Question 1

A company may set predetermined overhead rates based on normal,expected annual,or theoretical capacity.At the end of a period,the fixed overhead spending variance would

Accepted Answer

The fixed overhead spending variance is influenced by the difference between the actual and budgeted fixed overhead costs, not by the capacity level selected. Therefore, it remains the same regardless of whether normal, expected annual, or theoretical capacity levels are used for setting predetermined overhead rates.

Question 2

In analyzing manufacturing overhead variances,the volume variance is the difference between the

Accepted Answer

The volume variance in manufacturing overhead analysis is the difference between the budget allowance based on standard hours allowed for actual production for the period and the amount budgeted to be applied during the period. This variance measures the impact of the actual production volume differing from the expected (budgeted) production volume.

Question 3

The fixed overhead application rate is a function of a predetermined activity level.If standard hours allowed for good output equal the predetermined activity level for a given period,the volume variance will be

Accepted Answer

The volume variance measures the difference between the actual number of units produced and the budgeted level of production. However, if the standard hours allowed for good output equal the predetermined activity level, then the actual level of production will be the same as the budgeted level. Therefore, there will be no volume variance, and the answer is A) zero.

Question 4

A company has a favorable variable overhead spending variance,an unfavorable variable overhead efficiency variance,and underapplied variable overhead at the end of a period.The journal entry to record these variances and close the variable overhead control account will show which of the following?
VOH spencing                        $ \mathrm{VOH} $ efficiency

$\text {\underline{ variance} }$                                $\text {\underline{variance} }$                                          $\text {\underline{ VMOH} }$

Accepted Answer

A favorable variable overhead spending variance means the actual spending was less than the budgeted amount, so this variance is credited. An unfavorable variable overhead efficiency variance means more resources were used than expected, so this variance is debited. Underapplied variable overhead means not enough overhead was allocated to products, so additional overhead needs to be allocated, resulting in a debit to close the account.

Question 5

An unfavorable fixed overhead volume variance is most often caused by

Accepted Answer

An unfavorable fixed overhead volume variance occurs when actual production levels are lower than normal capacity. This means that fixed overhead costs are spread over a lower level of output, resulting in a higher fixed overhead cost per unit of output. This can happen, for example, if there is a decrease in demand or if there are production inefficiencies that result in lower production levels. A, B, and C are not likely causes of an unfavorable fixed overhead volume variance.

Question 6

The variancemost useful in evaluating plant utilization is the

Accepted Answer

The fixed overhead volume variance is the most useful variance in evaluating plant utilization because it measures the difference between the actual fixed overhead applied to a product and the budgeted fixed overhead for the number of units produced. This variance provides insight into whether a plant is operating at full capacity or not, and can help managers make decisions about increasing or decreasing production levels to optimize plant utilization.

Question 7

Fixed overhead costs are

Accepted Answer

Fixed overhead costs are mostly incurred to provide the capacity to produce and are best controlled on a total basis at the time they are originally negotiated. These costs do not change with the level of production, and therefore controlling them on a unit-by-unit basis may not be effective. It is important to negotiate these costs effectively and monitor them on a total basis.

Question 8

Bailey Corporation.incurred 2,300 direct labor hours to produce 600 units of product.Each unit should take 4 direct labor hours.Bailey Corporation applies variable overhead to production on a direct labor hour basis.The variable overhead efficiency variance

Accepted Answer

Since each unit is expected to take 4 direct labor hours, in total, 600 units should take 2,400 direct labor hours to produce (600 units x 4 direct labor hours per unit). However, Bailey Corporation only used 2,300 direct labor hours to produce the 600 units, indicating that the actual direct labor hour usage was more efficient than the standard. As a result, the variable overhead efficiency variance will be favorable, as less variable overhead costs were incurred due to the more efficient usage of direct labor hours.

Question 9

Total actual overhead minus total budgeted overhead at the actual input production level equals the

Accepted Answer

The total actual overhead minus total budgeted overhead at the actual input production level equals the total overhead spending variance. This variance measures the difference between what was actually spent on overhead and what was expected to be spent, based on the budgeted rates and actual production levels.

