36. During the year, Hawkings produced 10,000 units, used 20,000 direct labor hours, and incurred
variable overhead of $90,000. Budgeted variable overhead for the year was $88,000. The hours
allowed per unit are 2.1. The standard variable overhead rate is $4.00 per direct labor hour. The
variable overhead spending variance is
a.
$2,000 F.
b.
$6,000 U.
c.
$10,000 U.
d.
$2,000 U.
e.
None of these.
37. Budgeted variable overhead for the year is $120,000. Expected activity is 20,000 standard direct labor
hours. The actual hours worked were 18,000 and the standard hours allowed for actual production
were 19,500. The variable overhead efficiency variance is
a.
$0.
b.
$12,000 F.
c.
$3,000 F.
d.
$9,000 F.
e.
None of these.
38. Folson Company is planning to produce 4,250,000 speakers for the coming year. Actual production
was 4,000,000 speakers. Each speaker requires 0.80 direct labor hours per unit. Predetermined
overhead rates are calculated using expected production, measured in direct labor hours. The budgeted
variable overhead for the coming year is $680,000. The actual variable overhead incurred was
$714,000. The applied variable overhead for the year is
a.
$800,000.
b.
$714,000.
c.
$640,000.
d.
$680,000.
e.
None of these.
39. Harry Company’s standard variable overhead rate is $6 per direct labor hour, and each unit requires 2
standard direct labor hours. During March, Harry recorded 6,000 actual direct labor hours, $37,000
actual variable overhead costs, and 2,900 units of product manufactured.
What is the total variable overhead variance for March for Harry?
a.
$1,200 U
b.
$600 U
c.
$1,000 U
d.
$2,200 U
40. An unfavorable variable overhead spending variance may be caused by
a.
the use of excessive quantities of variable overhead items.
b.
the payment of lower prices for variable overhead items used.
c.
the use of excessive quantities of the variable overhead allocation base.
d.
both the use of excessive quantities of variable overhead items and the payment of lower
prices for variable overhead items used.
41. Gina Production Company uses a standard costing system. The following information pertains to 2011.
Actual factory overhead costs ($16,500 is fixed)
$ 40,125
Actual direct labor costs (11,250 hours)
$131,625
Standard direct labor for 5,500 units:
Standard hours allowed
11,000 hours
Labor rate
$12.00
The factory overhead rate is based on an activity level of 10,000 hours. Standard cost data for 5,000
units is as follows:
Variable factory overhead
$22,500
Fixed factory overhead
13,500
Total factory overhead
$36,000
What is the variable overhead efficiency variance for Gina Production Company?
a.
$562.50 F
b.
$3,000.00 U
c.
$562.50 U
d.
$1,687.50 F
42. If variable manufacturing overhead is applied based on direct labor hours and there is an unfavorable
direct labor efficiency variance
a.
the direct materials usage variance will be unfavorable.
b.
the direct labor rate variance will be favorable.
c.
the variable manufacturing overhead efficiency variance will be unfavorable.
d.
the variable manufacturing overhead spending variance will be unfavorable.
43. Griffen Corporation uses a standard costing system. Information for the month of May is as follows:
Actual manufacturing overhead costs ($26,000 is fixed)
$80,000
Direct labor:
Actual hours worked
12,000 hrs.
Standard hours allowed for actual production
10,000 hrs.
Average actual labor cost per hour
$18
The factory overhead rate is based on a normal volume of 12,000 direct labor hours. Standard cost data
at 12,000 direct labor hours were as follows:
Variable factory overhead
$48,000
Fixed factory overhead
24,000
Total factory overhead
$72,000
What is the variable overhead efficiency variance for Griffen?
a.
$2,000 U
b.
$8,000 U
c.
$4,000 U
d.
$20,000 U
44. Refer to Figure 11-4. The predetermined variable overhead rate is
a.
$3.00 per direct labor hour.
b.
