Question 1

A deviation from standard because of an inaccurate estimation of the amounts for variables used in the standard-setting process is an example of a(n):

Accepted Answer

Prediction error occurs when the estimates or forecasts used in setting standards are inaccurate, leading to deviations from the expected outcomes.

Question 2

In a standard cost system, when production (i.e., actual output) is greater than the denominator volume level, there will be:

Accepted Answer

A favorable production-volume variance occurs when actual output is greater than the denominator volume level. This variance reflects the savings achieved by producing at a higher volume than expected, which results in lower fixed costs per unit of output.

Question 3

The difference between total factory overhead cost incurred during a period and the total standard factory overhead cost assigned to production of the period is the ________:

Accepted Answer

The difference between total factory overhead cost incurred during a period and the total standard factory overhead cost assigned to production of the period is known as the total factory overhead variance, which is the difference between the actual overhead cost and the budgeted overhead cost. The flexible-budget variance measures the difference between the actual overhead cost and the flexible budget cost. The production-volume variance measures the impact of the difference between the actual and budgeted production volume on overhead costs. The overhead efficiency variance measures the difference between the actual hours worked and the standard hours allowed for the work performed. The total overhead spending variance measures the difference between the actual overhead cost and the budgeted overhead cost.

Question 4

Which of the following statements about variable overhead costs is true?

Accepted Answer

The answer of Which of the following statements about variable...

Question 5

For internal reporting purposes, it is recommended that fixed overhead allocation rates in a standard costing system be based on which of the following denominator volume choices?

Accepted Answer

Practical capacity is the most appropriate denominator volume choice as it represents the maximum production capacity realistically achievable, taking into account normal slowdowns or interruptions. Budgeted, theoretical or expected capacity may be unrealistic or overly optimistic, while actual capacity utilization may be affected by inefficiencies or extraordinary events. Therefore, practical capacity provides a more reliable basis for estimating fixed overhead costs and establishing allocation rates in a standard costing system.

Question 6

If standard cost variances are allocated (i.e., prorated) to inventory and cost of goods sold (CGS) accounts at the end of a period, which of the following is correct?

Accepted Answer

The allocation of standard cost variances to inventory and cost of goods sold (CGS) accounts at the end of a period is based on the relative amount of the current period's standard cost in each account, which is conceptually the most appropriate method. Therefore, option A is correct. Option B is incorrect because the resulting balances do not represent actual costs but rather the allocated standard cost variances. Option C is incorrect because the materiality of the net variance is irrelevant to the allocation process. Option D is incorrect because the amount allocated to inventory and CGS depends on the actual ending balances in each account and the variance amount. Option E is irrelevant to the allocation process.

Question 7

When a company uses absorption costing, there is the potential for income manipulation based on choice of the denominator volume for setting the fixed overhead allocation rate. In which case is this manipulation-potential manifested?

Accepted Answer

The answer of When a company uses absorption costing, there...

Question 8

A deviation from standard that occurs because of an incorrect number resulting from improper or inaccurate accounting systems or procedures is an example of a(n):

Accepted Answer

An accounting error is a deviation from standard that occurs because of an incorrect number resulting from improper or inaccurate accounting systems or procedures. This is not a random error, which is caused by chance or unforeseeable circumstances, nor is it a prediction error, which is a difference between predicted and actual values. It is also not an implementation error, which results from improper execution of a correctly designed process, nor is it a modeling error, which occurs when the assumptions used in a model do not accurately reflect reality.

Question 9

For product-costing purposes, which of the following statements is true?

Accepted Answer

Under the absorption or full-costing approach, fixed overhead costs are unitized or spread over the units produced, meaning that a portion of these costs is assigned to each unit. This is necessary to accurately allocate all costs to the product being produced.

Question 10

Which one of the following journal entries in a standard cost system would be used to apply standard factory overhead costs to production?

Accepted Answer

In a standard cost system, applying standard factory overhead to production involves crediting the factory overhead account at standard cost and debiting the Work in Process (WIP) inventory account.

Question 11

In terms of allocating fixed overhead cost to products, generally accepted accounting principles in the U.S.:

Accepted Answer

Generally Accepted Accounting Principles (GAAP) in the U.S. require that fixed overhead costs be allocated based on normal capacity of the production facilities. This approach aims to spread the fixed costs evenly over the units produced under normal operating conditions, ensuring that product costing is not distorted by variations in production volume.

