Question 1

Which of the following is NOT one of the three steps in building an activity-based budget?
A) identifying activities
B) classifying activities as value-added or non-value-added
C) estimating the demand for each activity's output
D) estimating the cost of producing the output demanded by each activity

Accepted Answer

Classifying activities as value-added or non-value-added is not a step in building an activity-based budget. The three main steps involve identifying activities, estimating the demand for each activity's output, and estimating the cost of producing the output demanded by each activity. Classifying activities into value-added or non-value-added is more related to activity-based costing and process improvement methodologies.

Question 2

In an activity framework,what do controlling costs translate into?
A) managing activities
B) reducing direct labour hours
C) selling more goods
D) carefully identifying resource drivers

Accepted Answer

The answer of In an activity framework,what do controlling costs...

Question 3

Suppose an organization has implemented an ABC or ABM system.Which of the following has the organization already accomplished?
A) It has identified the activities within an organization.
B) It has estimated the demand for each activity's output.
C) It has assessed the cost of resources required to produce this activity output.
D) It has calculated the variances for the activities.

Accepted Answer

The answer of Suppose an organization has implemented an ABC...

Question 4

For which of the following is a cost formula developed for activity flexible budgeting?
A) each overhead item as a function of direct labour hours
B) each activity as a function of activity drivers
C) each activity as a function of resource drivers
D) each overhead item as a function of resource drivers

Accepted Answer

In activity flexible budgeting, a cost formula is developed for each activity as a function of activity drivers. This allows for more precise budgeting and better understanding of the costs associated with each activity.

Question 5

Which of the following is the result of fixed overhead being 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 unfavourable.
D) A line-by-line comparison of budgeted costs with actual costs provides more information.

Accepted Answer

When fixed overhead is made up of many items, it is best to conduct a line-by-line comparison of budgeted costs with actual costs in order to gain a more detailed understanding of the variances. The fixed overhead spending variance can still be meaningful, and it is possible to calculate a fixed overhead volume variance, although it may not be as relevant as other variances. Therefore, option D is the best choice.

Question 6

Suppose a company had actual fixed overhead of $99,500,a $3,100 favourable spending variance,and a $700 unfavourable volume variance.What would be the budgeted fixed overhead?
A) $96,400
B) $99,700
C) $100,680
D) $102,600

Accepted Answer

The answer of Suppose a company had actual fixed overhead...

Question 7

Which two costs are compared in a performance report that uses activity flexible budgeting?
A) budgeted costs for actual activity-usage levels and the actual activity costs
B) actual activity costs and budgeted overhead costs
C) actual overhead costs and the budgeted activity costs for actual activity-usage levels
D) static activity budget costs and the budgeted activity costs for the actual activity-usage levels

Accepted Answer

Activity flexible budgeting compares the budgeted costs for actual activity-usage levels with the actual activity costs. This helps in analyzing the cost behavior and variances between actual and budgeted costs. Option B, C, and D are incorrect as they do not reflect the comparison of budgeted and actual costs based on actual activity levels.

Question 8

Which relationship represents 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

Accepted Answer

C represents budgeted fixed overhead calculated based on planned production hours. This means that the fixed overhead is determined at the beginning of the year and is not affected by actual production levels. A represents actual fixed overhead based on actual hours worked, B represents fixed overhead based on standard hours for actual production, and D represents fixed overhead rate per hour of actual production.

Question 9

Fixed overhead was budgeted at $85,000,and 10,000 direct labour hours were budgeted.Suppose the fixed overhead volume variance was $5,000 unfavourable and the fixed overhead spending variance was $1,200 favourable.What would be the fixed overhead applied?
A) $80,000
B) $82,000
C) $82,800
D) $90,000

Accepted Answer

The answer of Fixed overhead was budgeted at $85,000,and 10,000...

Question 10

Suppose a company had actual fixed manufacturing overhead of $60,000,a $1,500 unfavourable spending variance,and a $1,000 unfavourable volume variance.What would be the budgeted fixed manufacturing overhead?
A) $50,300
B) $52,700
C) $53,000
D) $58,500

Accepted Answer

The budgeted fixed manufacturing overhead can be calculated by adding the actual fixed manufacturing overhead to the unfavourable spending variance and the unfavourable volume variance. Thus, $60,000 + $1,500 + $1,000 = $62,500. However, this calculation was done incorrectly in the question, leading to confusion. The correct approach to find the budgeted amount is to subtract the variances from the actual overhead, as they are unfavourable, meaning the actual was higher than budgeted. Therefore, $60,000 - $1,500 - $1,000 = $58,500.

Question 11

Fixed manufacturing overhead was budgeted at $250,000,and 25,000 direct labour hours were budgeted.Suppose the fixed overhead volume variance was $10,000 favourable and the fixed overhead spending variance was $6,000 unfavourable.What would be the fixed manufacturing overhead applied?
A) $194,000
B) $202,000
C) $206,000
D) $260,000

Accepted Answer

The answer of Fixed manufacturing overhead was budgeted at $250,000,and...

Question 12

Which of the following tasks is NOT required when building an activity-based budget?
A) identifying the activities within an organization
B) estimating the demand for each activity's output
C) assessing the cost of resources required to produce this activity output
D) using a single unit-based driver such as direct labour

Accepted Answer

Using a single unit-based driver such as direct labor contradicts the idea of activity-based budgeting, which involves identifying and costing all activities involved in producing a product or service.

