Question 1

The manufacturing overhead variance that is a measure of capacity utilization is:
A)the overhead rate variance.
B)the overhead efficiency variance.
C)the overhead budget variance.
D)the overhead volume variance.

Accepted Answer

The overhead volume variance measures the impact of the difference between the actual and the budgeted capacity utilization. This variance shows whether the company is using its available capacity efficiently or not. Therefore, D is the correct answer. The other options, such as A (overhead rate variance), B (overhead efficiency variance), and C (overhead budget variance) do not specifically measure capacity utilization.

Question 2

In a standard costing system, if the actual fixed manufacturing overhead cost exceeds the budgeted fixed manufacturing overhead cost for the period, then fixed manufacturing overhead cost would be underapplied for the period.

Accepted Answer

False

Question 3

A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours.The company's choice of the denominator level of activity has no effect on the fixed portion of the predetermined overhead rate.

Accepted Answer

The denominator level of activity directly affects the fixed portion of the predetermined overhead rate because the total fixed overhead costs are spread over the chosen level of activity. If the denominator level (total direct labor-hours, for example) changes, the rate at which fixed overheads are applied per labor-hour will also change.

Question 4

There can be no volume variance for variable manufacturing overhead.

Accepted Answer

Volume variance refers to the difference between actual output and expected output. Variable manufacturing overheads, such as indirect materials and utilities, are expected to vary directly with output levels, so there is no volume variance associated with them. However, there may be a variable overhead efficiency variance if the actual indirect costs incurred per unit of output differ from the expected costs.

Question 5

The fixed manufacturing overhead budget variance equals:
A)Actual fixed manufacturing overhead cost - Applied fixed manufacturing overhead cost.
B)Actual fixed manufacturing overhead cost - Budgeted fixed manufacturing overhead cost.
C)Budgeted fixed manufacturing overhead cost - Applied fixed manufacturing overhead cost.
D)Actual fixed manufacturing overhead cost - (Actual hours × Standard fixed manufacturing overhead rate).

Accepted Answer

The fixed manufacturing overhead budget variance measures the difference between actual fixed manufacturing overhead cost and budgeted fixed manufacturing overhead cost. So the correct formula for calculating it is Actual fixed manufacturing overhead cost − Budgeted fixed manufacturing overhead cost. Therefore, option B is the correct answer.

Question 6

The higher the denominator activity level used to compute the predetermined overhead rate, the higher the predetermined overhead rate.

Accepted Answer

The predetermined overhead rate is calculated by dividing the estimated total manufacturing overhead costs by the estimated total amount of the allocation base (denominator activity level). Therefore, if the denominator activity level increases, the predetermined overhead rate decreases, assuming the estimated total manufacturing overhead costs remain constant.

Question 7

Dori Castings is a job order shop that uses a standard cost system.Manufacturing overhead costs are applied on the basis of standard direct labor-hours. The amount of fixed manufacturing overhead that Dori would apply to finished production would be:
A)the actual direct labor-hours times the standard fixed manufacturing overhead rate per direct labor-hour.
B)the standard hours allowed for the actual units of finished output times the standard fixed manufacturing overhead rate per direct labor-hour.
C)the standard units of output for the actual direct labor-hours worked times the standard fixed manufacturing overhead rate per unit of output.
D)the actual fixed manufacturing overhead cost per direct labor-hour times the standard hours allowed.

Accepted Answer

The amount of fixed manufacturing overhead that Dori would apply to finished production would be the standard hours allowed for the actual units of finished output times the standard fixed manufacturing overhead rate per direct labor-hour. This is because the standard hours allowed is the amount of time that should be taken to manufacture the actual units of output based on the standard cost system, and the fixed manufacturing overhead is applied based on standard direct labor-hours. Therefore, multiplying the standard hours allowed by the standard fixed manufacturing overhead rate per direct labor-hour would give the amount of fixed manufacturing overhead that should be applied to the finished production.

Question 8

Sulema, Inc.repairs and refinishes antique furniture.Manufacturing overhead at Sulema is applied to production on the basis of standard direct labor-hours.Which overhead variance(s)at Sulema would be unfavorably affected if a significant amount of glue is being wasted by inexperienced direct labor workers?
A)variable overhead rate variance
B)variable overhead efficiency variance
C)fixed manufacturing overhead budget variance
D)fixed manufacturing overhead volume variance

Accepted Answer

The answer of Sulema, Inc.repairs and refinishes antique furniture.Manufacturing overhead...

Question 9

A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours.The company's choice of the denominator level of activity has no effect on the fixed manufacturing overhead budget variance.

Accepted Answer

The fixed manufacturing overhead budget variance is not affected by the denominator level of activity in a standard cost system because fixed overhead costs remain the same regardless of the level of production. Only the variable overhead costs would be affected by changes in the level of activity.

Question 10

Teall Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs).The company has provided the following data for the most recent month:  What was the fixed manufacturing overhead budget variance for the month?
A)$4,000 Unfavorable
B)$4,000 Favorable
C)$570 Favorable
D)$570 Unfavorable

Accepted Answer

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost
= $54,000 - $50,000
= $4,000 U

Question 11

A volume variance and budget variance are computed for fixed manufacturing overhead costs.

Accepted Answer

Both volume variance and budget variance can be computed for fixed manufacturing overhead costs, so the statement is true.

Question 12

A fixed manufacturing overhead budget variance occurs as the result of a difference between the denominator level of activity (in hours)and the standard hours allowed for the actual output of the period.

Accepted Answer

A fixed manufacturing overhead budget variance occurs due to the difference between the actual fixed overhead costs and the budgeted fixed overhead costs, not due to the difference in activity levels or standard hours allowed for actual output.

Question 13

A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours.A fixed manufacturing overhead volume variance will necessarily occur in a month in which actual direct labor-hours differ from standard hours allowed.

Accepted Answer

The answer of A company has a standard cost system...

Question 14

Azzurra Corporation manufactures computer chips used in aircraft and automobiles.Manufacturing overhead at Azzurra is applied to production on the basis of standard machine-hours.Which overhead variance(s)at Azzurra would be affected in an unfavorable manner if fire and theft insurance rates increase by 25% unexpectedly during the period?
A)variable overhead rate variance
B)variable overhead efficiency variance
C)fixed manufacturing overhead budget variance
D)fixed manufacturing overhead volume variance

Accepted Answer

The increase in fire and theft insurance rates would affect the fixed portion of manufacturing overhead costs, causing an unfavorable fixed manufacturing overhead budget variance. Neither the variable overhead rate variance nor the variable overhead efficiency variance is affected by changes in insurance rates, as they are based on machine hours and direct labor hours, respectively. The fixed manufacturing overhead volume variance is affected by changes in the level of activity, but not by insurance rates.

Question 15

A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours.A fixed manufacturing overhead volume variance will necessarily occur in a month in which the fixed manufacturing overhead applied to units of product on the basis of standard hours allowed differs from the budgeted fixed manufacturing overhead.

Accepted Answer

The statement is correct. The fixed manufacturing overhead volume variance occurs when the actual hours worked differ from the standard hours allowed, causing the fixed overhead applied to units to differ from the budgeted amount.

Question 16

If the standard hours allowed for the actual output of the period is greater than the denominator level of activity (in hours), then the overhead volume variance will be favorable.

Accepted Answer

This is because the standard hours allowed for actual output exceeded the denominator level of activity, indicating that less overhead was used per hour of production than expected.

Question 17

The economic impact of the inability to reach a target denominator level of activity would best be measured by:
A)the amount of the volume variance.
B)the contribution margin lost by failing to meet the target denominator level of activity.
C)the amount of the fixed manufacturing overhead budget variance.
D)the amount of the variable overhead efficiency variance.

Accepted Answer

The contribution margin represents the amount of revenue that is available to cover fixed costs and contribute to profits. Failing to meet the target denominator level of activity means that less revenue will be generated and therefore less contribution margin will be available. This highlights the economic impact of the shortfall in activity level. The other options (A, C, and D) do not directly measure the economic impact of an inability to reach the target denominator level of activity.

Question 18

The volume variance is nonzero whenever:
A)standard hours allowed for the output of a period differ from the denominator level of activity.
B)actual hours differ from the denominator level of activity.
C)standard hours allowed for the output of a period differ from the actual hours during the period.
D)actual fixed manufacturing overhead costs incurred during a period differ from budgeted fixed manufacturing overhead costs as contained in the flexible budget.

Accepted Answer

The volume variance occurs when the standard hours allowed for the output of a period differ from the denominator level of activity, reflecting a difference between the expected (or standard) volume of production and the volume used to allocate fixed overhead costs.

Question 19

The budget variance for fixed manufacturing overhead is the difference between actual fixed manufacturing overhead costs incurred and the amount of fixed manufacturing overhead applied to work in process.

Accepted Answer

The budget variance for fixed manufacturing overhead is the difference between the actual fixed manufacturing overhead costs incurred and the budgeted fixed manufacturing overhead costs, not the applied amount.

Question 20

An unfavorable volume variance means that the company operated at an activity level greater than that planned for the period.

Accepted Answer

An unfavorable volume variance indicates that the company operated at an activity level lower than what was planned for the period, not higher.

Quiz 18:Flexible Budgets, Standard Costs, and Variance Analysis

The manufacturing overhead variance that is a measure of capacity utilization is:

In a standard costing system, if the actual fixed manufacturing overhead cost exceeds the budgeted fixed manufacturing overhead cost for the period, then fixed manufacturing overhead cost would be underapplied for the period.

A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours.The company's choice of the denominator level of activity has no effect on the fixed portion of the predetermined overhead rate.

There can be no volume variance for variable manufacturing overhead.

The fixed manufacturing overhead budget variance equals:

The higher the denominator activity level used to compute the predetermined overhead rate, the higher the predetermined overhead rate.

Dori Castings is a job order shop that uses a standard cost system.Manufacturing overhead costs are applied on the basis of standard direct labor-hours. The amount of fixed manufacturing overhead that Dori would apply to finished production would be:

A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours.The company's choice of the denominator level of activity has no effect on the fixed manufacturing overhead budget variance.

Teall Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs) .The company has provided the following data for the most recent month: What was the fixed manufacturing overhead budget variance for the month?

A volume variance and budget variance are computed for fixed manufacturing overhead costs.

A fixed manufacturing overhead budget variance occurs as the result of a difference between the denominator level of activity (in hours)and the standard hours allowed for the actual output of the period.

If the standard hours allowed for the actual output of the period is greater than the denominator level of activity (in hours), then the overhead volume variance will be favorable.

The economic impact of the inability to reach a target denominator level of activity would best be measured by:

The volume variance is nonzero whenever:

The budget variance for fixed manufacturing overhead is the difference between actual fixed manufacturing overhead costs incurred and the amount of fixed manufacturing overhead applied to work in process.

An unfavorable volume variance means that the company operated at an activity level greater than that planned for the period.