$2.50 per direct labor hour.
c.
$5.50 per direct labor hour.
d.
$3.35 per direct labor hour.
e.
None of these are correct.
45. Refer to Figure 11-4. Calculate the variable overhead spending variance.
a.
$69,250 U
b.
$69,250 F
c.
$24,000 U
d.
$40,000 F
e.
None of these.
46. Refer to Figure 11-4. Calculate the variable overhead efficiency variance.
a.
$36,850 U
b.
$80,000 U
c.
$36,850 F
d.
$4,000 U
e.
None of these.
47. Refer to Figure 11-4. The predetermined fixed overhead rate is
a.
$3.35 per direct labor hour.
b.
$1.02 per direct labor hour.
c.
$5.50 per direct labor hour.
d.
$4 per direct labor hour.
e.
None of these.
48. Refer to Figure 11-4. Calculate the applied fixed overhead.
a.
$973,080
b.
$855,030
c.
$964,000
d.
$910,000
e.
None of these.
49. Refer to Figure 11-4. Calculate the fixed overhead spending variance.
a.
$32,000 F
b.
$0
c.
$4,000 U
d.
$12,000 U
e.
$4,000 F
50. Refer to Figure 11-4. Calculate the fixed overhead volume variance.
a.
$32,000 U
b.
$20,000 F
c.
$22,000 F
d.
$4,000 U
e.
None of these.
51. The standard fixed overhead rate is often calculated as
a.
budgeted fixed overhead divided by practical capacity measured in standard hours.
b.
actual fixed overhead divided by practical capacity measured in standard hours.
c.
budgeted fixed overhead divided by actual hours.
d.
budgeted fixed overhead divided by practical capacity measured in actual hours.
e.
None of these.
52. The total fixed overhead variance is calculated by the following formula:
a.
Total actual overhead − Total applied overhead.
b.
AFOH − Standard overhead rate SH.
c.
AFOH − SFOR SH.
d.
AFOH − SFOR AH.
e.
Total actual overhead − SFOR SH.
53. The two variances for fixed overhead are
a.
budget and volume.
b.
spending and budget.
c.
volume and spending.
d.
efficiency and volume.
e.
volume and efficiency.
54. The formula for the fixed overhead volume variance is
a.
(AFOH − SFOR) SH.
b.
(AFOH − SFOR) AH.
c.
AFOH − BFOH.
d.
(AFOH − SFOR) SH.
e.
None of these.
55. The formula for the fixed overhead spending variance is
a.
AFOH − SFOR SH
b.
AFOH − SFOR AH
c.
AFOH − BFOH
d.
AFOH − SFOR SH
e.
None of these.
56. The fixed overhead volume variance is a measure of
a.
the cost of overspending on fixed overhead items.
b.
the effect of the actual output differing from the output used to calculate the predetermined
fixed overhead rate.
c.
the cost of unused activity capacity acquired.
d.
both the cost of overspending on fixed overhead items and the effect of the actual output
differing from the output used to calculate predetermined fixed overhead rate.
e.
both the effect of the actual output differing from the output used to calculate the
predetermined fixed overhead rate and the cost of unused activity capacity.
57. The fixed overhead spending variance
a.
is usually not significant.
b.
is made up of many individual items.
c.
is the difference between actual costs and budgeted costs.
d.
merits investigation only if the variance is material.
e.
All of these.
58. Responsibility for the fixed overhead volume variance is
a.
not assigned because fixed overhead costs do not change with activity changes.
b.
usually assigned to the production department.
c.
usually assigned to top management.
d.
usually assigned to the planning department.
e.
None of these.
59. Because fixed overhead is made up of many items
a.
the fixed overhead spending variance is not meaningful.
b.
it is not possible to calculate a fixed overhead volume variance.
c.
the fixed overhead volume variance will always be unfavorable.
d.
a line by line comparison of budgeted costs with actual costs provides more information.
e.
All of these.
