Deck 17: Flexible Budgets, Overhead Cost Management, and Activity-Based Budgeting

Question 1

A flexible budget is a budget that is valid within the firm's relevant range of activity.

Answer 1

True

Question 2

The variable-overhead efficiency variance measures the cost of variable overhead cost driver.

Answer 2

False

Question 3

Activity levels in the flexible budget are based on output measures.

Answer 3

False

Question 4

In a multiproduct firm, units of output usually are not a meaningful measure because one would have to add numbers of unlike units.

Question 5

The activity-based budget provides a less accurate benchmark against which to compare actual costs.

Question 6

In a standard costing system, overhead application refers to the addition of actual overhead cost to the Work-in-Process inventory as a product cost.

Question 7

Variable-overhead cost and the activity measure for the flexible budget should move together as overall productive activity changes.

Question 8

The flexible overhead budget is the cost manager's primary tool for the control of manufacturing-overhead costs under traditional cost management techniques.

Question 9

Sales variance analysis attempts to explain the difference between actual sales performance and budgeted sales performance by focusing on several factors that underlie overall sales results.

Question 10

The sales-volume variance can be broken down into the revenue sales-mix variance and the revenue sales-quantity variance.

Question 11

The individual products' mix variance components convey a meaningful interpretation for management's analysis.

Question 12

A flexible budget is not based on only one level of activity.

Question 13

The variable-overhead spending variance is the real control variance for variable overhead.

Question 14

Budgeted fixed overhead is the basis for controlling fixed overhead because it provides the benchmark against which actual expenditures are compared.

Question 15

Total budgeted monthly overhead cost can be determined by means of the following formula: (budgeted variable-overhead cost per unit x total activity units) + budgeted fixed-overhead cost per month.

Question 16

The real cost of underutilizing productive capacity is due to the lost contribution margins of the products that are not produced when capacity is underutilized.

Question 17

In a conventional flexible budget only one cost driver is used while several cost drivers are used in an activity-based flexible budget.

Question 18

Standard cost variances are automatically closed to Cost of Goods Sold at the end of each month.

Question 19

An activity base or cost driver applies factory overhead to products.

Question 20

Overhead application can use standard costing to apply the overhead to work in process.

Question 21

An unexpected increase in property taxes on the plant could cause a fixed-overhead budget variance.

Question 22

A company based its fixed overhead cost allocation upon the production of 1,000,000 units, but actually produced 900,000 units. The company should expect a positive or unfavorable fixed-overhead volume variance.

Question 23

If a cost is fixed with respect to a single volume-based cost driver, it must always be fixed.

Question 24

Proration of variances recognizes that underestimation or overestimation of production costs affects Cost of Goods Sold, Work-in-Process inventory and Finished Goods inventory.

Question 25

The amount of the current period's standard cost remaining in Work-in-Process Inventory, Finished Goods Inventory, and Cost of Goods Sold is the basis for the variance proration procedures.

Question 26

Under standard backflush costing all standard costs are initially charged to Cost of Goods Sold and, if any inventories exist at the end of the period, a portion of the current period standard costs originally charged to Cost of Goods Sold is transferred to the respective inventory accounts as an end-of-period adjustment.

Question 27

Variances occurring in a standard backflush cost system are charged to a separate account as incurred and, if immaterial, are not prorated to inventories or, if material, they are prorated in the same manner as under a traditional standard cost system.

Question 28

The revenue budget variance can be broken down into the sales-price variance and the revenue-sales volume variance.

Question 29

Use the following to answer questions:
Riyyad Co. produces its only product in a highly automated process, expected monthly production is 50,000 units. The required direct material costs $0.85 per unit. Manufacturing overhead costs are $75,000 per month and are allocated based on units of production.

-What is the budgeted manufacturing overhead rate?

A) $1.00 per unit
B) $1.50 per unit
C) $0.85 per unit
D) $0.67 per unit

Question 30

Use the following to answer questions:
Riyyad Co. produces its only product in a highly automated process, expected monthly production is 50,000 units. The required direct material costs $0.85 per unit. Manufacturing overhead costs are $75,000 per month and are allocated based on units of production.

-What is the total flexible budget for 50,000 units and 25,000 units, respectively?

A) $117,500; $58,750
B) $ 75,000; $37,500
C) $ 75,000; $38,000
D) $117,500; $96,250

Question 31

Use the following to answer questions:
The traceable fixed and variable costs of the purchasing activity center are $260,000. An analysis of the center's cost behavior showed a fixed cost of $100,000 and the appropriate cost driver to be the number of lines inputted. The total number of lines inputted is 2,000,000.