Question 10

A variable overhead spending variance is caused by

Accepted Answer

A variable overhead spending variance is caused by paying a higher/lower average actual overhead price per unit of the activity base than the standard price allowed per unit of the activity base (choice B) and/or larger/smaller waste and shrinkage associated with the resources involved than expected (choice C). Using more or fewer actual hours than the standard hours allowed for the production achieved (choice A) would result in a variable overhead efficiency variance.

Question 11

Variance analysis for overhead normally focuses on

Accepted Answer

Variance analysis for overhead typically involves analyzing efficiency variances for machinery and indirect production costs, as these are the costs that can vary based on the level of activity or production. Volume variances for fixed overhead costs are typically not as relevant for overhead variance analysis. The controllable variance is also typically analyzed separately, as it focuses on the variability that can be controlled by management. Budgeted and applied variable overhead differences may be indicative of inefficiencies or other issues, but are not the primary focus of overhead variance analysis.

Question 12

A favorable fixed overhead spending variance indicates that

Accepted Answer

A favorable fixed overhead spending variance means that actual fixed overhead costs are less than the budgeted fixed overhead costs. This indicates that cost-saving measures were taken or production was more efficient than anticipated, resulting in lower than expected overhead costs.

Question 13

In a standard cost system,when production is greater than the estimated unit or denominator level of activity,there will be a(n)

Accepted Answer

In a standard cost system, the volume variance is unfavorable when production is less than estimated level of activity and favorable when production is greater than estimated level of activity. The capacity variance measures the difference between actual activity level and the estimated level, so it is not affected by production quantity alone. The material and labor usage variances depend on the actual usage of materials and labor compared to the standard, and are not impacted by production quantity alone. The manufacturing overhead variance is influenced by several factors including production volume, but cannot be determined without knowing the specific variance being analyzed.

Question 14

Which of the following are considered controllable variances?
$\text {\underline{ VOH spenching} }$       $\text {\underline{ Total overhead budget} }$         $\text {\underline{ Volume} }$

Accepted Answer

Controllable variances are the variances that can be controlled by the management or the organization. 
- VOH spending is controllable as it depends on management decisions such as cost-cutting measures and efficiency improvements.
- Total overhead budget is also controllable as it is directly set by the management.
- Volume is not controllable as it depends on external factors such as the market demand and competition. 
Therefore, the best choice is option D, which includes both VOH spending and total overhead budget as controllable variances.

Question 15

Actual fixed overhead minus budgeted fixed overhead equals the

Accepted Answer

The formula for calculating the fixed overhead variance is Actual Fixed Overhead - Budgeted Fixed Overhead = Fixed Overhead Variance. The fixed overhead spending variance measures the difference between the actual amount spent on fixed overhead and the budgeted amount for a certain level of production. Therefore, the answer is B.

Question 16

Which of the following capacity levels has traditionally been used to compute the fixed overhead application rate?

Accepted Answer

Expected annual capacity is used to compute the fixed overhead application rate because it represents the level of activity that the company expects to achieve in the coming year. This level of activity is used to calculate the fixed overhead rate because it is the level of activity that the company will use to absorb its fixed overhead costs.

Question 17

The variance least significant for purposes of controlling costs is the

Accepted Answer

The fixed overhead volume variance is less significant for controlling costs because it relates to the difference between budgeted and actual production levels, which is less controllable compared to other variances that directly relate to resource usage and spending.

Question 18

The efficiency variance computed on a three-variance approach is

Accepted Answer

The efficiency variance in both the three-variance and four-variance approaches is calculated in the same way, focusing on the efficiency of labor or machine usage in relation to the standard set for production.

Question 19

The use of separate variable and fixed overhead rates is better than a combined rate because such a system

Accepted Answer

The use of separate variable and fixed overhead rates is more effective in assigning overhead costs to products because it recognizes that these costs are incurred differently and at different rates depending on the volume of production. This method provides more accurate cost allocation and helps to avoid distortions caused by fluctuations in production volume. It may be more complex to develop and maintain than a combined rate system, but it ultimately leads to more accurate costing and decision making.

Question 20

A favorable fixed overhead volume variance occurs if

Accepted Answer

Fixed overhead volume variance is the difference between the budgeted fixed overhead and the fixed overhead applied based on the actual level of production. If the actual level of production is greater than planned (i.e. higher sales), then the fixed overhead volume variance will be favorable because more products were produced to absorb the fixed overhead costs. Therefore, option D is the correct answer.

Quiz 7: Standard Costing and Variance Analysis