60. Which of the following relationships is valid concerning fixed overhead budgeted at the beginning of
the year?
a.
BFOH = SFOR AH
b.
BFOH = SFOR SH for actual production
c.
BFOH = SFOR SH for planned production
d.
BFOH = SFOR/SH for actual production
e.
None of these.
61. The total fixed overhead variance is
a.
actual fixed overhead − applied fixed overhead.
b.
the sum of the spending and volume variances.
c.
the sum of the spending and efficiency variances.
d.
both actual fixed overhead − applied fixed overhead and the sum of the spending and
efficiency variances.
e.
both actual fixed overhead − applied fixed overhead and the sum of the spending and
volume variances.
62. If actual fixed overhead was $98,400 and there was a $2,880 favorable spending variance and a $600
unfavorable volume variance, budgeted fixed overhead must have been
a.
$101,280.
b.
$100,680.
c.
$99,000.
d.
$97,800.
e.
$95,520.
63. Fixed overhead was budgeted at $84,000 and 10,000 direct labor hours were budgeted. If the fixed
overhead volume variance was $3,200 unfavorable and the fixed overhead spending variance was
$1,200 favorable, fixed overhead applied must be
a.
$85,200.
b.
$80,800.
c.
$82,800.
d.
$82,000.
e.
$87,200.
64. Crawford Company’s standard fixed overhead cost is $6 per direct labor hour based on budgeted fixed
costs of $600,000. The standard allows one direct labor hour per unit. During 2011, Crawford
produced 110,000 units of product, incurred $630,000 of fixed overhead costs, and recorded 212,000
actual hours of direct labor.
What is Crawford’s fixed overhead spending variance for 2011?
a.
$60,000 F
b.
$24,000 F
c.
$36,000 U
d.
$30,000 U
65. Griffen Corporation uses a standard costing system. Information for the month of May is as follows:
Actual manufacturing overhead costs ($26,000 is fixed)
$80,000
Direct labor:
Actual hours worked
12,000 hrs.
Standard hours allowed for actual production
10,000 hrs.
Average actual labor cost per hour
$18
The overhead rate is based on a normal volume of 12,000 direct labor hours. Standard cost data at
12,000 direct labor hours were as follows:
Variable overhead
$48,000
Fixed overhead
24,000
Total overhead
$72,000
What is the fixed overhead spending variance for Griffen?
a.
$2,000 U
b.
$8,000 U
c.
$4,000 U
d.
$20,000 U
66. Crawford Company’s standard fixed overhead cost is $6 per direct labor hour based on budgeted fixed
costs of $600,000. The standard allows 1 direct labor hours per unit. During 2011, Crawford produced
110,000 units of product, incurred $630,000 of fixed overhead costs, and recorded 212,000 actual
hours of direct labor.
What is the activity level on which Crawford based its fixed overhead rate?
a.
110,000 direct labor hours
b.
105,000 direct labor hours
c.
100,000 direct labor hours
d.
50,000 direct labor hours
67. If actual fixed overhead was $54,000 and there was a $1,300 unfavorable spending variance and a
$1,000 unfavorable volume variance, budgeted fixed overhead must have been
a.
$56,300.
b.
$50,300.
c.
$53,000.
d.
$52,700.
68. Fixed overhead was budgeted at $200,000, and 25,000 direct labor hours were budgeted. If the fixed
overhead volume variance was $8,000 favorable and the fixed overhead spending variance was $6,000
unfavorable, fixed overhead applied must be
a.
$208,000.
b.
$206,000.
c.
$202,000.
d.
$194,000.
69. Gina Production Company uses a standard costing system. The following information pertains to
2011:
Actual overhead costs ($16,500 is fixed)
$ 40,125
Actual direct labor costs (11,250 hours)
$131,625
Standard direct labor for 5,500 units:
Standard hours allowed
11,000 hours
Labor rate
$12.00
The overhead rate is based on an activity level of 10,000 hours. Standard cost data for 5,000 units is as
follows:
Variable overhead
$22,500
Fixed overhead
13,500
Total overhead
$36,000
What is the fixed overhead volume variance for Gina Production Company?
a.