-What is the overhead cost function for this activity center?

A) Costs = $100,000 + $0.08(lines)
B) Costs = $100,000 + $0.13(lines)
C) Costs = $260,000 + $0.08(lines)
D) Costs = $0.13(lines)

Question 32

Use the following to answer questions:
The traceable fixed and variable costs of the purchasing activity center are $260,000. An analysis of the center's cost behavior showed a fixed cost of $100,000 and the appropriate cost driver to be the number of lines inputted. The total number of lines inputted is 2,000,000.

-What would the total flexible overhead budget if the number of lines decreased to 1,800,000?

A) $334,000
B) $404,000
C) $244,000
D) $234.000

Question 33

Use the following to answer questions:
Henendez Co. collects its fixed overhead into a single cost pool. The budget for April was $600,000 and $775,000 was actually spent. April production was 15,000 units with actual machine hours of 12,000. Budgeted production for April was 12,000 units using 14,000 machine hours.

-What is the budgeted fixed overhead rate per output unit (round to nearest dollar)?

A) $50 per unit
B) $43 per unit
C) $52 per unit
D) $65 per unit

Question 34

Use the following to answer questions:
Henendez Co. collects its fixed overhead into a single cost pool. The budget for April was $600,000 and $775,000 was actually spent. April production was 15,000 units with actual machine hours of 12,000. Budgeted production for April was 12,000 units using 14,000 machine hours.

-What is budgeted fixed overhead rate per unit of input (round to nearest dollar)?

A) $50 per unit
B) $43 per unit
C) $52 per unit
D) $65 per unit

Question 35

Doyle Company uses machine hours to allocate variable manufacturing overhead to its product. The expected production for the coming period is 500 batches using 500 machine hours. The existing machine uses 12 KWH per machine hour at a cost of $8 per KWH. The company is considering purchasing a new machine that will use only 9 KWH per machine hour. Using the variable overhead spending and efficiency variances, how much would the company be willing to pay for this new machine?

A) $ 180
B) $10,000
C) $11,000
D) $12,000

Question 36

The _____measures the differences between the actual amount of variable overhead incurred and the actual quantity of variable overhead at the budgeted amount.

A) Sales-volume variance
B) Rate variance
C) Variable overhead spending variance
D) Variable-overhead efficiency variance

Question 37

When preparing a flexible budget, ______remain the same regardless of the output levels as long as the company is producing within the relevant range.

A) Variable costs
B) Fixed costs
C) Total costs
D) Budgeted costs

Question 38

XYZ Corp. produced 26,000 units of its only product. Machine hours per unit are 2.8. The budget planned for 23,000 units. What are the budgeted machine hours and the flexible-budget machine hours, respectively?

A) 64,400 machine hours; 72,800 machine hours
B) 72,800 machine hours; 64,400 machine hours
C) 68,000 machine hours; 75,000 machine hours
D) 75,000 machine hours; 68,000 machine hours

Question 39

Which of the following is not a step in the preparation of a flexible budget?

A) Determining budgeted variable cost per output unit
B) Determining budgeted fixed costs for the period
C) Determining actual quantity of output units
D) Determining actual selling price per unit

Question 40

Use the following to answer questions:
Grachev Co. manufactures hedge clippers, its only product. The following information relates to the
company's manufacturing overhead
for an output of 20,000 clippers:


-What is the variable manufacturing overhead static budget variance (i.e. a flexible budget is not used)?

A) $ 8,750 unfavorable
B) $ 8,750 favorable
C) $76,250 favorable
D) $76,250 unfavorable

Question 41

Use the following to answer questions:
Grachev Co. manufactures hedge clippers, its only product. The following information relates to the
company's manufacturing overhead
for an output of 20,000 clippers:


-What is the variable manufacturing overhead total variance?

A) $76,250 unfavorable
B) $16,250 unfavorable
C) $47,500 unfavorable
D) $47,500 favorable

Question 42

In a multi-product firm, activity levels for a flexible budget are based on

A) Output measures
B) Input measures
C) Either
D) Neither
Budgeted machine hours per unit are used to allocate variable and fixed manufacturing overhead and a four-way variance analysis is used

Question 43

Use the following to answer questions:
Controller Rachel Tabak of Johnson Inc. is in the process of analyzing its manufacturing overhead costs for March. March results follow:


-What is the variable overhead spending variance?

