Question 1

The budget variance represents the difference between the actual fixed manufacturing overhead cost incurred during a period and the budgeted fixed manufacturing overhead cost.

Accepted Answer

The statement accurately describes the concept of budget variance.

Question 2

In a standard cost system,the volume variance will be unfavorable when:

Accepted Answer

The volume variance measures the effect of output on the overhead cost, and is calculated by multiplying the denominator hours (which represent the standard hours allowed for the output of the period) by the standard rate, and then subtracting the actual overhead incurred.

If the standard hours allowed for the output of the period are less than the denominator hours, it means that the company had planned for a higher level of output than what was actually achieved. As a result, the volume variance will be unfavorable because the company will have incurred more overhead costs than what was planned.

Question 3

Overhead is applied to work in process in a standard costing system by:

Accepted Answer

Overhead is applied to work in process using a predetermined overhead rate based on a budgeted amount of overhead costs and an estimated amount of activity. In a standard costing system, the predetermined overhead rate is applied to the standard hours allowed for the output of the period, not the actual hours worked or the actual rate. Therefore, option B is the correct choice as it multiplies the predetermined rate by the standard hours allowed.

Question 4

The higher the denominator level of activity:

Accepted Answer

The higher the denominator level of activity, the lower the cost per unit of product. This is because fixed costs are spread over a larger number of units, resulting in a lower cost per unit. Therefore, as activity levels increase, the cost per unit of product decreases.

Question 5

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 affects the Fixed component of the predetermined overhead rate.

Accepted Answer

The denominator level of activity (usually direct labor-hours or machine-hours) affects the Fixed component of the predetermined overhead rate since fixed overhead costs are expected to remain relatively constant regardless of the level of production activity. Therefore, the higher the denominator level of activity, the lower the fixed overhead cost per unit of the activity measure, resulting in a lower predetermined overhead rate. Conversely, the lower the denominator level of activity, the higher the fixed overhead cost per unit, resulting in a higher predetermined overhead rate.

Question 6

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

Accepted Answer

Underapplied or overapplied fixed manufacturing overhead is equal to the sum of the fixed manufacturing overhead budget variance and the fixed manufacturing overhead volume variance.

Question 7

In a standard costing system where the denominator activity for the predetermined overhead rate is labor-hours,overhead costs are applied to work in process on the basis of actual hours worked.

Accepted Answer

In a standard costing system, overhead costs are applied to work in process based on the predetermined overhead rate and the standard hours allowed for the actual output, not the actual hours worked.

Question 8

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

Accepted Answer

The contribution margin lost by failing to meet the target denominator level of activity represents the lost revenue and profits that result from not being able to produce at the desired level. The other options do not directly measure the economic impact of not reaching the target denominator level of activity.

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 amount of overhead that the company would apply to finished production would ordinarily be the standard hours allowed for the actual units of finished output times the predetermined overhead rate per direct labor-hour.

Accepted Answer

This is the definition of a standard cost system for applying overhead costs to products.

Question 10

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 there is a fixed manufacturing overhead budget variance.

Accepted Answer

A fixed manufacturing overhead volume variance occurs when there is a difference between the budgeted and actual production levels, not necessarily when there is a budget variance. A budget variance is the difference between budgeted and actual costs, which can occur independently of production levels.

Question 11

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

Accepted Answer

Fixed manufacturing overhead budget variance can be influenced by managerial decisions, such as changes in production levels or efficiency improvements, even though fixed costs themselves are generally not controllable.

Question 12

Rameriz Company erred in selecting a denominator activity and chose a much higher level than was realistic.This error would most likely result in a large:

Accepted Answer

Selecting a higher denominator activity would result in a lower overhead rate, leading to an unfavorable overhead volume variance. This variance measures the impact of the difference between actual and expected activity levels on fixed overhead costs. A higher denominator activity would result in a larger overhead allocation, which would not be justified by the actual level of activity. Therefore, the variance would be unfavorable, and the actual fixed overhead costs would be higher than the flexible budget.

Question 13

An unfavorable volume variance means that a firm operated at an activity level that was above the activity level planned for the period.

Accepted Answer

An unfavorable volume variance indicates that the actual activity level was below the planned activity level, leading to less efficient use of resources.

Question 14

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

Accepted Answer

Fixed manufacturing overhead costs do not vary with production volume, so volume and efficiency variances are not applicable to them.

Question 15

The fixed manufacturing overhead volume variance will be unfavorable if production volume is less than sales volume.

Accepted Answer

The fixed manufacturing overhead volume variance is based on production volume compared to budgeted production, not sales volume. If production volume is less than the budgeted volume, the variance is unfavorable.

Question 16

Moralez 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 total of the variable overhead rate and fixed manufacturing overhead budget variances for the month?

Accepted Answer

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost
= $70,000 - $71,000 = $1,000 F
Variable overhead rate variance = (AH F1F1F1S1F1F1F10 AR)- (AH F1F1F1S1F1F1F10 SR)
= $24,800 - (3,100 MHs F1F1F1S1F1F1F10 $8.20 per MH)
= $24,800 - $25,420 = $620 F
Total variance = $1,000 F + $620 F = $1,620 F

Question 17

The terms "standard quantity allowed" or "standard hours allowed" means:

Accepted Answer

The "standard quantity allowed" or "standard hours allowed" refers to the actual output in units multiplied by the standard input allowed per unit of output.

Question 18

Dosier 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?

Accepted Answer

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost
= $63,000 - $65,000 = $2,000 F

Question 19

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 affects the Variable component of the predetermined overhead rate.

Accepted Answer

The denominator level of activity affects the fixed component of the predetermined overhead rate, not the variable component, which is based on actual usage.

Question 20

If the fixed manufacturing overhead volume variance is unfavorable,too much has been spent on fixed manufacturing overhead items.

Accepted Answer

An unfavorable fixed manufacturing overhead volume variance indicates that the actual production volume was less than the expected production volume, not that too much was spent on fixed overhead items.

Quiz 23: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System