Question 1

Use the following information to answer the following Questions
The Step Company has the following information for the year just ended:

-The Step Company's sales-price variance is:

Accepted Answer

A)  $3,000 unfavorable. 
B)  $7,000 unfavorable. 
C)  $7,000 favorable. 
D)  $7,500 unfavorable. 
E)  $7,500 favorable.

Question 2

Which of the following is not an overhead variance?

Accepted Answer

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

Question 3

Strongheart Enterprises anticipated selling 27,000 units of a major product and paying sales commissions of $6 per unit. Actual sales and sales commissions totaled 27,500 units and $171,400, respectively. If the company used a flexible budget for performance evaluations, Strongheart would report a cost variance of:

Accepted Answer

A)  $6,400U. 
B)  $6,400F. 
C)  $9,400U. 
D)  $9,400F. 
E)  None of the answers is correct.

Question 4

Use the following information to answer the following Questions
Seven Falls Cuisines has the following flexible-budget formula: 
Y = $13PH + $450,000 where PH is defined as process hours.

-What is Seven Falls' budgeted total cost if its process hours equal 25,000?

Accepted Answer

A)  $325,000. 
B)  $450,000. 
C)  $775,000. 
D)  $1,225,000. 
E)  Answer cannot be determined from the information provided.

Question 5

Which of the following statements is/are correct concerning the application of overhead in a standard costing system driven by process hours?

Accepted Answer

A)  A predetermined overhead rate is allowed only for fixed overhead. 
B)  Overhead application is based on standard process hours allowed. 
C)  Overhead application is based on actual process hours incurred. 
D)  Only prime costs are considered to be product costs in a standard costing system. 
E)  Only variable overhead costs are applied to production.

Question 6

A flexible budget for 15,000 hours revealed variable manufacturing overhead of $90,000 and fixed manufacturing overhead of $120,000. The budget for 20,000 hours would reveal total overhead costs of:

Accepted Answer

A)  $240,000. 
B)  $270,000. 
C)  $290,000. 
D)  $350,000. 
E)  $210,000.

Question 7

Briefly explain the nature of the fixed-overhead volume variance. Be sure to address the issue of capacity utilization in your response.

Accepted Answer

The answer of Briefly explain the nature of the fixed-overhead...

Question 8

The overhead cost performance report presents itemized variances along with actual and budgeted costs for each overhead item.

Accepted Answer

A) True 
 B)False

Question 9

Zhou, Inc. is planning its cash needs for an upcoming period when 85,000 machine hours are expected to be worked. Activity may drop as low as 78,000 hours if some overdue equipment maintenance procedures are performed; on the other hand, activity could jump to 94,000 hours if one of Zhou's major competitors likely goes bankrupt. A flexible cash budget to determine cash needs would best be based on:

Accepted Answer

A)  78,000 hours. 
B)  85,000 hours. 
C)  94,000 hours. 
D)  78,000 hours and 94,000 hours. 
E)  78,000 hours, 85,000 hours, and 94,000 hours.

Question 10

When actual variable cost per unit equals standard variable cost per unit, the difference between actual and budgeted contribution margin is explained by a combination of which two variances?

Accepted Answer

A)  The sales-volume variance and the fixed-overhead volume variance. 
B)  The sales-volume variance and the fixed-overhead budget variance. 
C)  The sales-price variance and the fixed-overhead volume variance. 
D)  The sales-price variance and sales-volume variance. 
E)  The sales-price variance and fixed-overhead budget variance.

Question 11

A production manager was recently given a performance report that showed a sizable unfavorable variable-overhead efficiency variance. The manager was puzzled as to how the department could be inefficient in the use/incurrence of this cost.
Required: 
 
Briefly explain the nature of this variance to the manager. Does the variance really have much to do with variable overhead efficiencies or inefficiencies? Discuss.

Accepted Answer

The answer of A production manager was recently given a...