$1,350 F
b.
$3,600 F
c.
$4,125 U
d.
$1,350 U
70. An activity-budgetary system has the following benefit(s):
a.
it supports continuous improvement.
b.
it supports process management.
c.
it emphasizes cost reduction through elimination of wasteful activities.
d.
it helps improve the efficiency of necessary activities.
e.
all of these.
71. Which of the following is not one of the steps in building an activity-based budget?
a.
identifying activities
b.
classifying activities as value-added or nonvalue-added
c.
estimating the demand for each activity’s output
d.
estimating the cost of producing the output demanded by each activity
e.
None of these.
72. The major differences between activity-based budgeting and traditional budgeting are found in
a.
the materials and labor categories.
b.
the sales and production budgets.
c.
the cash budget.
d.
the overhead and selling and administrative categories.
e.
None of these.
73. In budgeting at the activity level, the cost behavior of each activity is defined with respect to
a.
direct labor hours.
b.
machine hours.
c.
the activity output measure.
d.
the activity’s resource driver.
e.
None of these.
74. In an activity framework controlling costs translates into
a.
managing activities.
b.
reducing direct labor hours.
c.
selling more goods.
d.
careful identification of resource drivers.
e.
All of these.
75. Activity flexible budgeting
a.
improves performance reporting.
b.
allows the prediction of activity costs as activity output changes.
c.
enhances the ability to manage activities.
d.
improves the ability to plan and monitor activity improvements.
e.
does all of these.
76. Activity flexible budgeting provides a more accurate prediction of costs than a traditional flexible
budgeting approach because
a.
costs often vary with more than one driver.
b.
nonunit level drivers are often not highly correlated with direct labor hours.
c.
direct labor hours are often not measured correctly.
d.
costs often vary with more than one driver and nonunit level drivers are often not highly
correlated with direct labor hours.
e.
costs often vary with more than one driver and direct labor hours are not correct.
77. A performance report using activity flexible budgeting compares
a.
budgeted costs for actual activity usage levels with the actual activity costs.
b.
actual activity costs with budgeted overhead costs.
c.
actual overhead costs with the budgeted activity costs for actual activity usage levels.
d.
the static activity budget costs with the budgeted activity costs for the actual activity usage
levels.
e.
None of these.
78. For activity flexible budgeting, a cost formula is developed for each
a.
overhead item as a function of direct labor hours.
b.
activity as a function of activity drivers.
c.
activity as a function of resource drivers.
d.
overhead item as a function of resource drivers.
e.
each activity as a function of direct labor hours.
79. In an activity flexible budget, the variable cost component typically corresponds to
a.
those resources that vary with direct labor hours.
b.
resources acquired as needed.
c.
resources acquired in advance of usage.
d.
resources that do not change as the activity output changes.
e.
None of these.
80. In an activity flexible budget, the fixed cost component typically corresponds to
a.
resources that vary with direct labor hours.
b.
resources that vary as the activity output changes.
c.
resources acquired in advance of usage.
d.
resources acquired as needed.
e.
None of these.
81. Building an activity-based budget requires
a.
the activities within an organization to be identified.
b.
the demand for each activity’s output to be estimated.
c.
the cost of resources required to produce this activity output to be assessed.
d.
All of these.
e.
None of these.
82. If an organization has implemented an ABC or ABM system, they will already have accomplished
which of the following?
a.
Identified the activities within an organization.
b.
Estimated the demand for each activity’s output.
c.
Assessed the cost of resources required to produce this activity output.
d.
All of these.
e.
None of these.
83. The major differences between functional and activity-based budgeting are found within which of the
following categories?
a.
overhead
b.
selling
c.
administration
d.
