Appendix 8A Predetermined Overhead Rates and Overhead Analysis
in a Standard Costing System Answer Key
True / False Questions
1.
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
manufacturing overhead volume variance will NOT necessarily occur in a month in which
production volume differs from sales volume.
2.
The fixed manufacturing overhead volume variance is more meaningful than the budget
variance for cost control purposes.
3.
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 overapplied for the period.
4.
If all four of Argo Corporation’s overhead variances are favorable, Argo’s overhead will be
underapplied.
5.
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 manufacturing overhead
budget variance.
6.
The higher the denominator activity level used to compute the predetermined overhead
rate, the lower the predetermined overhead rate.
7.
An unfavorable volume variance means that a firm operated at an activity level that was
below the activity level planned for the period.
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. A fixed
manufacturing overhead volume variance will NOT necessarily occur in a month in which
the fixed manufacturing overhead applied to units of product on the basis of standard
hours allowed differs from the budgeted fixed manufacturing overhead.
9.
A fixed manufacturing overhead volume variance occurs as the result of a difference
between the denominator level of activity (in hours) and the standard hours allowed for
the actual output of the period.
10.
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
manufacturing overhead volume variance will NOT necessarily occur in a month in which
there is a fixed manufacturing overhead budget variance.
11.
In a standard costing system where the denominator activity for the predetermined
overhead rate is labor-hours, overhead costs are applied to work in process on the basis of
the standard labor-hours allowed for the actual output.
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.
13.
A favorable volume variance means that the company operated at an activity level greater
than that planned for the period.
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 labor-hours. The company’s
choice of the denominator level of activity affects the fixed manufacturing overhead
volume variance.
Multiple Choice Questions
15.
Sulema, Inc. repairs and refinishes antique furniture. Manufacturing overhead at Sulema is
applied to production on the basis of standard direct labor-hours. Which overhead
variance(s) at Sulema would be unfavorably affected if the cost of solvents used to strip
the old paint from the furniture unexpectedly doubles in price?
16.
When computing standard cost variances, the difference between actual and standard
price multiplied by actual quantity yields a(n):
17.
The fixed manufacturing overhead budget variance is:
18.
A volume variance is computed for:
19.
Which of the following variances is generally the least significant from the standpoint of
cost control?
20.
Traveller Corporation sells one product and uses a standard cost system. Last year the
overhead volume variance was zero. Which of the following is correct?
21.
The Santos Corporation made an error when selecting a denominator level of activity and
chose a much lower level than was realistic. This error would most likely result in a large:
22.
In a standard cost system, overhead is applied to production on the basis of:
23.
Dori Castings is a job order shop that uses a standard cost system. Manufacturing
overhead costs are applied on the basis of standard direct labor-hours. A volume variance
will exist for Dori in a month where:
24.
Alex Corporation has a large underapplied overhead balance in the manufacturing
overhead account. This could be explained by:
25.
Coblentz Fabrication Corporation has a standard cost system in which it applies
manufacturing overhead to products on the basis of standard machine-hours (MHs) at
$6.20 per MH. The company had budgeted its fixed manufacturing overhead cost at
$40,000 for the month. During the month, the actual total variable manufacturing overhead
was $48,970 and the actual total fixed manufacturing overhead was $43,000. The actual
level of activity for the period was 8,300 MHs. What was the total of the variable overhead
rate and fixed manufacturing overhead budget variances for the month?
26.
Omary 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
3,900
MHs
Actual level of activity
4,100
MHs
Standard variable manufacturing
overhead rate
$7.60
per
MH
Budgeted fixed manufacturing
overhead cost
$50,000
Actual total variable
manufacturing overhead
$31,980
Actual total fixed manufacturing
overhead
$54,000
What was the total of the variable overhead rate and fixed manufacturing overhead
budget variances for the month?
27.
Dexter Corporation uses a standard cost system and applies manufacturing overhead cost
to units of product on the basis of standard direct labor-hours (DLHs). Information on
Dexter Corporation’s manufacturing overhead costs for last period is given below:
Actual hours worked
40,000
DLHs
Standard hours allowed for actual production
38,000
DLHs
Denominator hours used in computing the predetermined overhead rate
35,000
DLHs
Predetermined overhead rate
$4
per DLH
Actual overhead cost incurred
$150,000
Given these data, the underapplied or overapplied overhead cost for the period would be:
28.
Steinhagen Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. Budgeted and actual overhead costs for the most recent month
appear below:
Original Budget
Actual Costs
Variable overhead costs:
Supplies
$5,460
$6,570
Indirect labor
3,640
4,410
Fixed overhead costs:
Supervision
9,100
9,450
Utilities
5,980
5,850
Factory depreciation
22,100
22,520
Total overhead cost
$46,280
$48,800
The company based its original budget on 2,600 machine-hours. The company actually
worked 2,790 machine-hours during the month. The standard hours allowed for the actual
output of the month totaled 2,960 machine-hours. What was the overall fixed
manufacturing overhead volume variance for the month?
Fixed overhead costs:
Supervision