Question 12

Chong Corporation recently prepared a manufacturing cost budget for an output of 50,000 units, as follows:

Actual units produced amounted to 60,000. Actual costs incurred were: direct materials, $110,000; direct labor, $60,000; variable overhead, $100,000; and fixed overhead, $97,000. If Chong evaluated performance by the use of a flexible budget, a performance report would reveal a total variance of:

Accepted Answer

A)  $3,000 favorable. 
B)  $23,000 favorable. 
C)  $27,000 unfavorable. 
D)  $42,000 unfavorable. 
E)  None of the answers is correct.

Question 13

What will cause the variable-overhead efficiency variance?

Accepted Answer

A)  Efficient or inefficient use of a specific component of variable overhead (e.g., electricity). 
B)  Full or partial utilization of major equipment resources. 
C)  Production of units in excess of the number of units sold. 
D)  Efficient or inefficient use of the cost driver (e.g., machine hours) for variable overhead. 
E)  Changes in the salary cost of manufacturing supervisors.

Question 14

The sales-price variance is the difference between the actual and budgeted sales prices multiplied by the actual sales volume.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following mathematical expressions is found in a typical flexible-budget formula for overhead?

Accepted Answer

A)  Total activity units + budgeted fixed overhead cost per unit. 
B)  Budgeted variable overhead cost per unit + budgeted fixed overhead cost. 
C)  (Budgeted variable overhead cost per unit *total activity units) + budgeted fixed overhead costs. 
D)  (Budgeted fixed overhead cost per unit *total activity units) + (budgeted variable overhead cost per unit*total activity units). 
E)  None of the answers is correct.

Question 16

Knee-Jerk Industries operates a delivery service for local restaurants, delivering call-in, to-go meals for restaurant customers. Variable overhead costs are applied at the budgeted rate of $3 per driving hour. The typical roundtrip takes a driver 45 minutes to complete. Actual results for March follow.
Number of roundtrips run: 1,560
Hours of delivery time: 1,250
Variable overhead cost incurred: $3,450
Knee-Jerk uses flexible budgets and variance analysis to monitor performance.
Required: 
A. Prepare a flexible-budget performance report that shows (1) actual variable overhead, (2) the amount of variable overhead that should have been incurred for the number of roundtrips taken, and (3) the variance between these amounts.
B. Compute the company's variable-overhead spending and efficiency variances.
C. Compare the variances that you computed in requirements "A" and "B," and comment on your findings.

Accepted Answer

The answer of Knee-Jerk Industries operates a delivery service for...

Question 17

Canister Industries uses labor hours to apply variable overhead to production. If the company's workers were very inefficient during the period, which of the following statements would be true about the variable-overhead efficiency variance?

Accepted Answer

A)  The variance would be favorable. 
B)  The variance would be unfavorable. 
C)  The nature of the variance (favorable or unfavorable) would be unknown based on the facts presented. 
D)  The variance would be the same amount as the labor efficiency variance. 
E)  None of the answers is correct.

Question 18

Assume that machine hours drive the cost for overhead. The difference between the actual variable overhead incurred and the applied variable overhead is the:

Accepted Answer

A)  volume variance. 
B)  production variance. 
C)  efficiency variance. 
D)  sum of the spending and efficiency variances. 
E)  spending variance.

Question 19

Pizzazz Pizza Inc.’s activity based flexible budget is as follows:

Pizzazz’s activity for September is as follows:
Required:
1. Determine the flexible budgeted cost for each of the following: 
 
a. Indirect material 
b. Utilities 
c. Inspection 
d. Test kitchen 
e. Material handling 
f. Total overhead cost

2.Compute the variance for setup cost during the month, assuming that the actual setup cost was $3,000: Using the activity-based flexible budget.

Accepted Answer

The answer of Pizzazz Pizza Inc.’s activity based flexible budget...

Question 20

Barrington Industries anticipated selling 29,000 units of a major product and paying sales commissions of $6 per unit. Actual sales and sales commissions totaled 31,500 units and $182,700, respectively. If the company used a static budget for performance evaluations, Barrington would report a cost variance of:

Accepted Answer

A)  $6,300U. 
B)  $6,300F. 
C)  $8,700U. 
D)  $8,700F. 
E)  None of the answers is correct.

Exam 11: Flexible Budgeting and Analysis of Overhead Costs

Use the following information to answer the following Questions The Step Company has the following information for the year just ended: -The Step Company's sales-price variance is: