Question 1

A statistical control chart:
A) Sets control limits based on managerial intuition and experience with the process.
B) Is useful for identifying random versus systematic variances.
C) Is useful for identifying in-control but not out-of-control operations.
D) Depicts the expected mean (or target) value of a process, but not the allowable range around that value.
E) Determines control limits (both upper and lower) informally, by trial and error.

Accepted Answer

A statistical control chart is a tool that helps distinguish between random versus systematic variations in a process. It set control limits based on the data collected from the process and determine whether the process is in or out of control. Therefore, option B is the best answer. Option A, C, D, and E are not correct because they do not reflect the characteristics of a statistical control chart.

Question 2

The fixed factory overhead application rate (for product-costing purposes) is equal to:
A) The denominator activity divided by budgeted fixed factory overhead.
B) The denominator activity divided by budgeted variable factory overhead.
C) Budgeted variable factory overhead divided by denominator activity.
D) Budgeted fixed factory overhead divided by budgeted variable factory overhead.
E) Budgeted fixed factory overhead divided by denominator activity.

Accepted Answer

The fixed factory overhead application rate is determined by dividing the budgeted fixed factory overhead by the denominator activity for the period. Option E is the only choice that reflects this calculation.

Question 3

The difference between variable overhead cost incurred and the total standard variable overhead cost allowed for the output of the period is called the: 
A) Total variable overhead variance.
B) Variable factory overhead spending variance.
C) Variable factory overhead rate variance.
D) Variable factory overhead efficiency variance.
E) Variable factory overhead usage variance.

Accepted Answer

The difference between the actual variable overhead costs incurred and the standard variable overhead costs allowed for the actual output of the period is known as the total variable overhead variance. This variance measures the overall efficiency and cost control of variable overheads during a period.

Question 4

Which one of the following factory overhead variances reflects the effect of deviation in input quantities only if the cost driver for applying variable overhead is a perfect predictor of variable overhead cost?
A) Total variable overhead variance.
B) Variable overhead rate variance.
C) Variable overhead spending variance.
D) Variable overhead flexible-budget variance.
E) Variable overhead efficiency variance.

Accepted Answer

The variable overhead efficiency variance reflects the effect of deviation in input quantities only if the cost driver for applying variable overhead is a perfect predictor of variable overhead cost. This variance measures the difference between the standard quantity of cost driver units that should have been used and the actual quantity of cost driver units used, multiplied by the standard variable overhead rate. Therefore, it only considers the impact of input quantity deviations on variable overhead costs, assuming that the cost driver is a perfect predictor of these costs.

Question 5

Which of the following statements about the standard variable factory overhead application rate is true?
A) The rate is a function of the denominator volume chosen.
B) The rate is used for cost-control, but not product-costing purposes.
C) The rate is used for product-costing, but not cost-control purposes.
D) The same rate is used for product-costing and cost-control purposes.
E) Generally speaking, the rate will be independent of the allocation base chosen to apply overhead.

Accepted Answer

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

Question 6

Which one of the following reflects both price (rate) as well as efficiency (quantity) effects regarding individual variable overhead items?
A) Total variable overhead variance.
B) Variable overhead rate variance.
C) Variable overhead spending variance.
D) Variable usage variance.
E) Variable overhead efficiency variance.

Accepted Answer

The Variable Overhead Spending Variance reflects both the rate (price) and efficiency (quantity) effects because it encompasses the total difference between the actual costs incurred for variable overhead and the expected (standard) costs based on the actual output. This variance captures both the difference in the rate paid for overhead items (price effect) and the difference in the quantity of the overhead items used (efficiency effect).

Question 7

The difference between the standard variable overhead cost for the actual quantity of the cost driver used for applying variable overhead and the standard variable overhead cost allowed for the units manufactured during a given period is the:
A) Total variable overhead variance.
B) Variable overhead spending variance.
C) Variable overhead rate variance.
D) Variable overhead efficiency variance.
E) Variable overhead flexible-budget variance.

Accepted Answer

The variable overhead efficiency variance measures the difference between the standard variable overhead cost for the actual quantity of the cost driver used and the standard variable overhead cost allowed for the units manufactured. This variance focuses on the efficiency of using the cost driver, not on the rate or spending differences.

Question 8

Which of the following is not a plausible cause of a systematic variance?
A) Prediction error.
B) Modeling error.
C) Implementation error.
D) Measurement error.
E) Random error.