A) $40,000 unfavorable
B) $25,000 unfavorable
C) $25,000 favorable
D) $40,000 favorable

Question 44

Use the following to answer questions:
Controller Rachel Tabak of Johnson Inc. is in the process of analyzing its manufacturing overhead costs for March. March results follow:


-What are the variable overhead efficiency and variable volume variance, respectively?

A) $15,000 favorable; $200,000 unfavorable
B) $15,000 favorable; there is never a volume variance for variable overhead
C) $15,000 unfavorable; $0
D) $15,000 unfavorable; there is never a volume variance for variable overhead

Question 45

Use the following to answer questions:
Controller Rachel Tabak of Johnson Inc. is in the process of analyzing its manufacturing overhead costs for March. March results follow:


-What is the fixed overhead budget variance?

A) $ 30,000 unfavorable
B) $200,000 unfavorable
C) $200,000 favorable
D) $ 30,000 favorable

Question 46

Use the following to answer questions:
Controller Rachel Tabak of Johnson Inc. is in the process of analyzing its manufacturing overhead costs for March. March results follow:


-What are the fixed overhead efficiency and volume variances, respectively?

A) $160,000 favorable; $201,000 favorable;
B) $160,000 unfavorable; $201,000 unfavorable
C) $0; $200,000 favorable
D) There is never an efficiency variance for fixed overhead; $200,000 unfavorable

Question 47

Use the following to answer questions:
Controller Rachel Tabak of Johnson Inc. is in the process of analyzing its manufacturing overhead costs for March. March results follow:


-Which of the following journal entries is correct for recording actual variable overhead costs when incurred?

A) Item A
B) Item B
C) Item C
D) Item D

Question 48

Use the following to answer questions:
Arco Inc.'s fixed overhead budget is $400,000; the standard fixed overhead rate is $5 per direct labor hour or $10 per unit of product. During the immediate past year Arco produced 45,000 units of product, incurred $385,000 of fixed overhead, and used 82,500 direct labor hours.

-How much is Arco's fixed overhead budget variance?

A) $15,000 unfavorable
B) $15,000 favorable
C) $50,000 unfavorable
D) $50,000 favorable

Question 49

Use the following to answer questions:
Arco Inc.'s fixed overhead budget is $400,000; the standard fixed overhead rate is $5 per direct labor hour or $10 per unit of product. During the immediate past year Arco produced 45,000 units of product, incurred $385,000 of fixed overhead, and used 82,500 direct labor hours.

-What is the budgeted activity level on which Arco based its fixed overhead rate?

A) 90,000 direct labor hours
B) 82,500 direct labor hours
C) 80,000 direct labor hours
D) 70,000 direct labor hours

Question 50

Use the following to answer questions:
Arco Inc.'s fixed overhead budget is $400,000; the standard fixed overhead rate is $5 per direct labor hour or $10 per unit of product. During the immediate past year Arco produced 45,000 units of product, incurred $385,000 of fixed overhead, and used 82,500 direct labor hours.

-How much is Arco's fixed overhead volume variance?

A) $15,000 unfavorable
B) $15,000 favorable
C) $50,000 unfavorable
D) $50,000 favorable

Question 51

Which of the following statements about flexible budgets is not true?

A) The flexible budget is valid within the firm's relevant range of activity
B) A flexible budget is based on a simplified view of a firm's overhead cost structure
C) A flexible budget is not based on one particular level of activity
D) All of the above statements are true

Question 52

Use the following to answer questions:
Tillinghuisen Inc. uses a standard cost system. Last year's records showed the following information:


-How much is the variable overhead efficiency variance?

A) $6,400 unfavorable
B) $1,000 unfavorable
C) $1,000 favorable
D) $6,400 favorable

Question 53

Use the following to answer questions:
Tillinghuisen Inc. uses a standard cost system. Last year's records showed the following information:


-How much is the variable overhead spending variance?

A) $6,400 unfavorable
B) $1,000 unfavorable
C) $1,000 favorable
D) $6,400 favorable

Question 54

Use the following to answer questions:
Tillinghuisen Inc. uses a standard cost system. Last year's records showed the following information:


-How much is the fixed overhead volume variance?

A) $1,000 unfavorable
B) $6,750 unfavorable
C) $1,000 favorable
D) $6,750 favorable

Question 55

If applied fixed manufacturing overhead was $156,100 and there was a $3,900 favorable budget variance and a $3,000 unfavorable volume variance, budgeted fixed manufacturing overhead must have been:

A) $159,100
B) $163,000
C) $152,200
D) $160,000

Question 56

Fixed factory overhead was budgeted at $350,000 and 50,000 machine hours. If the fixed overhead volume variance was $5,000 unfavorable and the budget variance was $4,000 favorable, fixed overhead applied must have been:

A) $354,000
B) $346,000
C) $345,000
D) $349,000

Question 57

A primary difference between overhead costs in manufacturing companies and non-manufacturing companies is that

A) GAAP requires both types of companies to use the same treatment for manufacturing costs
B) Only non-manufacturing companies must include overhead costs as inventoriable costs for financial reporting purposes
C) Variable and fixed manufacturing costs are not inventoriable for purposes of financial reporting
D) Only manufacturing companies must include overhead costs as inventoriable costs for financial reporting purposes

Question 58

Which of the following variances would not be included in an Overhead Cost Performance Report?

A) Variable-overhead efficiency variance
B) Fixed-overhead budget variance
C) Fixed-overhead volume variance
D) Variable-overhead spending variance

Question 59

An overhead cost performance report shows which of the following items?

A) Variable overhead costs by component
B) Standard (variable) rate per machine hour for each component
C) Fixed overhead costs by component
D) All of the above

Question 60

Which of the following statements about activity-based flexible budgeting are true?

A) It uses several cost drivers
B) Costs that may appear fixed with respect to a single volume-based cost driver may be variable with . respect to other appropriate cost drivers
C) It can also be used as the basis for a flexible budget for planning and cost management purposes
D) All of the above

Question 61

Which of the following statements about activity measures is false?

A) The activity measure should be one that varies in a similar pattern to the way that variable overhead varies
B) As automation increases, increasing numbers of firms are switching to measures such as machine hours . or process time for their activity measures
C) Dollar measures are a good basis because they are subject to price-level changes and fluctuate more than physical measures
D) All of the above are true

Question 62

Use the following to answer questions:
The WriteAll Company sells two types of pens - rollerball and ballpoint - to specialty retailers. The company budgets by month in order to anticipate the peak demands occurring at various times during the year. The following information is available for July.


-How much is the total contribution-margin sales-volume variance?

A) $4,000 unfavorable
B) $12,500 unfavorable
C) $0
D) $8,500 favorable

Question 63

Use the following to answer questions:
The WriteAll Company sells two types of pens - rollerball and ballpoint - to specialty retailers. The company budgets by month in order to anticipate the peak demands occurring at various times during the year. The following information is available for July.


-How much is the contribution-margin sales-volume variance for rollerball pens?

A) $4,000 unfavorable
B) $12,500 unfavorable
C) $0
D) $8,500 favorable

Question 64

Use the following to answer questions:
The WriteAll Company sells two types of pens - rollerball and ballpoint - to specialty retailers. The company budgets by month in order to anticipate the peak demands occurring at various times during the year. The following information is available for July.


-How much is the total contribution-margin sales-quantity variance?

A) $4,000 unfavorable
B) $12,500 unfavorable
C) $0
D) $8,500 favorable

Question 65

Use the following to answer questions:
The WriteAll Company sells two types of pens - rollerball and ballpoint - to specialty retailers. The company budgets by month in order to anticipate the peak demands occurring at various times during the year. The following information is available for July.


-How much is the total contribution-margin sales-mix variance?

A) $ 4,000 unfavorable
B) $12,500 unfavorable
C) $ 0
D) $ 8,500 unfavorable

Question 66

In a standard cost system overhead application is based on

A) Actual hours used for actual output
B) Standard hours allowed for actual output
C) Standard hours allowed for standard output
D) Actual hours used for standard output

Question 67

The ________is the difference between the budgeted fixed manufacturing overhead and the fixed overhead applied to the actual output units produced (or standard input units allowed for actual output).

A) Efficiency variance
B) Spending variance
C) Volume variance
D) Yield variance

Question 68

Which of the following is true?

A) A positive fixed overhead volume variance always indicated a company is company is doing a favorable job
B) A negative fixed overhead volume variance may result from a company producing more items due to an increase in market demand
C) A negative fixed overhead volume variance may result from a company producing few or items due to a decrease in market demand
D) All of the above are true

Question 69

Which of the following is not involved in establishing variable factory overhead costs?

