Sample/practice exam December, questions and answers PDF

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Chapter 11 Flexible Budgets and Overhead Analysis True/False Questions 1. A key feature of a flexible budget is that actual results can be compared to budgeted costs at the same level of activity. Ans: True 2. Direct labor-hours would generally be a better measure of activity for a flexible budget than direct labor cost. Ans: True 3. In a flexible budget, when the activity declines, the variable costs per unit also declines. Ans: False 4. Fixed costs should not be included in a flexible budget because they do not change when the level of activity changes. Ans: False 5. To assess how well a production manager has controlled costs, actual costs should be compared to what the costs should have been for the planned level of production. Ans: False 6. The overhead spending variance is not affected by excessive usage or waste of overhead materials. Ans: False 7. The variable overhead efficiency variance provides a measure of how efficiently the activity base which underlies the flexible budget is being utilized in production. Ans: True

8. A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours. The company's choice of the denominator level of activity affects the fixed overhead volume variance. Ans: True

LO: 5; 6

9. The higher the denominator activity level used to compute the predetermined overhead rate, the higher the predetermined overhead rate. Ans: False

LO: 5

10. In a standard costing system, if the actual fixed manufacturing overhead cost exceeds the budgeted fixed manufacturing overhead cost for the period, then fixed manufacturing overhead cost would be underapplied for the period. Ans: False

LO: 5

11. When fixed manufacturing overhead cost is applied to work in process, it is treated as if it were a variable cost. Ans: True

LO: 5

12. A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours. The company's choice of the denominator level of activity has no effect on the variable portion of the predetermined overhead rate. Ans: True

LO: 5

13. There can be a volume variance for either variable manufacturing overhead or fixed manufacturing overhead. Ans: False

LO: 6

14. If the denominator level of activity is less than the standard hours allowed for the output of the period, then the volume variance is unfavorable, indicating an overutilization of available facilities. Ans: False

LO: 6

15. A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours. A fixed overhead volume variance will necessarily occur in a month in which actual direct labor-hours differ from standard hours allowed. Ans: False

LO: 6

Multiple Choice Questions 16. The purpose of a flexible budget is to: A) allow management some latitude in meeting goals. B) eliminate fluctuations in production reports by ignoring variable costs. C) compare actual and budgeted results at virtually any level of activity. D) reduce the time to prepare the annual budget. Ans: C

Source: CPA; adapted

17. When using a flexible budget, a decrease in activity within the relevant range: A) decreases variable cost per unit. B) decreases total costs. C) increases total fixed costs. D) increases variable cost per unit. Ans: B

Source: CPA; adapted

18. The activity base that is used for a flexible budget for an overhead cost should be: A) direct labor-hours. B) units of output. C) expressed in dollars, if possible. D) the cause of the overhead cost. Ans: D 19. A budget that is based on the actual activity of a period is known as a: A) continuous budget. B) flexible budget. C) static budget. D) master budget. Ans: B 20. The fixed manufacturing overhead budget variance equals: A) Actual fixed manufacturing overhead cost--Applied fixed manufacturing overhead cost. B) Actual fixed manufacturing overhead cost--Budgeted fixed manufacturing overhead cost. C) Budgeted fixed manufacturing overhead cost--Applied fixed manufacturing overhead cost. D) Actual fixed manufacturing overhead cost-- (Actual hours x Standard fixed overhead rate). Ans: B

LO: 6

21. Which of the following variances is least significant from a standpoint of cost control? A) materials price variance. B) labor efficiency variance. C) fixed overhead volume variance. D) variable overhead spending variance. Ans: C

LO: 6

22. The manufacturing overhead variance that is a measure of capacity utilization is: A) the overhead spending variance. B) the overhead efficiency variance. C) the overhead budget variance. D) the overhead volume variance. Ans: D

LO: 6

23. If the denominator activity is less than the standard hours allowed for the actual output, one would expect that: A) the variable overhead efficiency variance would be unfavorable. B) the fixed overhead volume variance would be favorable. C) the fixed overhead budget variance would be unfavorable. D) the variable overhead efficiency variance would be favorable. Ans: B

