Question 1

Manufacturing companies using a standard cost system often can achieve more effective control when factory overhead variance analysis is done with:
A)A two-variance approach.
B)A three-variance approach.
C)A four-variance approach.
D)A single cost driver.
E)Multiple cost drivers.

Accepted Answer

E

Question 2

Proration of manufacturing cost variances among ending inventories and cost of goods sold has the effect of carrying the cost (savings)of inefficient (efficient)operations of a period to:
A)Only the balance sheet of the current period.
B)Only the income statement of the current period.
C)The balance sheets of future periods only.
D)The income statement of the current period and the balance sheet of the current period.

Accepted Answer

Proration of manufacturing cost variances among ending inventories and cost of goods sold affects both the income statement and the balance sheet of the current period. The effects of inefficient or efficient operations are carried forward to the balance sheet for future periods through the adjustment of ending inventory values. Therefore, choice D is the correct answer.

Question 3

Factors contributing to the fixed factory overhead spending variance can include all except:
A)Inaccurate budget estimates for these costs.
B)Inadequate control of fixed overhead costs.
C)Misclassification of cost items by the accounting system.
D)Operating inefficiency.
E)Unanticipated increases in costs such as factory insurance.

Accepted Answer

Operating inefficiency typically affects variable costs rather than fixed costs, which are not expected to change with the level of production.

Question 4

In a standard cost system,an unfavorable production-volume variance would result if:
A)There is an unfavorable labor efficiency variance.
B)There is an unfavorable labor rate variance.
C)Actual production is less than the "denominator volume."
D)There is an unfavorable manufacturing overhead spending variance.
E)Actual fixed overhead costs are greater than budgeted fixed overhead costs.

Accepted Answer

The production-volume variance measures the difference between actual overhead allocation at the achieved volume and budgeted overhead allocation at the denominator volume. If actual production is less than the denominator volume, then the fixed overhead rate will be higher than budgeted, resulting in an unfavorable production-volume variance.

Question 5

Many firms feel a strong obligation to establish and use a standard rate for fixed factory overhead for all the following reasons except:
A)Generally accepted accounting principles require full costing for financial reporting.
B)The mandate to include fixed factory overhead in pricing for federal government contract bidding.
C)Because of current income tax provisions in the U.S.
D)Improved performance measurement.

Accepted Answer

Generally accepted accounting principles in the U.S. require full costing of inventories for financial reporting purposes, which includes the use of a standard rate for fixed factory overhead. This standard rate is used to allocate fixed overhead costs to products and is included in the cost of inventory.

Answer: B
 The resulting data from using a standard rate for fixed factory overhead are useful for performance-evaluation purposes. This data can be used to analyze the profitability of products, departments, and the overall business.

Answer: C
 Treating fixed overhead costs as product costs rather than period costs can result in larger income tax deductions, as these costs are deducted when the associated inventory is sold. This can help to lower the tax liability for the business.

Answer: D
 Using a standard rate for fixed factory overhead can improve management's ability to more accurately forecast future overhead costs. By analyzing past trends and adjusting the standard rate as necessary, managers can better estimate future overhead costs and make more informed decisions.

Answer: E
 This statement is not true. While fixed overhead costs can be expensed as period costs, many businesses choose to allocate these costs to products using a standard rate for full costing purposes.

Question 6

If inventories in a business using a standard cost system are insignificant,the firm would be justified (in a practical sense)by disposing of variances each year:
A)As an adjustment to the finished goods inventory only.
B)As an adjustment to cost of goods sold only.
C)As adjustments to both inventory accounts and the cost of goods sold for the period.
D)As a special item (gain or loss)on the income statement for the period.
E)As an adjustment to the work-in-process (WIP)inventory only.

Accepted Answer

If inventories in a business using a standard cost system are insignificant, the firm would be justified in disposing of variances each year as an adjustment to cost of goods sold only. This is because when inventories are insignificant, it does not make sense to adjust inventory accounts. Hence, the variances are treated as an adjustment to cost of goods sold only.

Question 7

Using an activity-based costing system (ABC)enables a firm to calculate overhead variances for:
A)Sales volume and production volume.
B)Spending and selling price.
C)Each activity-based cost driver.
D)Semi-variable overhead costs.
E)Federal income tax purposes.

Accepted Answer

ABC allows a firm to assign costs to specific activities and cost drivers, enabling the calculation of overhead variances for each activity-based cost driver. It does not directly relate to sales volume, production volume, spending, selling price, semi-variable overhead costs, or federal income tax purposes.

Question 8

A manufacturing company that uses standard costs and flexible budgets can break the variable factory overhead flexible-budget variance down into:
A)Volume and efficiency components.
B)Spending and efficiency variances.
C)Spending and production volume variances.
D)Spending variances only.