All of these.
e.
None of these.
84. Activity-based budgeting
a.
builds a budget for each function.
b.
identifies only the overhead activity.
c.
classifies costs as variable or fixed with respect to the activity output measure.
d.
All of these.
e.
None of these.
Figure 11-5.
Merric Company uses an activity-based costing system. Four activities have been identified. The setup
activity uses the number of setups as its cost driver. The following budget information is available for
this activity:
Fixed costs per month
$240,000
Variable cost per setup
$ 5,400
The company expects to perform 25 setups in May.
85. Refer to Figure 11-5. If the company expects 25 setups in the month of May, what would be the total
budgeted costs of the setup activity?
a.
$240,000
b.
$375,000
c.
$135,000
d.
$397,500
e.
None of these.
Fixed costs
$240,000
Variable costs ($5,400 25)
Total
$375,000
86. Refer to Figure 11-5. Actual costs incurred were $246,000 fixed and $144,000 variable. If the actual
number of setups in May was 30, what is the activity-based flexible budget variance?
a.
$15,000 U
b.
$15,000 F
c.
$12,000 F
d.
$12,000 U
Figure 11-6.
Kyle Company uses forklifts to move materials from the storage area to the production floor. There are
five forklifts. They are fully used 20 hours per day (making 8 moves per hour). The company works
320 days per year, running two 7-hour shifts per day. Fork-lift operators work 1,800 hours per year
and are paid an annual salary of $56,000.
Based on a recent study each forklift uses 0.45 gallons of fuel per move. The cost of fuel is $3.80 per
gallon.
87. Refer to Figure 11-6. Prepare a salary budget for the activity, moving materials. Assume that the labor
market does not permit the hiring of part-time forklift operators.
a.
$980,000
b.
$1,008,000
c.
$905,000
d.
$1,135,000
e.
$760,000
88. Refer to Figure 11-6. Calculate the fuel budget for the year for moving materials.
a.
$436,090
b.
$228,300
c.
$496,050
d.
$312,100
e.
$437,760
89. Refer to Figure 11-6. Prepare a flexible budget formula for the moving materials activity.
a.
$880,000 + $1.71 moves
b.
$1,450,000 + $3.80 moves
c.
$905,000 + $.45 moves
d.
$1,080,000 + $1.71 moves
e.
$850,000 + $2.00 moves
90. Refer to Figure 11-6. Suppose that the actual moves made are 80% of the forklifts’ capacity. What is
the after-the-fact budgeted fuel cost?
a.
$448,000
b.
$299,600
c.
$492,000
d.
$353,600
e.
$350,208
PROBLEM
Figure 11-7.
Larry Miller, controller for Kipling Company, has been instructed to develop a flexible budget for
overhead costs. The company produces two types of frozen desserts: Icey and Tasty. The two desserts
use common raw materials in different proportions. The company expects to produce 200,000 gallons
of each product during the coming year. Icey requires 0.25 direct labor hour per gallon and Tasty
requires 0.30. Larry has developed the following fixed and variable costs for each of the four overhead
items:
Overhead Item
Fixed Cost
Variable Rate per DLH
Maintenance
$52,000
$1.20
Power
1.50
Indirect labor
79,500
4.80
Rent
54,000
1. Refer to Figure 11-7.
Required:
A.
Prepare an overhead budget for the expected activity level for the coming year.
B.
Prepare an overhead budget that reflects production that is 10% higher than expected
(for both products).
C.
Prepare an overhead budget that reflects production that is 10% lower than expected
(for both products).
Variable costs:
Maintenance
Power
165,000
Indirect labor
Total variable costs
Fixed costs:
Indirect labor
Rent
Total fixed costs
Total overhead costs
(0.25 200,000)
(0.30 200,000)
Total DLH
Variable costs:
Maintenance
Power
181,500
Indirect labor
Total variable costs
Fixed costs:
Maintenance
Indirect labor
Rent