Question 1

An unfavourable volume variance means that a firm operated at an activity level that was above the activity level planned for the period

Accepted Answer

A) True 
 B)False  False

Question 2

Fixed costs should never be considered when evaluating how well a manager has controlled costs

Accepted Answer

A) True 
 B)False  False

Question 3

Overhead is applied to work in process in a standard costing system by

Accepted Answer

A)  multiplying actual hours times the predetermined rate.
B)  multiplying standard hours allowed for the output of the period times the predetermined rate.
C)  multiplying actual hours times the actual rate.
D)  multiplying standard hours allowed for the output of the period times the actual rate. B

Question 4

A manufacturing company has a standard costing system based on direct labour-hours (DLHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:$\begin{array}{lrr}
  \text { Denominator level of activity } &3,700&\text { DLHs }\
 \text { Overhead costs at the denominator activity level: } &\
 \text { Variable overhead cost } &£ 28,490\
 \text { Fixed owerhead cost } &£ 47,545\
 \text {  The following data pertain to operations for the most recent period:} &\
 \text { Actual hours } &3,900&\text { DLHs }\
 \text { Standard hours 3,900allowed for the actual output  } &3,850&\text { DLHs }\
 \text { Actual total variable overhead cost  } &£ 29,445\
 \text {Actual total fixed overhead cost  } &£47,995 \

\end{array}$

-What was the variable overhead efficiency variance for the period to the nearest pound

Accepted Answer

A)  £578 U
B)  £385 U
C)  £378 U
D)  £955 U

Question 5

The Euro Company wants to compare the performance of three business units. All the business units produce the same product with similar output per month. The company uses a flexible budget to plan and control manufacturing overhead costs. Overhead costs are applied to products on the basis of direct labour-hours. The standard cost card shows that 5 direct labour-hours are required per unit of product. Phelps Company had the following budgeted and actual data for March:$\begin{array}{lll}
&\text { Actual }&\text { Budgeted }\ 
\text { Units produced } & 11,000 & 10,000 \
\text { Directlabour-hours } & 65,000 & 60,000 \
\text { Variable overhead costs } & £ 84,000 &£ 80,000 \
\text { Fiked overhead costs } & £ 44,000 &£ 40,000
\end{array}$
$\text { *Represents the denom inator activity for the month. }$  
German Business Unit
$\begin{array}{lll}
&\text { Actual }&\text { Budgeted }\ 
\text { Units produced } & 11,000 & 10,000 \
\text { Directlabour-hours } & 65,000 & 60,000 \
\text { Variable overhead costs } & £ 84,000 &£ 80,000 \
\text { Fiked overhead costs } & £ 44,000 &£ 40,000
\end{array}$
$\text { *Represents the denom inator activity for the month. }$   
French Business Unit
$\begin{array}{lll}
&\text { Actual }&\text { Budgeted }\ 
\text { Units produced } & 11,000 & 10,000 \
\text { Directlabour-hours } & 65,000 & 60,000 \
\text { Variable overhead costs } & £ 84,000 &£ 80,000 \
\text { Fiked overhead costs } & £ 44,000 &£ 40,000
\end{array}$
$\text { *Represents the denom inator activity for the month. }$   
- The fixed overhead volume variance for March for the French Business Unit is

Accepted Answer

A)  £1,555 favourable.
B)  £7,333 unfavourable.
C)  £2,667 unfavourable.
D)  £5,667 unfavourable.

Question 6

The Euro Company wants to compare the performance of three business units. All the business units produce the same product with similar output per month. The company uses a flexible budget to plan and control manufacturing overhead costs. Overhead costs are applied to products on the basis of direct labour-hours. The standard cost card shows that 5 direct labour-hours are required per unit of product. Phelps Company had the following budgeted and actual data for March:$\begin{array}{lll}
&\text { Actual }&\text { Budgeted }\ 
\text { Units produced } & 11,000 & 10,000 \
\text { Directlabour-hours } & 65,000 & 60,000 \
\text { Variable overhead costs } & £ 84,000 &£ 80,000 \
\text { Fiked overhead costs } & £ 44,000 &£ 40,000
\end{array}$
$\text { *Represents the denom inator activity for the month. }$  
German Business Unit
$\begin{array}{lll}
&\text { Actual }&\text { Budgeted }\ 
\text { Units produced } & 11,000 & 10,000 \
\text { Directlabour-hours } & 65,000 & 60,000 \
\text { Variable overhead costs } & £ 84,000 &£ 80,000 \
\text { Fiked overhead costs } & £ 44,000 &£ 40,000
\end{array}$
$\text { *Represents the denom inator activity for the month. }$   
French Business Unit
$\begin{array}{lll}
&\text { Actual }&\text { Budgeted }\ 
\text { Units produced } & 11,000 & 10,000 \
\text { Directlabour-hours } & 65,000 & 60,000 \
\text { Variable overhead costs } & £ 84,000 &£ 80,000 \
\text { Fiked overhead costs } & £ 44,000 &£ 40,000
\end{array}$
$\text { *Represents the denom inator activity for the month. }$   
-The variable overhead efficiency variance for March for the French Business Unit is

