Managerial Accounting, 16e (Garrison)
Ch 10A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing
System
1) A volume variance and budget variance are computed for fixed manufacturing overhead costs.
2) The higher the denominator activity level used to compute the predetermined overhead rate,
the higher the predetermined overhead rate.
3) 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 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.
4) The budget variance for fixed manufacturing overhead is the difference between actual fixed
manufacturing overhead costs incurred and the amount of fixed manufacturing overhead applied
to work in process.
5) 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.
6) There can be no volume variance for variable manufacturing overhead.
7) 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 fixed manufacturing overhead budget variance.
8) An unfavorable volume variance means that the company operated at an activity level greater
than that planned for the period.
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 labor-hours. A fixed manufacturing overhead
volume variance will necessarily occur in a month in which actual direct labor-hours differ from
standard hours allowed.
10) A fixed manufacturing overhead budget 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.
11) If the standard hours allowed for the actual output of the period is greater than the
denominator level of activity (in hours), then the overhead volume variance will be favorable.
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 fixed portion of the predetermined overhead
rate.
13) 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 a significant amount of glue is being wasted by
inexperienced direct labor workers?
A) variable overhead rate variance
B) variable overhead efficiency variance
C) fixed manufacturing overhead budget variance
D) fixed manufacturing overhead volume variance
14) Azzurra Corporation manufactures computer chips used in aircraft and automobiles.
Manufacturing overhead at Azzurra is applied to production on the basis of standard machine-
hours. Which overhead variance(s) at Azzurra would be affected in an unfavorable manner if fire
and theft insurance rates increase by 25% unexpectedly during the period?
A) variable overhead rate variance
B) variable overhead efficiency variance
C) fixed manufacturing overhead budget variance
D) fixed manufacturing overhead volume variance
15) The economic impact of the inability to reach a target denominator level of activity would
best be measured by:
A) the amount of the volume variance.
B) the contribution margin lost by failing to meet the target denominator level of activity.
C) the amount of the fixed manufacturing overhead budget variance.
D) the amount of the variable overhead efficiency variance.
16) The manufacturing overhead variance that is a measure of capacity utilization is:
A) the overhead rate variance.
B) the overhead efficiency variance.
C) the overhead budget variance.
D) the overhead volume variance.
17) 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.
The amount of fixed manufacturing overhead that Dori would apply to finished production
would be:
A) the actual direct labor-hours times the standard fixed manufacturing overhead rate per direct
labor-hour.
B) the standard hours allowed for the actual units of finished output times the standard fixed
manufacturing overhead rate per direct labor-hour.
C) the standard units of output for the actual direct labor-hours worked times the standard fixed
manufacturing overhead rate per unit of output.
D) the actual fixed manufacturing overhead cost per direct labor-hour times the standard hours
allowed.
18) 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 × Standard fixed manufacturing
overhead rate).
19) 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 manufacturing overhead costs incurred during a period differ from budgeted
fixed manufacturing overhead costs as contained in the flexible budget.
20) Teall 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
8,500
MHs
Actual level of activity
8,600
MHs
Standard variable manufacturing overhead rate
$
5.70
per MH
Budgeted fixed manufacturing overhead cost
$
50,000
Actual total variable manufacturing overhead
$
51,600
Actual total fixed manufacturing overhead
$
54,000
–
What was the fixed manufacturing overhead budget variance for the month?
A) $4,000 Unfavorable
B) $4,000 Favorable
C) $570 Favorable
D) $570 Unfavorable
21) Diehl Corporation uses a standard cost system in which it applies manufacturing overhead to
units of product on the basis of standard direct labor-hours. The company’s total applied factory
overhead was $315,000 last year when the company used 32,000 direct labor-hours as the
denominator activity. If the variable factory overhead rate was $8 per direct labor-hour, and if
30,000 standard direct labor-hours were allowed for the output of the year, then the total
budgeted fixed factory overhead for the year must have been:
A) $60,000
B) $80,000
C) $90,000
D) $100,000
22) Hoag Corporation applies manufacturing overhead to products on the basis of standard
machine-hours. Budgeted and actual fixed manufacturing overhead costs for the most recent
month appear below:
Original Budget
Actual Costs
Fixed overhead costs:
Supervision
$
9,880
$
9,970
Utilities
4,160
4,440
Factory depreciation
21,320
21,190
Total fixed manufacturing overhead cost
$
35,360
$
35,600
–
The company based its original budget on 2,600 machine-hours. The company actually worked
2,280 machine-hours during the month. The standard hours allowed for the actual output of the
month totaled 2,080 machine-hours. What was the overall fixed manufacturing overhead volume
variance for the month?