Accepted Answer

Random error is by definition not systematic and is instead attributed to chance or variability. The other options (prediction error, modeling error, implementation error, and measurement error) can all contribute to systematic variance by consistently affecting the outcome in the same direction.

Question 9

The difference between the total actual overhead cost incurred during a period and budgeted total factory overhead cost for the actual quantity of the cost driver used to apply overhead is equal to the:
A) Total overhead spending variance.
B) Total overhead efficiency variance.
C) Factory overhead production-volume variance.
D) Total overhead rate variance.
E) Total overhead variance.

Accepted Answer

The answer of The difference between the total actual overhead...

Question 10

The difference between budgeted fixed factory overhead for a period and the amount of fixed factory overhead applied to production during the period is the:
A) Fixed factory overhead efficiency variance.
B) Fixed factory overhead production-volume variance.
C) Fixed factory overhead spending variance.
D) Fixed factory overhead sales-volume variance.
E) Fixed factory overhead flexible budget variance.

Accepted Answer

The difference between budgeted fixed factory overhead for a period and the amount of fixed factory overhead applied to production during the period is known as the fixed factory overhead production-volume variance. This variance measures the effect of the actual production volume being different from the expected (budgeted) production volume on the allocation of fixed overhead costs.

Question 11

Which of the following statements is correct?
A) Random variances are typically large in amount.
B) Systematic variances are considered uncontrollable.
C) Most standard cost variances call for investigation and corrective action.
D) Random variances should typically not be investigated.
E) Most variances from ideal standards will, by definition, be favorable.

Accepted Answer

Random variances, by their nature, are unpredictable and often stem from chance occurrences that cannot be controlled or corrected through managerial action. Investigating these variances usually does not lead to actionable insights, making it inefficient to pursue them.

Question 12

Systematic variances, as this term is used in the text, are persistent and most likely:
A) Are not worth management time and effort to investigate.
B) Average out to a steady-state amount over time.
C) Will recur unless corrected.
D) Are small in amount.
E) Must be allocated at the end of the period to inventory and cost of goods sold accounts.

Accepted Answer

Systematic variances are persistent, meaning they will continue to occur unless corrected. Therefore, it is important to investigate and address these variances in order to prevent them from recurring in the future.

Question 13

Determining the standard fixed factory overhead cost applied to production for a period involves all the following essential elements except:
A) The actual amount of fixed overhead cost incurred during the period.
B) A cost driver (or drivers) for applying the fixed overhead.
C) The standard fixed overhead application rate.
D) An assumed output level, as reflected by the quantity of the cost driver for applying the fixed overhead (i.e., the denominator activity level for the period).
E) The total budgeted fixed overhead cost for the period.

Accepted Answer

The actual amount of fixed overhead cost incurred during the period is not used to determine the standard fixed factory overhead cost applied to production; instead, the standard cost is based on budgeted or standard amounts, not actual costs incurred.

Question 14

In deciding whether to further investigate a variance, an organization needs to weigh the costs of investigation against the:
A) Ongoing time constraints.
B) Size of the variance.
C) Nature of the variance.
D) Difficulty of the investigation.
E) Anticipated benefits from the investigation.

Accepted Answer

The organization needs to consider the benefits that can be gained from investigating the variance before deciding whether to investigate it further. If the anticipated benefits outweigh the costs of investigation, it is worthwhile to investigate further.

Question 15

The difference in each period between total variable overhead cost incurred and the standard variable overhead cost for the period based on the actual quantity of the cost driver used to apply variable overhead cost is the:
A) Total variable overhead variance.
B) Variable overhead spending variance.
C) Variable overhead rate variance.
D) Variable overhead efficiency variance.
E) Variable overhead flexible-budget variance.

Accepted Answer

The variable overhead spending variance is the difference between the actual variable overhead costs incurred and the standard variable overhead costs based on the actual quantity of the cost driver used.

Question 16

The difference between the actual fixed overhead cost incurred during a period and the budgeted fixed overhead cost for the period is the:
A) Fixed overhead efficiency variance.
B) Fixed overhead production-volume variance.
C) Fixed overhead spending variance.
D) Fixed overhead rate variance.
E) Fixed overhead sales-volume variance.

Accepted Answer

The difference between the actual fixed overhead cost incurred and the budgeted fixed overhead cost is known as the fixed overhead spending variance. This variance captures how much was spent compared to what was budgeted for fixed overhead costs. The other variances, such as the fixed overhead efficiency variance and fixed overhead production volume variance, relate to different factors and are calculated using different inputs.

