35) The variable overhead efficiency variance is computed ________ and interpreted ________ the direct-
cost efficiency variance.
A) the same as; the same as
B) the same as; differently than
C) differently than; the same as
D) differently than; differently than
36) Mendel Company makes the following journal entry:
Variable Manufacturing Overhead Allocated 200,000
Variable Manufacturing Overhead Efficiency Variance 5,000
Variable Manufacturing Overhead Control 175,000
Variable Manufacturing Overhead Spending Variance 30,000
Which of the following statements is true of the given journal entry?
A) A variable manufacturing overhead cost of $175,000 is written-off.
B) An unfavorable spending variance of $30,000 is recorded.
C) A favorable efficiency variance of $5,000 is recorded.
D) A favorable flexible-budget variance of $25,000 is recorded.
37) An unfavorable variable overhead efficiency variance indicates that ________.
A) the actual rate of variable overhead was more than budgeted rate
B) the price of variable overhead items was less than budgeted
C) the variable overhead cost-allocation base was not used efficiently
D) the variable overhead cost-allocation base was used efficiently
38) Osium Company made the following journal entry:
Variable Manufacturing Overhead Allocated 200,000
Variable Manufacturing Overhead Efficiency Variance 60,000
Variable Manufacturing Overhead Control 250,000
Variable Manufacturing Overhead Spending Variance 10,000
Which of the following statements is true of the given journal entry?
A) Osium overallocated variable manufacturing overhead.
B) A $10,000 unfavorable spending variance was recorded.
C) Work-in-Process is currently overstated.
D) A $60,000 unfavorable efficiency variance was recorded.
39) Which of the following is the correct mathematical expression is used to calculate variable overhead
efficiency variance?
A) (Actual rate − Budgeted rate) × Budgeted quantity
B) (Actual quantity × Budgeted rate) – (Budgeted input quantity allowed for actual output × Budgeted
rate)
C) (Actual quantity ÷ Budgeted rate) − (Budgeted quantity ÷ Budgeted rate)
D) (Actual quantity ÷ Budgeted rate) × Budgeted quantity allowed for actual output
40) Marshall Company uses a standard cost system. In April, $266,000 of variable manufacturing
overhead costs were incurred and the flexible-budget amount for the month was $300,000. Which of the
following variable manufacturing overhead entries would have been recorded for March?
A) Accounts Payable Control and other accounts 300,000
Work-in-Process Control 300,000
B) Variable Manufacturing Overhead Allocated 300,000
Accounts Payable and other accounts 300,000
C) Work-in-Process Control 266,000
Accounts Payable Control and other accounts 266,000
D) Variable Manufacturing Overhead Control 266,000
Accounts Payable Control and other accounts 266,000
41) When machine-hours are used as a cost-allocation base, the item most likely to contribute to a
favorable variable overhead efficiency variance is ________.
A) excessive machine breakdowns
B) skillful workforce
C) additional machinery
D) strengthened demand for the product
42) Which of the following journal entries is used to record actual variable overhead costs incurred?
A) Accounts Payable
Variable Overhead Control
B) Variable Overhead Control
Accounts Receivable
C) Work-in-Process Control
Variable Overhead Control
D) Variable Overhead Control
Accounts Payable
43) When variances are immaterial, which of the following statements is true of the journal entry to write-
off the variable overhead variance accounts?
A) Cost of Goods Sold account will always be debited.
B) Unfavorable efficiency variance will be credited.
C) Favorable efficiency variance will be credited.
D) Cost of Goods Sold account will always be credited.
44) The flexible budget enables to highlight the differences between budgeted costs and budgeted
quantities versus actual costs and actual quantities for the budgeted output level.
45) Managers can always view a favorable variable overhead spending variance as desirable.
46) The variable overhead efficiency variance is the difference between actual quantity of the
cost-allocation base used and budgeted quantity of the cost-allocation base allowed for actual output,
multiplied by the budgeted variable overhead cost per unit of the cost-allocation base.
47) Tightly budgeted machine time standards can lead to unfavorable variable overhead efficiency
variance.
48) If budgeted and actual machine hours are equal, spending variance will always be nil.
49) Unskilled workforce can lead to unfavorable efficiency variance.
50) Causes of a favorable variable overhead efficiency variance might include using lower-skilled
workers than expected.
51) If the production planners set the budgeted machine hours standards too tight, one could anticipate
there would be a favorable variable overhead efficiency variance.
52) Comfort Company manufactures pillows. The 2015 operating budget is based on production of 25,000
pillows with 0.75 machine-hour allowed per pillow. Budgeted variable overhead per hour was $25.
Actual production for 2015 was 27,000 pillows using 19,050 machine-hours. Actual variable costs were
$23 per machine-hour.
Required:
Calculate the variable overhead spending and efficiency variances.
53) Skytalk Company manufactures weathervanes. The 2015 operating budget is based on the production
of 5,300 weathervanes with 1.25 machine-hour allowed per weathervane. Variable manufacturing
overhead is anticipated to be $145,750.
Actual production for 2015 was 5,250 weathervanes using 6,050 machine-hours. Actual variable costs
were $21.75 per machine-hour.
Required:
Calculate the variable overhead spending and the efficiency variances.
54) Briefly explain the meaning of the variable overhead efficiency variance and the variable overhead
spending variance.
55) Define variable overhead spending variance. Briefly explain why a favorable variable overhead
spending variance may not always be desirable.
56) Can the variable overhead efficiency variance
a. be computed the same way as the efficiency variance for direct-cost items?
b. be interpreted the same way as the efficiency variance for direct-cost items? Explain.
Objective 8.4
1) When machine-hours are used as an overhead cost-allocation base and annual leasing costs for
equipment unexpectedly increase, the most likely result would be to report a(n) ________.
A) unfavorable variable overhead spending variance
B) favorable variable overhead efficiency variance
C) unfavorable fixed overhead flexible-budget variance
D) favorable production-volume variance
2) The amount reported for fixed overhead on the static budget is also reported ________.
A) as actual fixed costs
B) as allocated fixed overhead costs
C) as flexible budget costs
D) as committed variable costs
3) An unfavorable fixed overhead spending variance indicates that ________.
A) there was more excess capacity than planned
B) the price of fixed overhead items cost more than budgeted
C) the fixed overhead cost-allocation base was not used efficiently
D) the denominator level was more than planned
4) Which of the following is the correct mathematical expression to calculate the fixed overhead spending
variance?
A) Static-budget amount — Flexible-budget amount
B) Flexible-budget amount — Actual costs incurred
C) Static-budget amount — Fixed overhead allocated for actual output
D) Flexible-budget amount — Fixed overhead allocated for actual output
5) For fixed manufacturing overhead, there is no ________.
A) spending variance
B) efficiency variance
C) flexible-budget variance
D) production-volume variance
6) Luke’s Football Manufacturing Company reported:
Actual fixed overhead $400,000
Fixed manufacturing overhead spending variance $10,000 favorable
Fixed manufacturing production-volume variance $15,000 unfavorable
To isolate these variances at the end of the accounting period, John would debit Fixed Manufacturing
Overhead Allocated for ________.
A) $390,000
B) $395,000
C) $400,000
D) $405,000
Use the below information to answer the following questions:
Bekits Corporation manufactured 37,500 grooming kits for horses during March. The following fixed
overhead data relates to March:
Actual Static Budget
Production 37,500 units 36,000 units
Machine-hours 6,100 hours 5,940 hours
Fixed overhead costs for March $133,000 $124,740
7) What is the flexible-budget amount?
A) $134,375.50
B) $124,740.00
C) $129,937.50
D) $133,000.00
8) What is the amount of fixed overhead allocated to production?
A) $134,375.50
B) $124,740.00
C) $133,000.00
D) $129,937.50
9) What is the fixed overhead spending variance?