A) Determining the patterns of variable factory overhead costs
B) Computing the standard variable overhead rate
C) Deciding upon the maximum sales price to obtain targeted market share
D) Selecting the most appropriate cost driver for applying variable factor overhead to each cost object

Question 70

Which of the following will cause a negative or favorable fixed overhead volume variance

A) An unexpected increase in direct labor hours
B) An unexpected increase in direct material costs
C) An unexpected increase in variable overhead costs
D) An unexpected increase in production

Question 71

The Direct Material Inventory account had an ending balance of $10,000
If the company prorates the overhead variance to the ending balances in the appropriate accounts, how much is the balance in Work-in-Process Inventory after proration?
[Appendix A] Hammid Co ended this year with a total overhead variance of $50,000 favorable. The records showed the following overhead amounts in the relevant accounts:

A) $ 91,803
B) $108,197
C) $ 93,750
D) $106,250

Question 72

Rafter Company uses a standard-cost just-in-time manufacturing system. During the first year of the company's operation direct materials at a standard cost of $100,000 were purchased and charged to Cost of Goods Sold. At the end of the year $45,000 of this can be traced to various inventory accounts: 60 percent to direct materials, 25 percent to Work-in-Process, and 15 percent to Finished Goods. Which of the following entries is the correct end-of-period adjustment?

A) Item A
B) Item B
C) Item C
D) Item D

Question 73

During the second year of operations Halachmi Company's records showed the following information about direct labor and overhead: actual amount spent $395,000; standard allowed $390,000. Which of the following entries reflect the recording of the Direct labor and overhead during the year?

A) Item A
B) Item B
C) Item C
D) Item D

Question 74

The revenue sales-volume variance is

A) The sum of the individual products' revenue sales volume variances (=budgeted selling price times the difference between the actual and budgeted sales)
B) Budgeted unit sales times actual units sales divided by budgeted unit sales
C) Actual unit sales times budgeted unit sales divided by budgeted selling price per unit
D) The sum of the actual unit sales and the budgeted unit sales divided by the budgeted individual product's selling price

Question 75

Health Foods Inc. sells a special multi-grain muffin. In January the budgeted output an actual output were equal. January's revenue sales-volume variance

A) Will be unfavorable
B) Will be favorable
C) Will be zero
D) Cannot be determined

Question 76

The Campus Express bookstore ordered T-shirts and bookbags with the university log in September. The bookstore expected to sell 2,000 T-shirts and actually sold 1,800; the planned selling price was $25 while the actual was $20. The planned sales of bookbags was 1,000 at a price of $75. The actual sales were 1,200 at a price of $60. What was the revenue sales-volume variance for September?

A) $ 8,000 favorable
B) $10,000 favorable
C) $ 8,000 unfavorable
D) $10,000 unfavorable

Question 77

Which of the following is not important to managers when analyzing revenue sales-volum variance information?

A) The combination of the individual revenue sales-volume variances
B) The comparison of budgeted and actual total costs
C) The picture of the product-line portrayed by aggregate dollars
D) The production for the period

Question 78

The cost functions are considered reliable within a relevant range of 25,000 to 50,000 direct labor hours per month. The company expects to operate at 30,000 hours per month.
Actual results for February are as follows:
McIntire Inc. developed the following monthly cost functions for manufacturing overhead:

Required:
(1) What are the following standard manufacturing overhead rates based on expected activity?
(a) Variable manufacturing overhead
(b) Fixed manufacturing overhead
(2) (a) Prepare a flexible budget using the following headings: Budget at
Overhead Cost VC/DLH Actual cost actual hrs. Variance
(b) Which variances need to be investigated and what are some probable causes?

Question 79

Briefly differentiate between a static budget and a flexible budget for manufacturing overhead and why the flexible budget is more appropriate for cost control and performance evaluation.

Question 80

Jewel Company produces jewelry for a specialized market. The fixed overhead costs for the coming year are budgeted at $705,000 and are allocated on the basis of good units completed. It is expected that 300,000 units will be completed during the year. Good units average 94 percent of total production. During the month of July 30,000 units were produced. The actual fixed overhead per good unit averaged $2.78.
Required (Where necessary, round variances to nearest dollar):
(1) Determine the fixed overhead rate for the year.
(2) Determine the fixed overhead budget variance for the month of July,
(3) Determine the fixed overhead volume variance for the month of July.