Accepted Answer

The total variable overhead cost variance can be broken down into two components: spending variance and efficiency variance. The spending variance measures the difference between the actual variable overhead cost incurred and the budgeted amount at the actual level of activity. The efficiency variance measures the difference between the budgeted variable overhead cost at the actual level of activity and the actual cost adjusted for differences in efficiency. Volume variance is not a component of overhead variance in a flexible budgeting system. A selling price variance and sales volume variance are unrelated to variable overhead costs.

Question 9

An activity-based cost (ABC)driver applies factory overhead to products or services according to the:
A)Activity output as measured by the units produced.
B)Activity level of hours of direct labor.
C)Resource demands/resource consumption of the firm's outputs.
D)Budgeted activity level for the period.
E)Volume of output (i.e. ,units produced)during the period.

Accepted Answer

The ABC driver is based on the consumption of resources by the outputs. It identifies the specific activities that cause costs to be incurred and assigns those costs to the products or services that caused the activity to occur. Therefore, the correct choice is C, which represents the resource demands/resource consumption of the firm's outputs.

Question 10

Among characteristics that distinguish service and manufacturing firms are the:
A)Absence of output inventory in service firms.
B)Existence of labor-intensive products in manufacturing firms.
C)Rendering of identical services in a service firm.
D)Capital intensiveness of service firms.
E)Organizational structure of service firms.

Accepted Answer

One of the main characteristics that distinguishes service and manufacturing firms is the absence of output inventory in service firms. Service firms deliver services as they are ordered, whereas manufacturing firms produce tangible goods that can be stored as inventory.

Question 11

Cost behavior for variable overhead is more difficult to predict than for direct material or direct labor cost for all the following reasons except:
A)Multiple cost drivers are involved with variable overhead.
B)Direct material and direct labor contain no semi-variable component.
C)The variable portion of overhead must first be separated from the fixed portion.
D)Variable overhead is a relatively small part of total overhead.

Accepted Answer

Variable overhead can indeed be a significant or small part of total overhead, but this does not inherently make its behavior more difficult to predict compared to direct materials or direct labor. The other options (A, B, C) directly relate to the complexities in predicting variable overhead costs.

Question 12

The difference between actual overhead costs incurred during the period and the overhead in the flexible budget based on the output for the period is called the:
A)Total overhead spending variance.
B)Total overhead efficiency variance.
C)Production-volume variance.
D)Overhead flexible-budget variance.
E)Total overhead variance.

Accepted Answer

The overhead flexible-budget variance compares the actual overhead costs incurred during the period with the overhead costs that would have been incurred based on the output level in the flexible budget. It is calculated by subtracting the flexible budget overhead from the actual overhead incurred.

Question 13

Which of the following factors is not usually important when deciding whether to investigate a variance?
A)Magnitude of the variance.
B)Trend of the variance over time.
C)Whether the variance is favorable or unfavorable.
D)Cost of investigating the variance.
E)Likelihood that the variance will recur in the future.

Accepted Answer

Whether the variance is favorable or unfavorable is not usually an important factor when deciding whether to investigate a variance. The focus is on understanding the cause of the variance and identifying potential solutions, regardless of whether it is favorable or unfavorable. The other factors listed (magnitude, trend over time, cost of investigating, and likelihood of recurrence) are all important considerations when deciding whether to investigate a variance.

Question 14

The production-volume variance should generally not be calculated and reported for control purposes because,unless interpreted properly,it can:
A)Distract top management.
B)Give information that only top management should have.
C)Distort other variable-cost variances.
D)Encourage overproduction by managers to achieve a favorable volume variance.
E)Encourage underproduction by managers to avoid an unfavorable variance.

Accepted Answer

Calculating and reporting the production-volume variance may encourage overproduction by managers to achieve a favorable volume variance, which can lead to excess inventory and other related costs. Therefore, it is generally not recommended to calculate and report this variance for control purposes.

Question 15

A standard costing system will produce the same income as an actual costing system when end-of-period standard cost variances are assigned:
A)Only to work-in-process (WIP)inventory.
B)Only to finished goods inventory.
C)To work-in-process and finished goods inventories.
D)Entirely to cost of goods sold.
E)To cost of goods sold and all inventory accounts.

Accepted Answer

Standard costing systems can produce the same income as actual costing systems when end-of-period standard cost variances are allocated across cost of goods sold and all inventory accounts (work-in-process, finished goods, and possibly raw materials). This ensures that the total costs reflected in the financial statements match those that would have been reported using actual costs, by appropriately adjusting the reported values of inventories and cost of goods sold for the variances.