A) $3,062.5 unfavorable
B) $8,260 favorable
C) $8,260 unfavorable
D) $3,062.5 favorable
Answer the following questions using the information below:
Deocomfort Corporation manufactured 55,500 door jambs during September. The following fixed
overhead data relates to September:
Actual Static Budget
Production 55,500 units 55,000 units
Machine-hours 985 hours 1,100 hours
Fixed overhead costs for September $50,500 $50,600
10) What is the flexible-budget amount?
A) $50,500
B) $51,060
C) $50,600
D) $55,500
11) What is the amount of fixed overhead allocated to production?
A) $51,060
B) $50,500
C) $50,600
D) $55,500
12) What is the fixed overhead spending variance?
A) $560 unfavorable
B) $100 favorable
C) $100 unfavorable
D) $560 favorable
Answer the following questions using the information below:
Sport-in Corporation manufactured 10,000 golf bags during April. The following fixed overhead data
pertain to March:
Actual Static Budget
Production 20,000 units 20,500 units
Machine-hours 5,100 hours 6,150 hours
Fixed overhead cost for March $250,000 $258,300
13) What is the flexible-budget amount?
A) $250,000
B) $200,500
C) $258,300
D) $204,700
14) What is the amount of fixed overhead allocated to production?
A) $252,000
B) $257,000
C) $256,250
D) $244,000
15) What is the amount of fixed overhead spending variance?
A) $8,300 unfavorable
B) $2,000 favorable
C) $2,000 unfavorable
D) $8,300 favorable
16) Which of the following statements is true of fixed overhead variances?
A) The difference between actual costs and static budget costs will give the production volume variance.
B) The difference between actual costs and static budget costs will always be nil.
C) The difference between actual costs and flexible budget costs will give the production volume
variance.
D) The difference between flexible budget costs and static budget costs will always be nil.
17) Which of the following is the correct mathematical expression to calculate the fixed overhead
production-volume variance?
A) static-budget amount − flexible-budget amount
B) flexible-budget amount − actual costs incurred
C) actual costs incurred − fixed overhead allocated for actual output
D) budgeted fixed overhead − fixed overhead allocated for actual output
18) Which of the following journal entries is used to record fixed overhead costs allocated?
A) Fixed Overhead Allocated
Work-in-Process Control
B) Work-in-Process Control
Fixed Overhead Allocated
C) Fixed Overhead Control
Work-in-Process Control
D) Fixed Overhead Allocated
Fixed Overhead Control
19) Bismith Company reported:
Actual fixed overhead $500,000
Fixed manufacturing overhead spending variance $30,000 unfavorable
Fixed manufacturing production-volume variance $20,000 unfavorable
To record the write-off of these variances at the end of the accounting period, Bismith would ________.
A) credit Fixed Manufacturing Overhead Allocated for $500,000
B) debit Fixed Manufacturing Overhead Spending Variance for $30,000
C) credit Fixed Manufacturing Production-Volume Variance for $20,000
D) debit Fixed Manufacturing Control for $500,000
20) Radon Corporation manufactured 33,000 grooming kits for horses during March. The following fixed
overhead data pertain to March:
Actual Static Budget
Production 33,000 units 30,000 units
Machine-hours 6,100 hours 6,000 hours
Fixed overhead costs for March $153,000 $144,000
What is the fixed overhead production-volume variance?
A) $9,000 unfavorable
B) $14,400 favorable
C) $14,400 unfavorable
D) $9,000 favorable
21) What is the fixed overhead spending variance?
A) $14,400 favorable
B) $9,000 favorable
C) $9,000 unfavorable
D) $14,400 unfavorable
22) If the production planners set the budgeted machine hours standards too loose, one could anticipate
there would be a favorable fixed overhead efficiency variance.
23) Under Generally Accepted Accounting Principles (GAAP), fixed manufacturing overhead costs are
allocated as an inventoriable cost to the output units produced.
24) Allocated fixed overhead can be expressed in terms of allocation-base units or in terms of the
budgeted fixed cost per unit.
25) Lump-sum fixed costs of acquiring capacity decrease automatically if the capacity needed turns out to
be less than the capacity acquired.
26) When forecasting fixed costs, managers should concentrate on total lump-sum costs instead of
unitized fixed overhead costs.
27) A favorable fixed overhead flexible-budget variance indicates that actual fixed costs exceeded the
lump-sum amount budgeted.
28) Fixed costs for the period are by definition a lump sum of costs that remain unchanged and therefore
the fixed overhead spending variance is always zero.
29) An unfavorable production-volume variance indicates an overallocation of fixed overhead costs.
30) Favorable overhead variances are always recorded with credits in a standard cost system.
31) Under activity-based costing, the flexible-budget amount equals the static-budget amount for fixed
overhead costs.
32) Prorated allocation of production-volume variance results in a higher operating income for current
year than if the entire favorable production-volume variance were credited to Cost of Goods Sold.
33) Prorated allocation of production-volume variance has the effect of approximating the allocation of
fixed costs based on actual costs and actual output.
34) Neon Company manufactured 2,500 units during April with a total overhead budget of $55,000.
However, while manufacturing the 2,500 units the microcomputer that contained the month’s cost
information broke down. With the computer out of commission, the accountant has been unable to
complete the variance analysis report. The information missing from the report is lettered in the
following set of data:
Variable overhead:
Standard cost per unit: 1.2 labor hour at $10 per hour
Actual costs: $26,250 for 2,250 hours
Flexible budget: a
Total flexible-budget variance: b
Variable overhead spending variance: c
Variable overhead efficiency variance: d
Fixed overhead:
Budgeted costs: e
Actual costs: f
Flexible-budget variance: $200 favorable
Required:
Compute the missing elements in the report represented by the lettered items.
35) Argon Company makes clocks. The fixed overhead costs for 2015 total $880,000. The company uses
direct labor-hours for fixed overhead allocation and anticipates 220,000 hours during the year for 330,000
units. An equal number of units are budgeted for each month.
During June, 32,000 clocks were produced and $72,000 was spent on fixed overhead.
Required:
a. Determine the fixed overhead rate for 2015 based on units of input.
b. Determine the fixed overhead static-budget variance for June.
c. Determine the production-volume overhead variance for June.
36) Xenon Company makes watches. The fixed overhead costs for 2015 total $648,000. The company uses
direct labor-hours for fixed overhead allocation and anticipates 21,600 hours during the year for 540,000
units. An equal number of units are budgeted for each month.
During October, 48,000 watches were produced and $52,000 was spent on fixed overhead.
Required:
a. Determine the fixed overhead rate for 2015 based on the units of input.
b. Determine the fixed overhead static-budget variance for October.
c. Determine the production-volume overhead variance for October.
37) Explain why there is no efficiency variance for fixed manufacturing overhead costs.
38) ‘Managers should be wary of using the same unitized fixed overhead costs for planning and control
purposes’. Do you agree with this argument? Give reasons for your answer.
39) Explain why there is no production-volume variance for variable manufacturing overhead costs.
40) Abby Company has just implemented a new cost accounting system that provides two variances for
fixed manufacturing overhead. While the company’s managers are familiar with the concept of spending
variances, they are unclear as to how to interpret the production-volume overhead variances. Currently,
the company has a production capacity of 54,000 units a month, although it generally produces only
46,000 units. However, in any given month the actual production is probably something other than
46,000.
Required:
a. Does the production-volume overhead variance measure the difference between the 54,000 and
46,000, or the difference between the 46,000 and the actual monthly production? Explain.
b. What advice can you provide the managers that will help them interpret the production-volume
overhead variances?
41) Explain how are the fixed manufacturing overhead costs treated under Generally Accepted
Accounting Principles?
42) What are the arguments for prorating a production-volume variance that has been deemed to be
material among work-in-process, finished goods, cost and cost of goods sold as opposed to writing it all
off to cost of goods sold?
43) Explain two concerns when interpreting the production-volume variance as a measure of the
economic cost of unused capacity.