Question 1

If the denominator activity (in hours)used to compute the predetermined overhead rate is equal to the actual activity (in hours)for the period,then there is no volume variance.

Accepted Answer

The answer of If the denominator activity (in hours)used to...

Question 2

(Appendix 10C)A favourable sales volume variance for a single-product firm necessarily implies a favourable market share variance.

Accepted Answer

A favourable sales volume variance may be due to factors such as increased demand, lower competition, or effective pricing strategies, and may not necessarily reflect a change in market share. Similarly, a favourable market share variance may be influenced by factors such as changes in customer preferences or increased advertising, and may not necessarily result in a favourable sales volume variance.

Question 3

The variable overhead efficiency variance reflects how efficiently variable overhead resources were used.

Accepted Answer

The answer of The variable overhead efficiency variance reflects how...

Question 4

Because managers want stable unit cost figures,the accountant creates an artificial stability so far as fixed costs are concerned by applying fixed costs to products as if the fixed costs were really variable.

Accepted Answer

Managers prefer stable unit cost figures, and to achieve that stability, accountants apply fixed costs to products as if they were variable costs. This artificially stabilizes the unit costs of products.

Question 5

(Appendix 10C)If two products are good substitutes,the sales quantity variance for each product can be analyzed further into a market volume variance and a market share variance.

Accepted Answer

The answer of (Appendix 10C)If two products are good substitutes,the...

Question 6

Capacity analysis is most affected by the presence of variable costs,NOT fixed costs.

Accepted Answer

Capacity analysis is primarily concerned with the maximum output a system can produce, which is more directly influenced by fixed assets and resources (fixed costs) rather than variable costs that fluctuate with production volume.

Question 7

(Appendix 10C)If two products are close substitutes,the sales volume variance for each product can be split into a sales quantity variance and a sales mix variance.

Accepted Answer

When two products are close substitutes, the sales volume variance can be broken down into a sales quantity variance (reflecting changes in the quantity of each product sold) and a sales mix variance (reflecting changes in the proportion of each product sold).

Question 8

The overhead spending variance contains price but not quantity elements.

Accepted Answer

The overhead spending variance typically includes both price (rate) and quantity (efficiency) elements, as it measures the difference between the actual overhead costs incurred and the expected (or budgeted) overhead costs based on standard rates and quantities.

Question 9

The fixed portion of the predetermined overhead rate is used for product costing purposes and has no significance in terms of cost control.

Accepted Answer

The fixed portion of the predetermined overhead rate is a sunk cost and cannot be controlled. It is used in product costing to allocate overhead costs to products, but it does not have any impact on cost control efforts. The variable portion of the predetermined overhead rate, which is based on the actual level of activity, is the one that can be controlled by increasing or decreasing production levels.

Question 10

(Appendix 10C)A favourable sales volume variance for a substitute product in a multiple-product firm does NOT necessarily imply a favourable sales mix variance for that substitute product.

Accepted Answer

A favourable sales volume variance for a substitute product means that the actual quantity sold exceeded the expected quantity sold, which is a positive outcome. However, a favourable sales mix variance would indicate that the substitute product constituted a larger proportion of total sales than expected, which may or may not be the case even if the sales volume exceeded expectations. Therefore, the two variances are not necessarily related.

Question 11

Standard costs can be used in conjunction with job-order costing but NOT with process costing.

Accepted Answer

Standard costs can be used in both job-order costing and process costing. In fact, some companies use standard costs in process costing to help monitor and control their costs.

Question 12

In a standard costing system,under- or overapplied fixed overhead is equal to the sum of the fixed overhead budget variance and the fixed overhead volume variance.

Accepted Answer

This statement is true. Under- or overapplied fixed overhead occurs when actual fixed overhead does not match the amount of fixed overhead applied to production. The fixed overhead budget variance measures the difference between actual fixed overhead and the budgeted amount, while the fixed overhead volume variance measures the difference between the budgeted amount of fixed overhead and the amount of fixed overhead that should have been applied based on production volume. Therefore, under- or overapplied fixed overhead is the combination of these two variances.

Question 13

(Appendix 10B)Albert Manufacturing Company manufactures a single product.The standard cost of one unit of this product is:  
During the month of October,6,000 units were produced.Selected cost data relating to the month's production follow:  
There was no beginning inventory of raw materials.The variable overhead rate is based on direct labour-hours.
Required:
a)(Appendix 10B)For direct materials,compute the price and quantity variances for the month,and prepare journal entries to record activity for the month.
b)(Appendix 10B)For direct labour,compute the rate and efficiency variances for the month,and prepare a journal entry to record labour activity for the month.
c)For variable overhead,compute the spending variance for the month,and prove the efficiency variance given above.

Accepted Answer

The answer of (Appendix 10B)Albert Manufacturing Company manufactures a single...

Question 14

(Appendix 10C)If two products are poor substitutes,the calculation of a separate market volume variance and a separate market share variance for each product is NOT useful.

Accepted Answer

Even if two products are poor substitutes, calculating separate market volume variance and market share variance for each can provide valuable insights into how each product is performing in terms of attracting customers and capturing or retaining market share, independent of their substitutability.

Question 15

(Appendix 10A)Direct labour efficiency variance can be analyzed further into mix and yield variances if more than one class of direct labour that are good substitutes is used in operations.

Accepted Answer

Direct labour efficiency variance can be broken down into mix and yield variances if more than one type of direct labour is used and those types of direct labour can be substituted for each other. The mix variance measures the impact of the specific mix of direct labour utilized compared to the expected mix, while the yield variance measures the loss or gain in efficiency due to the mix of direct labour used.

Question 16

The fixed overhead budget variance is NOT controllable by managers because fixed costs are NOT controllable.

Accepted Answer

The fixed overhead budget variance can be controllable or uncontrollable. While fixed costs are generally consistent and not influenced by volume in the short term, managers can still impact these costs through efficiency improvements, negotiations, or strategic decisions, affecting the variance from the budgeted amount.

Question 17

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 budget variance will be unfavourable.

Accepted Answer

The overhead budget variance is determined by comparing the actual overhead costs incurred to the budgeted overhead costs based on the standard hours allowed for the actual output. If the standard hours allowed for the actual output are greater than the denominator level of activity, it indicates higher production levels than anticipated, but it does not directly result in an unfavorable budget variance. The variance's favorability depends on the actual costs incurred compared to the budgeted costs for those hours, not on the comparison between standard hours allowed and the denominator level of activity.

Question 18

Waste or excessive usage of overhead items will show up as part of the variable overhead efficiency variance.

Accepted Answer

Variable overhead efficiency variance is concerned with the efficiency of using the variable overhead resources, not the waste or excessive usage of overhead items, which would typically affect the variable overhead spending variance.

Question 19

One cause of an unfavourable overhead volume variance would be increase in cost for fixed overhead items.

Accepted Answer

An unfavorable overhead volume variance is caused by producing fewer units than planned, not by an increase in the cost of fixed overhead items.

Question 20

A reason for keeping a constant denominator activity level is to maintain stability in the amount of overhead cost that is applied to each unit of product manufactured over the period.

Accepted Answer

When the denominator activity level remains constant, the overhead cost that is applied to each unit of product manufactured also remains constant. This helps to maintain consistency in the product cost and ensures that it is not affected by fluctuations in the level of production activity.

Quiz 10: Standard Costs and Overhead Analysis