Question 16

Because fixed factory overhead does not vary with changes in output:
A)The amount used in the control budget for a period is a lump-sum amount.
B)There is no way to assign fixed overhead cost to products for product-costing purposes.
C)Most companies treat such costs as period,rather than as product,costs.
D)There is no justification for fixed overhead cost application.
E)Generally accepted accounting principles permit companies to use variable rather than absorption (full)costing for external reporting purposes.

Accepted Answer

Fixed factory overhead costs are constant in total regardless of the level of output, so they are budgeted as a lump-sum amount in the control budget. This allows for planning and control purposes without varying the budgeted amount with changes in production volume.

Question 17

Intangible attributes often play dominant roles in determining the value of outputs from a service organization.These characteristics often lead service firms to rely on:
A)Input-related measures for measuring and monitoring operations.
B)Intuitive judgment in monitoring operations.
C)Quantitative measures of output.
D)Qualitative measures exclusively for measuring and monitoring operations.
E)Output-related measures for measuring and monitoring operations.

Accepted Answer

The answer of Intangible attributes often play dominant roles in...

Question 18

The fixed factory overhead production-volume variance represents:
A)Money lost or gained because of achieved production levels.
B)An artifact of unitizing fixed overhead costs for product-costing purposes.
C)Information regarding the effectiveness of the organization in meeting sales targets.
D)Information that management can use for cost-control purposes.
E)Important information for companies pursuing a JIT production philosophy.

Accepted Answer

The fixed factory overhead production-volume variance arises because fixed overhead costs are allocated to units of production based on a predetermined rate for the period, regardless of the actual number of units produced. It is an artifact of the product-costing process and not an actual financial loss or gain. Additionally, it does not provide information on sales targets or cost-control purposes. While it may be considered in JIT production, it is not necessarily important information for companies pursuing this production philosophy.

Question 19

Finding a single cost driver that changes in the same proportion as variable factory overhead costs is:
A)Simplified by breaking out the fixed portion of overhead cost.
B)The first step in variable overhead cost assignment.
C)Difficult but manageable using advanced statistical techniques.
D)An important goal of effective cost system design.
E)Virtually impossible because of the underlying nature of variable overhead costs.

Accepted Answer

Variable overhead costs consist of various components that may not change in proportion to a single cost driver, making it difficult to find one that aligns perfectly with changes in these costs.

Question 20

In firms using activity-based costing (ABC),budgeted total factory overhead varies with changes in:
A)A single cost driver for applying overhead.
B)Several cost drivers.
C)The selected denominator activity level.
D)The quantity of input resources used in operations of the period.

Accepted Answer

In firms using activity-based costing (ABC), budgeted total factory overhead varies with changes in several cost drivers. ABC focuses on identifying the activities that consume resources and assigning overhead costs to those activities. Therefore, the budgeted total factory overhead would vary with changes in the various cost drivers identified for different activities.

Quiz 15: Operational Performance Measurement: Indirect-Cost Variances and Resource- Capacity Management

Manufacturing companies using a standard cost system often can achieve more effective control when factory overhead variance analysis is done with:

Proration of manufacturing cost variances among ending inventories and cost of goods sold has the effect of carrying the cost (savings) of inefficient (efficient) operations of a period to:

Factors contributing to the fixed factory overhead spending variance can include all except:

In a standard cost system,an unfavorable production-volume variance would result if:

Many firms feel a strong obligation to establish and use a standard rate for fixed factory overhead for all the following reasons except:

If inventories in a business using a standard cost system are insignificant,the firm would be justified (in a practical sense) by disposing of variances each year:

Using an activity-based costing system (ABC) enables a firm to calculate overhead variances for:

A manufacturing company that uses standard costs and flexible budgets can break the variable factory overhead flexible-budget variance down into:

An activity-based cost (ABC) driver applies factory overhead to products or services according to the:

Among characteristics that distinguish service and manufacturing firms are the:

Cost behavior for variable overhead is more difficult to predict than for direct material or direct labor cost for all the following reasons except:

The difference between actual overhead costs incurred during the period and the overhead in the flexible budget based on the output for the period is called the:

Which of the following factors is not usually important when deciding whether to investigate a variance?

The production-volume variance should generally not be calculated and reported for control purposes because,unless interpreted properly,it can:

A standard costing system will produce the same income as an actual costing system when end-of-period standard cost variances are assigned:

Because fixed factory overhead does not vary with changes in output:

Intangible attributes often play dominant roles in determining the value of outputs from a service organization.These characteristics often lead service firms to rely on:

The fixed factory overhead production-volume variance represents:

Finding a single cost driver that changes in the same proportion as variable factory overhead costs is:

In firms using activity-based costing (ABC) ,budgeted total factory overhead varies with changes in: