Question 1

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

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 2

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

The answer of Which one of the following journal entries...

Question 3

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

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 4

For internal reporting purposes,it is recommended that fixed overhead allocation rates in a standard costing system be based on:

Accepted Answer

Practical capacity should be used to establish fixed overhead allocation rates in a standard costing system for internal reporting purposes. Practical capacity is the level of production that can be achieved with reasonable efficiency, given current resources such as equipment, labor, and materials. Using practical capacity ensures that the overhead allocation rate is based on a realistic production level that takes into account the limitations of resources, rather than an idealized theoretical capacity that may never be achieved in practice.

Question 5

All of 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

All of the other choices (A, C, D, and E) are valid options for defining the denominator volume in a standard cost system. However, actual capacity utilization would not be an appropriate choice as it would result in fixed overhead costs being allocated based on actual volume, which could vary significantly from the planned or expected level.

Question 6

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

Accepted Answer

The difference between the actual fixed overhead cost incurred and the budgeted fixed overhead cost is the fixed overhead spending variance, which measures the difference in cost due to the difference in price of fixed overhead items or the difference in usage of fixed overhead items. The other variances relate to different factors such as production volume, sales volume, and efficiency.

Question 7

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

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 8

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

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 9

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 and the total standard factory overhead cost assigned to production is known as the total factory overhead variance. This variance captures the overall difference between actual and standard costs and is often separated into two components: the spending variance (which measures the difference between actual and budgeted costs) and the efficiency variance (which measures the difference between actual and standard costs). However, since this question only asks for the overall variance, the correct answer is C - total factory overhead variance.

Question 10

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

Accepted Answer

Fixed overhead costs cannot be easily traced to individual units of production, so they must be allocated or unitized to products. This is done under the absorption or full-costing approach, where fixed overhead costs are allocated based on a predetermined rate per unit of activity, such as machine hours or direct labor hours. Therefore, it is necessary to unitize fixed overhead costs for product-costing purposes. Option B is incorrect because the amount of standard fixed overhead costs for product-costing purposes can be different from the actual amount incurred for control purposes. Option C is incorrect because both variable and fixed overhead costs are included in product costing. Option D is incorrect because standard costing is a widely accepted practice in accounting. Option E is incorrect because total fixed overhead costs are unitized to products, not applied as a lump-sum amount.

Question 11

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

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 12

The "death-spiral" effect refers to:

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 13

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

Accepted Answer

The fixed factory overhead production-volume variance measures the difference between the budgeted fixed overhead and the applied fixed overhead based on actual production levels.

Question 14

In regard to the investigation of variances under uncertainty,which of the following is not a positive (i.e. ,desirable)combination of courses of action and states of nature?

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 15

In terms of allocating fixed overhead cost to products,generally accepted accounting principles:

Accepted Answer

Generally accepted accounting principles (GAAP) require that fixed overhead costs be allocated based on normal capacity, which is the expected level of production under normal circumstances.

Question 16

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

This is an example of an accounting error, as it is directly related to improper accounting systems or procedures. Random error refers to an unpredictable, chance deviation from the expected result. Prediction error occurs when the result deviates from what was predicted, but not necessarily due to improper procedures. Implementation error refers to a mistake in executing a plan or process. Modeling error refers to a mistake in a mathematical or statistical model used to make predictions or decisions.

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

A modeling error occurs when there is a deviation from the standard due to inappropriate or inadequate modeling, such as failing to include relevant variables or using irrelevant variables. Random errors are due to chance and are not predictable, prediction errors occur when a model is not accurate in predicting future outcomes, implementation errors occur during the execution or implementation of a standard, and measurement errors occur when there are inaccuracies in the measurement of variables.

Question 18

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

When production is completed in a standard cost system, the cost of the goods should be transferred from the Work-in-Process Inventory account to the Finished Goods Inventory account. The transfer should be at the standard cost, which is the predetermined cost of producing a product. Therefore, the journal entry to record the completion of production for the period is a debit to Finished Goods Inventory at the standard cost.

Question 19

In a standard cost system,when production is greater than the denominator volume level,there will be:

Accepted Answer

In a standard cost system, the denominator volume level is the anticipated level of production for the period. If actual production is greater than this level, it means that fixed costs are being spread over a larger number of units, which results in a lower per-unit cost. This, in turn, leads to a favorable production-volume variance. Therefore, the correct choice is (C) A favorable production-volume variance.

Question 20

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

Accepted Answer

An implementation error refers to a deviation from standard procedures or processes during operations, often caused by operator errors. This can include errors in equipment operation, deviation from established policies and procedures, or failure to follow established guidelines. Random errors are unpredictable and occur due to chance or natural variation, prediction errors occur when predictions or forecasts are inaccurate, modeling errors occur when a model or algorithm is flawed, and accounting errors relate to financial transactions and records.

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