Accepted Answer

A)  £8,000 unfavourable.
B)  £6,667 favourable.
C)  £8,100 unfavourable.
D)  £4,667 unfavourable.

Question 7

Barrick Company has established a flexible budget for manufacturing overhead based on direct labour-hours. Total budgeted costs at 200,000 direct labour-hours are as follows$\text { Variable costs (total): }$
$\begin{array}{ll}
\text { Packing supplies } & £ 120,000 \
\text { Indirect labour } & £ 180,000 \
\text { Fixed costs (total): } & \
\text { Utilities } & £ 100,000 \
\text { Rent } & £ 40,000 \
\text { Insurance } & £ 20,000
\end{array}$ 
-The flexible budget for factory overhead would show that the variable factory overhead cost per direct labour-hour is

Accepted Answer

A)  £1.80.
B)  £1.50.
C)  £0.90.
D)  £0.60.

Question 8

In a standard cost system, the volume variance will be unfavourable when

Accepted Answer

A)  actual hours are greater than the denominator hours.
B)  the standard hours allowed for the output of the period are less than the denominator hours.
C)  the standard hours allowed for the output of the period are greater than the actual hours incurred.
D)  actual hours are less than the denominator hours.

Question 9

A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labour-hours. The company's choice of the denominator level of activity affects the fixed portion of the predetermined overhead rate

Accepted Answer

A) True 
 B)False

Question 10

The Judd Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of machine-hours. During May, the company budgeted £320,000 in manufacturing overhead cost at a denominator activity of 20,000 machine-hours. At standard, each unit of finished product requires 4 machine-hours. The following cost and activity was recorded during May:$\begin{array}{ll}
\text { Total actual manufacturing ov erhead cost incurred } & £ 335,500 \
\text { Units of product completed } & 4,700 \
\text { Actual machine-hours worked } & 21,000
\end{array}$
The amount of overhead cost that the company applied to Work in Process for May was

Accepted Answer

A)  £336,000.
B)  £335,500.
C)  £300,800.
D)  £315,370.

Question 11

If the fixed overhead volume variance is unfavourable, too much has been spent on fixed overhead items

Accepted Answer

A) True 
 B)False

Question 12

Wicks Company has established a flexible budget for manufacturing overhead based on direct labour-hours. Budgeted costs at 100,000 direct labour-hours are as follows:$\begin{array} { l l } 
\text { Variable costs (total):}\
\text { Packing supplies } & £ 70,000 \ \text { Indirect labour } & £ 90,000\
 \text { Fixed costs (total):}\
 \text { Utilities}& £50,000\
 \text { Rent}& £20,000\
 \text { Insurance}& £10,000
 \end{array}$

-
If Wicks Company plans to operate at 90,000 direct labour-hours during the next period, the flexible budget would show indirect labour costs of

Accepted Answer

A)  £144,000.
B)  £63,000.
C)  £90,000.
D)  £81,000.

Question 13

The fixed overhead volume variance will be unfavourable if production volume is less than sales volume

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Dean Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labour-hours. The company is preparing a flexible budget for next year and the following data are available:$\begin{array}{ll}
&\text { At capacity }\
\text { Direct labour-hours } & 60,000 \
\text { Variable factory overhead } & £ 150,000 \
\text { Fixed factory overhead } & £ 240,000
\end{array}$ 
Assume that Dean's denominator activity for the year is set at 80% of capacity. What would be the total predetermined overhead rate, based on direct labour-hours, for the year

Accepted Answer

A)  £6.00.
B)  £6.50.
C)  £7.50.
D)  £8.13.

Question 16

A manufacturing company has a standard costing system based on direct labour-hours (DLHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:$\begin{array}{lrr}
  \text { Denominator level of activity } &3,700&\text { DLHs }\
 \text { Overhead costs at the denominator activity level: } &\
 \text { Variable overhead cost } &£ 28,490\
 \text { Fixed owerhead cost } &£ 47,545\
 \text {  The following data pertain to operations for the most recent period:} &\
 \text { Actual hours } &3,900&\text { DLHs }\
 \text { Standard hours 3,900allowed for the actual output  } &3,850&\text { DLHs }\
 \text { Actual total variable overhead cost  } &£ 29,445\
 \text {Actual total fixed overhead cost  } &£47,995 \

\end{array}$

-The overhead spending variance contains price but not quantity elements

Accepted Answer

A) True 
 B)False

Question 17

A static budget

Accepted Answer

A)  should be compared to actual costs to assess how well costs were controlled.
B)  should be compared to a flexible budget to assess how well costs were controlled.
C)  is valid for only one level of activity.
D)  represents the best way to set spending targets for managers.

Question 18

The budget variance represents the difference between the actual fixed overhead cost incurred during a period and the budgeted fixed overhead cost

Accepted Answer

A) True 
 B)False

Question 19

Barrick Company has established a flexible budget for manufacturing overhead based on direct labour-hours. Total budgeted costs at 200,000 direct labour-hours are as follows$\text { Variable costs (total): }$
$\begin{array}{ll}
\text { Packing supplies } & £ 120,000 \
\text { Indirect labour } & £ 180,000 \
\text { Fixed costs (total): } & \
\text { Utilities } & £ 100,000 \
\text { Rent } & £ 40,000 \
\text { Insurance } & £ 20,000
\end{array}$ 
-At an activity level of 170,000 direct labour-hours, the flexible budget for factory overhead would show the budgeted amount for utilities as

Accepted Answer

A)  £85,000.
B)  £140,000.
C)  £160,000.
D)  £100,000.

Question 20

The Euro Company wants to compare the performance of three business units. All the business units produce the same product with similar output per month. The company uses a flexible budget to plan and control manufacturing overhead costs. Overhead costs are applied to products on the basis of direct labour-hours. The standard cost card shows that 5 direct labour-hours are required per unit of product. Phelps Company had the following budgeted and actual data for March:$\begin{array}{lll}
&\text { Actual }&\text { Budgeted }\ 
\text { Units produced } & 11,000 & 10,000 \
\text { Directlabour-hours } & 65,000 & 60,000 \
\text { Variable overhead costs } & £ 84,000 &£ 80,000 \
\text { Fiked overhead costs } & £ 44,000 &£ 40,000
\end{array}$
$\text { *Represents the denom inator activity for the month. }$  
German Business Unit
$\begin{array}{lll}
&\text { Actual }&\text { Budgeted }\ 
\text { Units produced } & 11,000 & 10,000 \
\text { Directlabour-hours } & 65,000 & 60,000 \
\text { Variable overhead costs } & £ 84,000 &£ 80,000 \
\text { Fiked overhead costs } & £ 44,000 &£ 40,000
\end{array}$
$\text { *Represents the denom inator activity for the month. }$   
French Business Unit
$\begin{array}{lll}
&\text { Actual }&\text { Budgeted }\ 
\text { Units produced } & 11,000 & 10,000 \
\text { Directlabour-hours } & 65,000 & 60,000 \
\text { Variable overhead costs } & £ 84,000 &£ 80,000 \
\text { Fiked overhead costs } & £ 44,000 &£ 40,000
\end{array}$
$\text { *Represents the denom inator activity for the month. }$   
-The fixed overhead volume variance for March for the German Business Unit is

Accepted Answer

A)  £1,500 favourable.
B)  £7,333 unfavourable.
C)  £2,500 unfavourable.
D)  £5,333 unfavourable.

Exam 13: Relevant Costs for Decision Making

An unfavourable volume variance means that a firm operated at an activity level that was above the activity level planned for the period

Fixed costs should never be considered when evaluating how well a manager has controlled costs

Overhead is applied to work in process in a standard costing system by

In a standard cost system, the volume variance will be unfavourable when

A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labour-hours. The company's choice of the denominator level of activity affects the fixed portion of the predetermined overhead rate

If the fixed overhead volume variance is unfavourable, too much has been spent on fixed overhead items

The fixed overhead volume variance will be unfavourable if production volume is less than sales volume

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

A static budget

The budget variance represents the difference between the actual fixed overhead cost incurred during a period and the budgeted fixed overhead cost