Question 12

Which one of the following journal entries in a standard cost system is needed to record the completion of production for the period?

Accepted Answer

The completion of production for the period is recorded by transferring the cost of the completed goods from Work-in-Process Inventory to Finished Goods Inventory. Therefore, a debit to Finished Goods Inventory, at standard cost, is the appropriate journal entry to record the completion of production. Choice A is incorrect because it only records the cost incurred for the work in process, not the completion of production. Choice B is inappropriate since it records at actual rather than standard cost. Choice C is incorrect because it records the cost of goods sold, which occurs when the goods are sold, not when they are completed. Choice E is inappropriate, similar to B, since it records at actual cost, which does not reflect the standard cost system.

Question 13

The difference between the total factory overhead cost in the flexible budget for the actual units produced and the amount of factory overhead cost applied to products using the standard overhead rate is called the factory overhead ________:

Accepted Answer

The production-volume variance measures the difference between the budgeted overhead for the actual level of production and the overhead applied to products, highlighting discrepancies due to the volume of production differing from expectations.

Question 14

Some accountants would argue that any variances from standard costs, when such standards are current, should be written off to Cost of Goods Sold (or other income statement account). The principal conceptual rationale for this treatment is:

Accepted Answer

Writing off variances to Cost of Goods Sold implies that inventories (an asset on the balance sheet) contain the cost of inefficiencies. By allocating variances, we recognize that such variances are part of the cost of production and should be reflected in the value of inventories. This treatment provides a more accurate representation of the cost of goods sold and ending inventory.

Question 15

A deviation from standard that occurs during operations because of operator errors is an example of a(n):

Accepted Answer

An implementation error refers to any deviation from standard procedures, plans or design that occurs during the execution of an operation due to operator errors. It is a type of human error that occurs during the implementation of a process or system. Random errors are those that occur due to chance and cannot be controlled. Prediction errors occur due to incorrect assumptions or predictions about a situation. Modeling errors occur when a model or analysis is incorrect or flawed. Accounting errors are related to financial transactions and records.

Question 16

Which one of the following journal entries in a standard cost system is needed at the end of the period to close out to Cost of Goods Sold an unfavorable production-volume variance?

Accepted Answer

An unfavorable production-volume variance indicates that the actual production was less than the expected production. To close this variance at the end of the period, it is debited to Cost of Goods Sold. This increases the Cost of Goods Sold to reflect the higher per-unit cost due to lower production volume.

Question 17

A deviation from standard because of the failure to include one or more relevant variables, or the inclusion of the wrong or irrelevant variables in the standard-setting process is an example of a(n):

Accepted Answer

This is an example of modeling error because it involves errors in the way that the standard-setting process was modeled, such as by failing to include all relevant variables or including the wrong variables.

Question 18

Which of the following statement is true regarding choice of the denominator volume level in conjunction with the process of allocating fixed manufacturing costs to production?

Accepted Answer

Under absorption (full) costing, the choice of the denominator volume level can affect reported profits for the period as it directly impacts the overhead allocation rate used to allocate fixed manufacturing costs to production. Choosing a higher denominator volume level would result in a lower overhead allocation rate and higher reported profits, while choosing a lower denominator volume level would result in a higher overhead allocation rate and lower reported profits. This choice does not have any significant impact on variable costing.

Question 19

The "death-spiral" effect refers to:

Accepted Answer

The "death-spiral" effect occurs when a company continually raises prices to try to recover fixed costs after experiencing a decrease in sales volume. This can lead to a further decrease in sales volume, requiring even higher prices to recover costs, and so on, creating a negative cycle or "death-spiral."

Question 20

All the following choices exist for defining the denominator volume (denominator activity level) for assigning fixed overhead costs in a standard cost system, except:

Accepted Answer

Actual capacity utilization should not be used to define the denominator volume for assigning fixed overhead costs in a standard cost system because it can fluctuate widely due to factors outside the control of management, such as equipment breakdowns or unexpected changes in demand. The other options, including budgeted capacity utilization, theoretical capacity, practical capacity, and normal capacity, are all valid choices for defining the denominator volume.

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

A deviation from standard because of an inaccurate estimation of the amounts for variables used in the standard-setting process is an example of a(n) :