Question 17

If the organization is making good progress toward achieving an ideal standard, its management may not need to: 
A) Modify its standards.
B) Curtail spending on variable costs.
C) Curtail spending on fixed costs.
D) Review and revise the management accounting system.
E) Take any corrective action when variances are reported.

Accepted Answer

If the organization is making good progress toward achieving an ideal standard, it means that it is likely meeting its goals and objectives. In such a scenario, there is no need to take corrective action when variances are reported. Therefore, option E is the best choice. Choices A, B, and C are not applicable as there is no need to modify standards or curtail spending when things are going well. Option D may be relevant for ongoing continuous improvement, but it is not necessary to do so in this specific case.

Question 18

Random variances are:
A) Considered as uncontrollable from the standpoint of management.
B) Likely to recur until corrected.
C) The result of failing to include all relevant variables in the analysis.
D) The result of including wrong or irrelevant variables in the variance-investigation model.
E) Best controlled using six sigma and other techniques from operations management.

Accepted Answer

Random variances are considered uncontrollable from the standpoint of management because they arise from inherent randomness or noise in the process, not from systematic issues that can be corrected.

Question 19

In deciding whether to further investigate a cost variance, managers usually:
A) Investigate all variances judged to be systematic in nature.
B) Investigate all variances under a prescribed percentage limit.
C) Investigate all variances associated with factory overhead spending, since total overhead for a firm is typically large.
D) Investigate all variances over a given dollar amount or percentage.
E) Investigate all flexible-budget but not volume-related variances.

Accepted Answer

Managers usually investigate cost variances over a specific dollar amount or percentage. This threshold is usually set based on the size of the variance and the materiality of the amount to the overall budget or financial statements. Investigating all variances may be time-consuming and impractical, while investigating only those under a prescribed percentage limit or flexible-budget but not volume-related variances may not capture significant variances. Investigating all overhead variances is also unnecessary, as some variances may not materially impact the overall performance of the organization.

Question 20

Causes of random variances are beyond the control of management, and are most often found in (or are associated with):
A) Fixed costs.
B) Goods or services exchanged in open markets.
C) Wages and salaries.
D) Depreciation charges.
E) Specialized industries.

Accepted Answer

Random variances are typically associated with goods or services exchanged in open markets because prices of these goods or services can be influenced by external factors such as supply and demand, economic conditions, and competitor actions. Fixed costs, wages and salaries, and depreciation charges are more likely to result in predictable variances that can be managed by the organization. Specialized industries may also have unique factors that contribute to variances, but this is not necessarily always the case.

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

A statistical control chart:

The fixed factory overhead application rate (for product-costing purposes) is equal to:

The difference between variable overhead cost incurred and the total standard variable overhead cost allowed for the output of the period is called the:

Which one of the following factory overhead variances reflects the effect of deviation in input quantities only if the cost driver for applying variable overhead is a perfect predictor of variable overhead cost?

Which of the following statements about the standard variable factory overhead application rate is true?

Which one of the following reflects both price (rate) as well as efficiency (quantity) effects regarding individual variable overhead items?

The difference between the standard variable overhead cost for the actual quantity of the cost driver used for applying variable overhead and the standard variable overhead cost allowed for the units manufactured during a given period is the:

Which of the following is not a plausible cause of a systematic variance?

The difference between the total actual overhead cost incurred during a period and budgeted total factory overhead cost for the actual quantity of the cost driver used to apply overhead is equal to the:

The difference between budgeted fixed factory overhead for a period and the amount of fixed factory overhead applied to production during the period is the:

Which of the following statements is correct?

Systematic variances, as this term is used in the text, are persistent and most likely:

Determining the standard fixed factory overhead cost applied to production for a period involves all the following essential elements except:

In deciding whether to further investigate a variance, an organization needs to weigh the costs of investigation against the:

The difference in each period between total variable overhead cost incurred and the standard variable overhead cost for the period based on the actual quantity of the cost driver used to apply variable overhead cost is the:

The difference between the actual fixed overhead cost incurred during a period and the budgeted fixed overhead cost for the period is the:

If the organization is making good progress toward achieving an ideal standard, its management may not need to:

Random variances are:

In deciding whether to further investigate a cost variance, managers usually:

Causes of random variances are beyond the control of management, and are most often found in (or are associated with) :