A) $4,352 Favorable
B) $4,352 Unfavorable
C) $7,072 Unfavorable
D) $7,072 Favorable
23) Recht Corporation bases its predetermined overhead rate on variable manufacturing
overhead cost of $9.30 per machine-hour and fixed manufacturing overhead cost of $17,940 per
period. If the denominator level of activity is 1,200 machine-hours, the fixed element in the
predetermined overhead rate would be:
A) $14.95
B) $930.00
C) $24.25
D) $9.30
24) Thilges Incorporated makes a single product—a cooling coil used in commercial
refrigerators. The company has a standard cost system in which it applies overhead to this
product based on the standard machine-hours allowed for the actual output of the period. Data
concerning the most recent year appear below:
Budgeted variable manufacturing overhead
$
29,125
Budgeted production (a)
25,000
units
Standard hours per unit (b)
0.50
machine-hours
Budgeted hours (a) × (b)
12,500
machine-hours
Actual production (a)
22,000
units
Standard hours per unit (b)
0.50
machine-hours
Standard hours allowed for the actual production
(a) × (b)
11,000
machine-hours
Actual variable manufacturing overhead
$
30,160
Actual hours
10,400
machine-hours
–
The variable overhead efficiency variance is:
A) $1,740 U
B) $1,398 F
C) $1,740 F
D) $1,398 U
25) Stopher Incorporated makes a single product—a cooling coil used in commercial
refrigerators. The company has a standard cost system in which it applies overhead to this
product based on the standard machine-hours allowed for the actual output of the period. Data
concerning the most recent year appear below:
Budgeted variable manufacturing overhead
$
45,220
Budgeted production (a)
20,000
units
Standard hours per unit (b)
1.90
machine-hours
Budgeted hours (a) × (b)
38,000
machine-hours
Actual production (a)
21,000
units
Standard hours per unit (b)
1.90
machine-hours
Standard hours allowed for the actual production
(a) × (b)
39,900
machine-hours
Actual variable manufacturing overhead
$
66,789
Actual hours
36,900
machine-hours
–
The variable component of the predetermined overhead rate is closest to:
A) $1.67 per machine-hour
B) $1.81 per machine-hour
C) $1.76 per machine-hour
D) $1.19 per machine-hour
26) Likes Incorporated makes a single product—a cooling coil used in commercial refrigerators.
The company has a standard cost system in which it applies overhead to this product based on
the standard machine-hours allowed for the actual output of the period. Data concerning the most
recent year appear below:
Total budgeted manufacturing overhead
$
495,040
Budgeted production (a)
35,000
units
Standard hours per unit (b)
1.70
machine-hours
Budgeted hours (a) × (b)
59,500
machine-hours
Applying Overhead:
Actual production (a)
30,000
units
Standard hours per unit (b)
1.70
machine-hours
Standard hours allowed for the actual production (a) × (b)
51,000
machine-hours
Total actual manufacturing overhead
$
498,000
Actual hours
52,000
machine-hours
–
The total amount of manufacturing overhead applied is closest to:
A) $488,400
B) $424,320
C) $432,640
D) $498,000
27) The Rowe Corporation uses a standard cost system in which it applies manufacturing
overhead to units of product on the basis of standard machine-hours. During January, the
company budgeted to incur $225,000 in manufacturing overhead cost and to operate at a
denominator activity level of 25,000 machine-hours. At standard, each unit of finished product
requires 3 machine-hours. The following cost and activity were recorded during January:
Total actual manufacturing overhead cost incurred
$
217,750
Units of product completed
8,000
Actual machine-hours worked
23,000
–
The amount of overhead cost that the company applied to Work in Process for January was:
A) $217,750
B) $225,000
C) $221,600
D) $216,000
28) Figures Incorporated makes a single product—an electrical motor used in many long-haul
trucks. The company has a standard cost system in which it applies overhead to this product
based on the standard labor-hours allowed for the actual output of the period. Data concerning
the most recent year appear below:
Budgeted variable manufacturing overhead
$
66,570
Budgeted hours
21,000
labor-hours
Standard hours allowed for the actual production
18,000
labor-hours
Actual variable manufacturing overhead
$
56,736
Actual hours
19,700
labor-hours
–
The variable overhead efficiency variance is:
A) $5,389 F
B) $5,389 U
C) $4,896 F
D) $4,896 U
29) Dapice Incorporated makes a single product—a critical part used in commercial airline seats.
The company has a standard cost system in which it applies overhead to this product based on
the standard labor-hours allowed for the actual output of the period. Data concerning the most
recent year appear below:
Budgeted fixed manufacturing overhead
$
76,815
Budgeted hours
13,500
labor-hours
Standard hours allowed for the actual production
14,400
labor-hours
–
The fixed overhead volume variance is:
A) $5,121 U
B) $5,121 F
C) $21,121 F
D) $21,121 U