Chapter 10 Appendix A Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System
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Chapter 10 Appendix A Predetermined Overhead Rates and Overhead Analysis
in a Standard Costing System Answer Key
True / False Questions
1. In a standard costing system, underapplied or overapplied fixed manufacturing overhead is
equal to the sum of the fixed manufacturing overhead budget variance and the fixed
manufacturing overhead volume variance.
2. 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
actual hours worked.
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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. The company’s choice of the
denominator level of activity affects the Fixed component of the predetermined overhead
rate.
4. 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 Variable component of the predetermined overhead
rate.
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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 amount of overhead that
the company would apply to finished production would ordinarily be the standard hours
allowed for the actual units of finished output times the predetermined overhead rate per
direct labor-hour.
6. A volume variance and an efficiency variance are computed for fixed manufacturing
overhead costs.
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7. The budget variance represents the difference between the actual fixed manufacturing
overhead cost incurred during a period and the budgeted fixed manufacturing overhead cost.
8. The fixed manufacturing overhead budget variance is not controllable by managers because
fixed costs are not controllable.
9. If the fixed manufacturing overhead volume variance is unfavorable, too much has been
spent on fixed manufacturing overhead items.
10. An unfavorable volume variance means that a firm operated at an activity level that was
above the activity level planned for the period.
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11. The fixed manufacturing overhead volume variance will be unfavorable if production
volume is less than sales volume.
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. A fixed
manufacturing overhead volume variance will necessarily occur in a month in which there is a
fixed manufacturing overhead budget variance.
Multiple Choice Questions
13. The terms “standard quantity allowed” or “standard hours allowed” means:
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14. The higher the denominator level of activity:
15. Overhead is applied to work in process in a standard costing system by:
16. In a standard cost system, the volume variance will be unfavorable when:
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17. Rameriz Company erred in selecting a denominator activity and chose a much higher level
than was realistic. This error would most likely result in a large:
18. The economic impact of the inability to reach a target denominator level of activity would
best be measured by:
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19. Dosier 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:
What was the fixed manufacturing overhead budget variance for the month?
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20. Moralez 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:
What was the total of the variable overhead rate and fixed manufacturing overhead budget
variances for the month?
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21. Sommers Fabrication Corporation has a standard cost system in which it applies
manufacturing overhead to products on the basis of standard machine-hours (MHs) at $9.70
per MH. The company budgeted its fixed manufacturing overhead cost at $67,000 for the
month. During the month, the actual total variable manufacturing overhead was $66,660 and
the actual total fixed manufacturing overhead was $70,000. The actual level of activity for the
period was 6,600 MHs. What was the total of the variable overhead rate and fixed
manufacturing overhead budget variances for the month?
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22. Meister Electronics Corporation has a standard cost system in which it applies
manufacturing overhead to products on the basis of standard machine-hours (MHs). The
company had budgeted its fixed manufacturing overhead cost at $68,800 for the month and its
level of activity at 2,000 MHs. The actual total fixed manufacturing overhead was $73,300 for
the month and the actual level of activity was 1,800 MHs. What was the fixed manufacturing
overhead budget variance for the month to the nearest dollar?
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23. The Ammon Company uses a standard cost system in which manufacturing overhead is
applied to units on the basis of standard machine-hours. During July, the company budgeted
$350,000 in manufacturing overhead cost at a denominator activity of 25,000 machine-hours.
At standard, each unit of finished product requires 5 machine-hours. The following cost and
activity were recorded during July:
The amount of overhead cost that the company applied to work in process for July was:
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24. At the end of the year, actual manufacturing overhead costs were $110,000 and applied
manufacturing overhead costs were $118,800. If the denominator activity for the year was
20,000 machine-hours, and if 22,000 standard machine-hours were allowed for the year’s
production, the predetermined overhead rate per machine-hour was:
25. Rubyor Corporation bases its predetermined overhead rate on variable manufacturing
overhead cost of $10.70 per machine-hour and fixed manufacturing overhead cost of
$821,104 per period. If the denominator level of activity is 7,300 machine-hours, the variable
element in the predetermined overhead rate would be:
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26. Heersink Corporation bases its predetermined overhead rate on variable manufacturing
overhead cost of $10.50 per machine-hour and fixed manufacturing overhead cost of
$108,108 per period. If the denominator level of activity is 2,700 machine-hours, the fixed
element in the predetermined overhead rate would be:
27. Morisey Corporation bases its predetermined overhead rate on variable manufacturing
overhead cost of $8.60 per machine-hour and fixed manufacturing overhead cost of $457,002
per period. If the denominator level of activity is 6,300 machine-hours, the predetermined
overhead rate would be:
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28. Jaune Company uses a standard cost system in which it applies manufacturing overhead to
units of product on the basis of standard direct labor-hours (DLHs). The following data
pertain to last month’s operations:
The fixed manufacturing overhead budget variance is:
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29. Jay Company uses a standard cost system in which it applies manufacturing overhead to
units of product on the basis of standard direct labor-hours (DLHs). The information below
pertains to a recent month’s activity:
The volume variance would be:
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30. Coskey Corporation applies manufacturing overhead to products on the basis of standard
machine-hours. Budgeted and actual overhead costs for the month appear below:
The company based its original budget on 3,900 machine-hours. The company actually
worked 3,580 machine-hours during the month. The standard hours allowed for the actual
output of the month totaled 3,770 machine-hours. What was the overall fixed manufacturing
overhead budget variance for the month?
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31. Sultzer 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:
The company based its original budget on 3,000 machine-hours. The company actually
worked 2,730 machine-hours during the month. The standard hours allowed for the actual
output of the month totaled 2,690 machine-hours. What was the overall fixed manufacturing
overhead budget variance for the month?
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32. Heroman Corporation applies manufacturing overhead to products on the basis of standard
machine-hours. The budgeted fixed manufacturing overhead cost for the most recent month
was $26,550 and the actual fixed manufacturing overhead cost for the month was $26,570.
The company based its original budget on 5,900 machine-hours. The standard hours allowed
for the actual output of the month totaled 5,750 machine-hours. What was the overall fixed
manufacturing overhead budget variance for the month?
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33. Rostad 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:
The company based its original budget on 7,100 machine-hours. The company actually
worked 7,060 machine-hours during the month. The standard hours allowed for the actual
output of the month totaled 6,990 machine-hours. What was the overall fixed manufacturing
overhead volume variance for the month?