LO: 6

24. The volume variance is nonzero whenever: A) standard hours allowed for the output of a period differ from the denominator level of activity. B) actual hours differ from the denominator level of activity. C) standard hours allowed for the output of a period differ from the actual hours during the period. D) actual fixed overhead costs incurred during a period differ from budgeted fixed overhead costs as contained in the flexible budget. Ans: A

LO: 6

25. A volume variance is computed for: A) both variable and fixed overhead. B) variable overhead only. C) fixed overhead only. D) direct labor costs as well as overhead costs. Ans: C

LO: 6

26. Which of the following standard cost variances would usually be least controllable by a production supervisor? A) Fixed overhead volume variance. B) Variable overhead efficiency variance. C) Direct labor efficiency variance. D) Materials usage (quantity) variance. Ans: A

LO: 6

Source: CPA; adapted

27. The following costs appear in Malgorzata Company's flexible budget at an activity level of 15,000 machine-hours: Indirect materials............... Factory rent........................

Total Cost $7,800 $18,000

What would be the flexible budget amounts at an activity level of 12,000 machinehours if indirect materials is a variable cost and factory rent is a fixed cost? Indirect Materials Factory Rent A) $7,800 $14,400 B) $7,800 $18,000 C) $6,240 $14,400 D) $6,240 $18,000 Ans: D Solution: Budgeted number of machine hours: 15,000 Cost Formula (per machinehour) Variable costs: Indirect materials.......... $0.52* Fixed costs: Factory rent................... *$7,800 ÷ 15,000 MHs = $0.52 per MH

Activity (in machine-hours): 12,000 $6,240 $18,000

28. Mongelli Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion. The Inn's guests appreciate its gourmet breakfasts and individually decorated rooms. The Inn's overhead budget for the most recent month appears below: Activity level.................................. 90 guests Variable overhead costs: Supplies....................................... Laundry....................................... Fixed overhead costs: Utilities........................................ Salaries and wages...................... Depreciation................................ Total overhead cost........................

$ 234 315 220 4,290 2,680 $7,739

The Inn's variable overhead costs are driven by the number of guests. What would be the total budgeted overhead cost for a month if the activity level is 99 guests? Assume that the activity levels of 90 guests and 99 guests are within the same relevant range. A) $7,793.90 B) $61,541.00 C) $8,512.90 D) $7,739.00 Ans: A

Solution: Budgeted number of guests: 90 Cost Formula (per guest) Overhead Costs Variable overhead costs: Supplies ($234 ÷ 90 guests).................... Laundry ($315 ÷ 90 guests).................... Total variable overhead cost...................... Fixed overhead costs: Utilities.................................................... Salaries and wages.................................. Depreciation............................................ Total fixed overhead cost........................... Total budgeted overhead cost.....................

$2.60 3.50 $6.10

Activity (in guests): 99 $ 257.40 346.50 603.90 220.00 4,290.00 2,680.00 7,190.00 $7,793.90

29. Kerekes Manufacturing Corporation has prepared the following overhead budget for next month. Activity level.................................. Variable overhead costs: Supplies....................................... Indirect labor............................... Fixed overhead costs: Supervision................................. Utilities........................................ Depreciation................................ Total overhead cost........................

2,500 machine-hours $12,250 22,000 15,500 5,500 6,500 $61,750

The company's variable overhead costs are driven by machine-hours. What would be the total budgeted overhead cost for next month if the activity level is 2,400 machine-hours rather than 2,500 machine-hours? Assume that the activity levels of 2,500 machine-hours and 2,400 machine-hours are within the same relevant range. A) $59,830.00 B) $59,280.00 C) $60,380.00 D) $61,750.00 Ans: C

Solution: Budgeted variable overhead costs Supplies.......................................... $12,250 Indirect labor.................................. $22,000

Machinehours 2,500 2,500

Per machinehour $4.90 $8.80

Budgeted number of machine-hours: 2,500 Activity Cost Formula (in MHs): (per MH) 2,400 Overhead Costs Variable overhead costs: Supplies................................................... Indirect labor........................................... Total variable overhead cost...................... Fixed overhead costs: Supervision............................................. Utilities.................................................... Depreciation............................................ Total fixed overhead cost........................... Total overhead cost....................................

$ 4.90 8.80 $13.70

$11,760 21,120 13,880 15,500 5,500 6,500 27,500 $60,380

30. Sharifi Hospital bases its budgets on patient-visits. The hospital's static budget for October appears below: Budgeted number of patient-visits............. 8,500 Budgeted variable overhead costs: Supplies (@$4.70 per patient-visit)........ $ 39,950 Laundry (@$7.80 per patient-visit)........ 66,300 Total variable overhead cost...................... 106,250 Budgeted fixed overhead costs: Wages and salaries.................................. 50,150 Occupancy costs..................................... 84,150 Total fixed overhead cost........................... 134,300 Total budgeted overhead cost..................... $240,550 The total overhead cost at an activity level of 9,200 patient-visits per month should be: A) $260,360 B) $250,070 C) $249,300 D) $240,550 Ans: C Solution: Budgeted number of patient-visits: 8,500

Overhead Costs Variable overhead costs: Supplies................................................... Laundry................................................... Total variable overhead cost...................... Fixed overhead costs: Wages and salaries.................................. Occupancy costs..................................... Total fixed overhead cost........................... Total overhead cost....................................

Cost Formula (per patientvisit)

Activity (in patient visits): 9,200

$ 4.70 7.80 $12.50

$ 43,240 71,760 115,000 50,150 84,150 134,300 $249,300

31. Ostler Hotel bases its budgets on guest-days. The hotel's static budget for April appears below: Budgeted number of guest-days................. 8,700 Budgeted variable overhead costs: Supplies (@$7.00 per guest-day)............ $ 60,900 Laundry (@$3.80 per guest-day)............ 33,060 Total variable overhead cost...................... 93,960 Budgeted fixed overhead costs: Wages and salaries.................................. 80,910 Occupancy costs..................................... 38,280 Total fixed overhead cost........................... 119,190 Total budgeted overhead cost..................... $213,150 The total overhead cost at an activity level of 9,700 guest-days per month should be: A) $213,150 B) $237,650 C) $223,950 D) $224,920 Ans: C Solution: Budgeted number of guest-days: 8,700 Cost Formula (per guestday) Overhead Costs Variable overhead costs: Supplies................................................... Laundry................................................... Total variable overhead cost...................... Fixed overhead costs: Wages and salaries.................................. Occupancy costs..................................... Total fixed overhead cost........................... Total overhead cost....................................

$ 7.00 3.80 $10.80

Activity (in guestdays): 9,700

$ 67,900 36,860 104,760 80,910 38,280 119,190 $223,950

32. Riggs Enterprise's flexible budget cost formula for indirect materials, a variable cost, is $0.45 per unit of output. If the company's performance report for last month shows a $90 favorable variance for indirect materials and if 8,700 units of output were produced last month, then the actual costs incurred for indirect materials for the month must have been: A) $4,005 B) $3,915 C) $3,825 D) $3,735 Ans: C Solution: Variable overhead spending variance = AH × (AR − SR) = 90 F 8,700 × (AR − 0.45) = -90 (8,700 × AR) − 3,915 = -90 (8,700 × AR) = 3,825 AR = 3,825 ÷ 8,700 = $0.4396 Actual indirect labor costs = 8,700 × $0.4396 = $3,825

33. Chmielewski Medical Clinic measures its activity in terms of patient-visits. Last month, the budgeted level of activity was 1,560 patient-visits and the actual level of activity was 1,530 patient-visits. The clinic's director budgets for variable overhead costs of $1.10 per patient-visit and fixed overhead costs of $19,900 per month. The actual variable overhead cost last month was $1,400 and the actual fixed overhead cost was $21,720. In the clinic's flexible budget performance report for last month, what would have been the variance for the total overhead cost? A) $33 F B) $1,504 U C) $1,537 U D) $283 F Ans: C Solution: Budgeted number of patient-visits: 1,560 Actual number of patient-visits: 1,530

Variable overhead costs....... Fixed overhead costs...........

Cost Formula (per patientvisit) $1.10

Actual Costs Incurred for 1,530 patientvisits $1,400 $21,720

Budget Based on 1,530 patientvisits $1,683 $19,900

Variance $ 283 F 1,820 U $1,537 U

34. Rodriques Tile Installation Corporation measures its activity in terms of square feet of tile installed. Last month, the budgeted level of activity was 1,630 square feet and the actual level of activity was 1,720 square feet. The company's owner budgets for supply costs, a variable overhead cost, at $3.40 per square foot. The actual supply cost last month was $6,750. In the company's flexible budget performance report for last month, what would have been the variance for supply costs? A) $353 U B) $306 U C) $902 U D) $1,208 U Ans: C Solution: Budgeted number of square feet: 1,720 Actual number of square feet: 1,630 Cost Formula (per square foot) Variable overhead costs (Supply costs)............................. $3.40

Actual Costs Incurred for 1,720 square feet

Budget Based on 1,720 square feet

Variance

$6,750

$5,848

$902 U

35. Rodabaugh Natural Dying Corporation measures its activity in terms of skeins of yarn dyed. Last month, the budgeted level of activity was 15,900 skeins and the actual level of activity was 16,100 skeins. The company's owner budgets for dye costs, a variable overhead cost, at $0.87 per skein. The actual dye cost last month was $14,800. In the company's flexible budget performance report for last month, what would have been the variance for dye costs? A) $967 U B) $174 U C) $184 U D) $793 U Ans: D Solution: Budgeted number of skeins: 15,900 Actual number of skeins: 16,100

Variable overhead costs (Dye costs)..................................

Cost Formula (per skein)

Actual Costs Incurred for 16,100 skeins

Budget Based on 16,100 skeins

Variance

$0.87

$14,800

$14,007

$793 U

36. Andress Footwear Corporation's flexible budget cost formula for supplies, a variable overhead cost, is $2.17 per unit of output. The company's flexible budget performance report for last month showed a $4,531 unfavorable variance for supplies. During that month, 19,700 units were produced. Budgeted activity for the month had been 19,400 units. The actual costs incurred for indirect materials must have been closest to: A) $2.17 B) $2.63 C) $2.67 D) $2.40 Ans: D Solution: Budgeted number of units produced: 19,400 Actual number of units produced: 19,700

Cost Formula (per unit produced) Variable overhead costs (Supplies)..............................

Actual Costs Incurred for 19,700 units produced

$2.17

Budget Based on 19,700 units produced

X

Actual costs − Budgeted costs = Supplies variance X − $42,749 = $4,531 X = $47,280 Per unit cost = Total actual costs ÷ Number of units produced Per unit cost = $47,280 ÷ 19,700 = $2.40

$42,749

Variance $4,531 U

37. Ocker Corporation's flexible budget performance report for last month shows that actual indirect materials cost, a variable overhead cost, was $28,420 and that the variance for indirect materials cost was $3,828 unfavorable. During that month, the company worked 11,600 machine-hours. Budgeted activity for the month had been 11,300 machine-hours. The cost formula per machine-hour for indirect materials cost must have been closest to: A) $2.85 B) $2.18 C) $2.78 D) $2.12 Ans: D Solution: Budgeted number of machine-hours: 11,300 Actual number of machine-hours: 11,600 Actual Costs Incurred Cost for Formula 11,600 (per machineMH) hours Variable overhead costs (Indirect materials)...........

Y

Budget Based on 11,600 machinehours

Variance

X

$3,828 U

$28,420

Actual costs − Budgeted costs = Indirect materials variance $28,420 − X = $3,828 X = $24,592 Y = Per machine-hour cost = Per machine-hour cost = Actual cost ÷ Machine-hours = Per machine-hour cost = $24,592 ÷ 11,600 = $2.12

38. Viger Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company has provided the following data for the most recent month: Budgeted level of activity................................................. Actual level of activity..................................................... Cost formula for variable manufacturing overhead cost. . Budgeted fixed manufacturing overhead cost.................. Actual total variable manufacturing overhead................. Actual total fixed manufacturing overhead......................

9,700 MHs 9,900 MHs $6.30 per MH $49,000 $60,390 $47,000

What was the variable overhead spending variance for the month? A) $2,000 favorable B) $720 favorable C) $1,260 unfavorable D) $1,980 favorable Ans: D Solu...