Question

1.) When there is a standard batch size for production activity:

Multiple Choice:

(A) A modification of the traditional approach to constructing the flexible budget for control purposes allows for a more detailed analysis of batch-related overhead costs.

(B) It is not possible to construct a flexible budget for cost-control purposes.

(C.) Standard cost variances for only the variable portion of batch-related manufacturing overhead costs can be calculated.

(D) The variable portion of the total flexible-budget variance for batch-related costs can be further decomposed into a spending and a volume variance, which leads to better cost control.

2.) Proration of manufacturing cost variances among ending inventories and cost of goods sold has the effect of carrying the cost (savings) of inefficient (efficient) operations of a period to:

Multiple Choice:

(A) Only the balance sheet of the current period.

(B) Only the income statement of the current period.

(C.) The balance sheets of future periods only.

(D) The income statement of the current period and the balance sheet of the current period.

3.) Which one of the following factory overhead variances reflects the effect of deviation in input quantities only if the cost driver for applying variable overhead is a perfect predictor of variable overhead cost?

Multiple Choice:

(A) Total variable overhead variance.

(B) Variable overhead rate variance.

(C.) Variable overhead spending variance.

(D) Variable overhead flexible-budget variance.

(E.) Variable overhead efficiency variance.

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

Multiple Choice:

(A) The underlying model for control and product-costing purposes is the same for variable overhead.

(B) The amount of variable overhead applied to production is a function of the denominator output volume and the actual quantity of the cost-allocation base (cost driver) used to apply overhead.

(C.) The total variable overhead cost variance can be decomposed into a production-volume variance and a flexible-budget variance.

(D) For control purposes, the actual quantity of the cost-allocation base (cost driver) is used.

(E.) Standard costs for variable overhead can be used for control, but not product-costing, purposes.

5.) Cost behavior for variable overhead is more difficult to predict than the behavior of direct materials or direct labor cost for all the following reasons except:

Multiple Choice:

(A) Multiple cost drivers are usually involved with variable overhead.

(B) Direct material and direct labor contain no semi-variable component.

(C.) The variable portion of overhead must first be separated from the fixed portion.

(D) Variable overhead is a relatively small part of total overhead.

6.) All the following choices exist for defining the denominator volume (denominator activity level) for assigning fixed overhead costs in a standard cost system, except:

Multiple Choice:

(A) Budgeted capacity utilization.

(B) Actual capacity utilization.

(C.) Theoretical capacity.

(D) Practical capacity.

(E.) Normal capacity.

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 ______________:

Multiple Choice:

(A) Flexible-budget variance

(B) Production-volume variance

(C.) Total fixed cost variance

(D) Efficiency variance

(E.) Controllable variance

8.) If standard cost variances are allocated (i.e., prorated) to inventory and cost of goods sold (CGS) accounts at the end of a period, which of the following is correct?

Multiple Choice:

(A) Conceptually, the amount allocated to each account is based on the relative amount of the current period's standard cost in the end-of-period balance in each account.

(B) The resulting balances represent relative actual cost in each of the affected accounts.

(C.) There is a presumption that the net variance for the period is immaterial in amount.

(D) The amount allocated to inventories is generally larger than the amount allocated to CGS.

(E.) Adjusting journal entries for income tax effects will have to be made.

9.) Which of the following statement is true regarding choice of the denominator volume level in conjunction with the process of allocating fixed manufacturing costs to production?

Multiple Choice:

(A) The choice typically will affect end-of-period asset values, but not the production-volume variance for the period.

(B) The choice is important only if the company in question uses variable costing.

(C.) Under absorption (full) costing, this choice can affect reported profits for the period.

(D) This choice has no effect on the standard overhead cost-allocation rate.

(E.) The choice affects the standard overhead cost-allocation rate but not product cost.

10.) Some accountants would argue that any variances from standard costs, when such standards are current, should be written off to Cost of Goods Sold (or other income statement account). The principal conceptual rationale for this treatment is:

Multiple Choice:

(A) This is the treatment required currently under generally accepted accounting principles in the U.S.

(B) To allocate such variances (as the alternative treatment) implies that asset values on the balance sheet (i.e., inventories) contain the cost of inefficiencies.

(C.) The negligible effect this treatment has on total Cost of Goods Sold (or the Income Statement) for the period.

(D) The increased information and insight this procedure provides to management, for better managing operations.

(E.) Simplicity of application—this is an expedient method.

11.) An activity-based cost (ABC) driver applies factory overhead to products or services according to the:

Multiple Choice:

(A) Activity output as measured by the units produced.

(B) Activity level of hours of direct labor.

(C.) Resource demands/resource consumption of the firm's outputs (goods or services produced).

(D) Budgeted activity level for the period.

(E.) Standard machine hours allowed for good output produced during the period.

Answer 1

When there is a standard batch size for production activity, a modification of the traditional approach to constructing the flexible budget for control purposes allows for a more detailed analysis of batch-related overhead costs. Therefore, the correct answer is (A). Proration of manufacturing cost variances among ending inventories and cost of goods sold has the effect of carrying the cost (savings) of inefficient (efficient) operations of a period to the income statement of the current period and the balance sheet of the current period. Therefore, the correct answer is (D). 3. Which one of the following factory overhead variances reflects the effect of deviation in input quantities only if the cost driver for applying variable overhead is a perfect predictor of variable overhead cost? Variable overhead efficiency variance. Therefore, the correct answer is (E). Explanation: Variable overhead efficiency variance measures the difference between the actual quantity of the cost driver for applying variable overhead and the standard quantity of the cost driver for actual output. 4. Which of the following statements about variable overhead costs is true? The underlying model for control and product-costing purposes is the same for variable overhead Therefore, the correct answer is (A). Cost behavior for variable overhead is more difficult to predict than the behavior of direct materials or direct labor cost for all the following reasons except: Variable overhead is a relatively small part of total overhead. Therefore, the correct answer is (D). Explanation: Variable overhead is not always a small part of total overhead.