectly with changes in these costs.

Question 9

Using an activity-based costing system (ABC) enables a firm to calculate overhead variances for:
A)Sales volume and production volume.
B)Spending and selling price.
C)Each activity-based cost driver.
D)Semi-variable overhead costs.
E)Semi-fixed overhead costs.

Accepted Answer

ABC assigns overhead costs to specific activities and cost drivers, allowing for more accurate analysis of overhead variances. Therefore, each activity-based cost driver can be analyzed for variances.

Question 10

In a standard cost system, an unfavorable production-volume variance would result if:
A)There is an unfavorable labor efficiency variance.
B)There is an unfavorable labor rate variance.
C)Actual production is less than the "denominator volume."
D)There is an unfavorable manufacturing overhead spending variance.
E)Actual fixed overhead costs are greater than budgeted fixed overhead costs.

Accepted Answer

The production-volume variance measures the impact of the actual level of production being different from the denominator volume (the anticipated level of production used as the basis for setting the standard cost). An unfavorable production-volume variance occurs when actual production is less than the denominator volume, indicating that fixed costs are spread over a smaller-than-expected number of units, resulting in higher per-unit cost. The other options listed relate to different variances and would not impact the production-volume variance.

Question 11

If inventories in a business using a standard cost system are insignificant, the firm would be justified (in a practical sense) by disposing of variances each year:
A)As an adjustment to the finished goods inventory only.
B)As an adjustment to cost of goods sold only.
C)As adjustments to both inventory accounts and the cost of goods sold for the period.
D)As a special item (gain or loss) on the income statement for the period.
E)As an adjustment to the work-in-process (WIP) inventory only.

Accepted Answer

Since the inventories are insignificant, disposing of variances each year is more practical and cost-effective than tracking and adjusting the inventory accounts. Therefore, the variances should be recorded as an adjustment to the cost of goods sold only. This approach will ensure that the cost of goods sold reflects the actual production cost of the period.

Question 12

Manufacturing companies using a standard cost system often can achieve more effective control when factory overhead variance analysis is done with:
A)A two-variance approach.
B)A three-variance approach.
C)A four-variance approach.
D)A single cost driver.
E)Multiple cost drivers.

Accepted Answer

The answer of Manufacturing companies using a standard cost system...

Question 13

The difference between actual overhead costs incurred during the period and the overhead in the flexible budget based on the output for the period is called the:
A)Total overhead spending variance.
B)Total overhead efficiency variance.
C)Production-volume variance.
D)Overhead flexible-budget variance.
E)Total overhead variance.

Accepted Answer

The difference between actual overhead costs incurred and the overhead in the flexible budget based on the output for the period is called the overhead flexible-budget variance. This variance shows the effects of changes in the actual level of output during the period.

Question 14

Proration of manufacturing cost variances among ending inventories and cost of goods sold has the effect of carrying the cost (savings) of inefficient (efficient) operations of a period to:
A)Only the balance sheet of the current period.
B)Only the income statement of the current period.
C)The balance sheets of future periods only.
D)The income statement of the current period and the balance sheet of the current period.

Accepted Answer

Proration of manufacturing cost variances means allocating the costs (savings) to both ending inventories and cost of goods sold. This results in the cost (savings) of inefficient (efficient) operations being carried to both the income statement of the current period and the balance sheet of the current period. Therefore, choice D is the best option.

Question 15

A standard costing system will produce the same income as an actual costing system when end-of-period standard cost variances are assigned:
A)Only to work-in-process (WIP) inventory.
B)Only to finished goods inventory.
C)To work-in-process and finished goods inventories.
D)Entirely to cost of goods sold.
E)To cost of goods sold and all inventory accounts.

Accepted Answer

Standard costing systems can produce the same income as actual costing systems when end-of-period standard cost variances are allocated across cost of goods sold and all inventory accounts (work-in-process, finished goods, and possibly raw materials). This ensures that the total costs reflected in the financial statements match those that would have been reported using actual costs, by appropriately adjusting the reported values of inventories and cost of goods sold for the variances.

Question 16

In firms using activity-based costing (ABC), budgeted total factory overhead varies with changes in:
A)A single cost driver for applying overhead.
B)Several cost drivers.
C)The selected denominator activity level.
D)The quantity of input resources used in operations of the period.

Accepted Answer

Activity-Based Costing (ABC) uses several cost drivers to allocate overhead costs to products or services. Therefore, budgeted total factory overhead will vary with changes in several cost drivers, not just one. The selected denominator activity level and the quantity of input resources used in operations are important factors but do not solely determine changes in budgeted total factory overhead.

Question 17

Because fixed factory overhead does not vary with changes in output:
A)The amount used in the control budget for a period is a lump-sum amount.
B)There is no way to assign fixed overhead cost to products for product-costing purposes.
C)Most companies treat such costs as period, rather than as product, costs.
D)There is no justification for fixed overhead cost application.
E)Generally accepted accounting principles permit companies to use variable rather than absorption (full) costing for external reporting purposes.

Accepted Answer

Fixed factory overhead costs are constant in total regardless of the level of output, so they are budgeted as a lump-sum amount in the control budget. This allows for planning and control purposes without varying the budgeted amount with changes in production volume.

Question 18

The production-volume variance should generally not be calculated and reported for control purposes because, unless interpreted properly, it can:
A)Distract top management.
B)Give information that only top management should have.
C)Distort other variable-cost variances.
D)Encourage overproduction by managers to achieve a favorable volume variance.
E)Encourage underproduction by managers to avoid an unfavorable variance.

Accepted Answer

Calculating and reporting production-volume variance can encourage overproduction by managers to achieve a favorable volume variance, which goes against the goal of controlling costs and improving efficiency. Therefore, it is best not to calculate and report this variance for control purposes.

Question 19

An activity-based cost (ABC) driver applies factory overhead to products or services according to the:
A)Activity output as measured by the units produced.
B)Activity level of hours of direct labor.
C)Resource demands/resource consumption of the firm's outputs.
D)Budgeted activity level for the period.
E)Volume of output (i.e., units produced) during the period.

Accepted Answer

ABC driver applies factory overhead to products or services according to the resource demands/resource consumption of the firm's outputs, which is the most accurate and precise method to allocate costs to different products or services. The other options such as units produced, hours of direct labor, and volume of output may not reflect the actual resource consumption and, therefore, lead to inaccurate cost allocations. The budgeted activity level for the period may not always reflect the actual activity level, and hence, may not provide an accurate basis for cost allocation.

Question 20

Which of the following factors is not usually important when deciding whether to investigate a variance?
A)Magnitude of the variance.
B)Trend of the variance over time.
C)Whether the variance is favorable or unfavorable.
D)Cost of investigating the variance.
E)Likelihood that the variance will recur in the future.

Accepted Answer

Whether the variance is favorable or unfavorable may not always be important when deciding whether to investigate a variance. The focus should be on identifying the causes of the variance, regardless of its direction. Factors such as the magnitude of the variance, trend over time, cost of investigating, and likelihood of recurrence are more relevant in determining whether to investigate a variance.

Quiz 15: Operational Performance Measurement: Indirect-Cost Variances and Resource-Capacity Management

A manufacturing company that uses standard costs and flexible budgets can break the variable factory overhead flexible-budget variance down into:

Among characteristics that distinguish service and manufacturing firms are the:

Many firms feel a strong obligation to establish and use a standard rate for fixed factory overhead for all the following reasons except:

Intangible attributes often play dominant roles in determining the value of outputs from a service organization. These characteristics often lead service firms to rely on:

Factors contributing to the fixed factory overhead spending variance can include all except:

Cost behavior for variable overhead is more difficult to predict than for direct material or direct labor cost for all the following reasons except:

The fixed factory overhead production-volume variance represents:

Finding a single cost driver that changes in the same proportion as variable factory overhead costs is:

Using an activity-based costing system (ABC) enables a firm to calculate overhead variances for:

In a standard cost system, an unfavorable production-volume variance would result if:

If inventories in a business using a standard cost system are insignificant, the firm would be justified (in a practical sense) by disposing of variances each year:

Manufacturing companies using a standard cost system often can achieve more effective control when factory overhead variance analysis is done with:

The difference between actual overhead costs incurred during the period and the overhead in the flexible budget based on the output for the period is called the:

Proration of manufacturing cost variances among ending inventories and cost of goods sold has the effect of carrying the cost (savings) of inefficient (efficient) operations of a period to:

A standard costing system will produce the same income as an actual costing system when end-of-period standard cost variances are assigned:

In firms using activity-based costing (ABC) , budgeted total factory overhead varies with changes in:

Because fixed factory overhead does not vary with changes in output:

The production-volume variance should generally not be calculated and reported for control purposes because, unless interpreted properly, it can:

An activity-based cost (ABC) driver applies factory overhead to products or services according to the:

Which of the following factors is not usually important when deciding whether to investigate a variance?