Question 13

When budgeting at the activity level,with respect to which of the following is the cost behaviour of each activity defined?
A) direct labour hours
B) machine hours
C) the activity output measure
D) the activity's resource driver

Accepted Answer

The cost behavior of each activity in activity-based budgeting is defined with respect to the activity output measure, which directly relates the costs to the level of activity output, ensuring a more accurate allocation of costs.

Question 14

In an activity flexible budget,what does the fixed cost component typically correspond to?
A) resources that vary with direct labour hours
B) resources that vary as the activity output changes
C) resources acquired in advance of usage
D) resources acquired as needed

Accepted Answer

Fixed costs in a flexible budget typically correspond to resources acquired in advance of usage, as these costs do not change with the level of activity or output within the relevant range.

Question 15

Which of the following is a disadvantage of an activity-budgetary system?
A) It supports continuous improvement.
B) It supports process management.
C) It emphasizes cost reduction assuming one unit-based driver.
D) It helps improve the efficiency of necessary activities.

Accepted Answer

An activity-budgetary system assumes that there is only one unit-based driver for cost reduction, which may not be accurate or appropriate for all activities. This can result in oversimplification and inaccurate cost allocation, leading to inefficiencies and ineffective resource allocation.

Question 16

Which of the following is the total fixed overhead variance?
A) both AFOH − ApFOH and the sum of the spending and volume variances
B) AFOH - the sum of the spending and volume variances
C) ApFOH - the sum of the spending and efficiency variance
D) both AFOH − ApFOH and the sum of the spending and efficiency variances

Accepted Answer

The total fixed overhead variance can be calculated as the difference between the actual fixed overhead (AFOH) and the applied fixed overhead (ApFOH), as well as the sum of the spending and volume variances. These components reflect the total deviation in fixed overhead costs from what was expected or budgeted.

Question 17

Hype Production Company uses a standard costing system.The following information pertains to the current year: $\begin{array}{lr}
\text { Actual factory overhead costs }(\$ 16,500 \text { is }&\$40,125\\text { fixed) }\\text { Actual direct labour costs }(11,250 \text { hours })&\$131,625\\text { Standard direct labour for } 5,500 \text { units: }\\text { Standard hours allowed }&11,000\text { hours } \
\text { Labour rate }&\$12.00
\end{array}$
 The factory overhead rate is based on an activity level of 10,000 units.Standard cost data for 5,000 units are as follows: $\begin{array}{lr}
\text { Variable factory overhead } & \$ 22,500 \
\text { Fixed factory overhead } & 13,500 \
\text { Total factory overhead } & \$ 36,000 \
\end{array}$ What is the fixed overhead volume variance for Hype Production Company?
A) $1,350 (U)
B) $1,350 (F)
C) $3,600 (F)
D) $4,125 (U)

Accepted Answer

The answer of Hype Production Company uses a standard costing...

Question 18

In an activity flexible budget,what does the variable cost component typically correspond to?
A) those resources that vary with direct labour hours
B) resources acquired as needed
C) resources acquired in advance of usage
D) resources that do not change as the activity output changes

Accepted Answer

The answer of In an activity flexible budget,what does the...

Question 19

Why does activity flexible budgeting provide a more accurate prediction of costs than a traditional flexible budgeting approach?
A) Costs often vary with more than one driver,and direct labour hours are not correct.
B) Unit-level drivers are often not highly correlated with direct labour hours.
C) Direct labour hours are often not measured correctly.
D) Costs often vary with more than one driver,and non-unit-level drivers are often not highly correlated with direct labour hours.

Accepted Answer

Activity flexible budgeting considers multiple drivers that affect costs, including non-unit-level drivers, which can provide a more accurate prediction of costs than a traditional flexible budgeting approach that relies only on direct labour hours as the sole driver.

Question 20

Where are the major differences found between activity-based budgeting and traditional budgeting?
A) in the materials and labour categories
B) in the sales and production budgets
C) in the cash budget
D) in the overhead and selling and administrative categories

Accepted Answer

The major differences between activity-based budgeting and traditional budgeting are found in the overhead and selling and administrative categories. Activity-based budgeting focuses on cost drivers and activities that consume resources, while traditional budgeting mainly uses historical data and previous year's expenses to forecast future budgets. As a result, the overhead and selling and administrative categories in activity-based budgeting are more detailed and reflect the specific activities that consume resources.

Quiz 11: Flexible Budgets and Overhead Analysis

Which of the following is NOT one of the three steps in building an activity-based budget?

In an activity framework,what do controlling costs translate into?

Suppose an organization has implemented an ABC or ABM system.Which of the following has the organization already accomplished?

For which of the following is a cost formula developed for activity flexible budgeting?

Which of the following is the result of fixed overhead being made up of many items?

Suppose a company had actual fixed overhead of $99,500,a $3,100 favourable spending variance,and a $700 unfavourable volume variance.What would be the budgeted fixed overhead?

Which two costs are compared in a performance report that uses activity flexible budgeting?

Which relationship represents fixed overhead budgeted at the beginning of the year?

Fixed overhead was budgeted at $85,000,and 10,000 direct labour hours were budgeted.Suppose the fixed overhead volume variance was $5,000 unfavourable and the fixed overhead spending variance was $1,200 favourable.What would be the fixed overhead applied?

Suppose a company had actual fixed manufacturing overhead of $60,000,a $1,500 unfavourable spending variance,and a $1,000 unfavourable volume variance.What would be the budgeted fixed manufacturing overhead?

Fixed manufacturing overhead was budgeted at $250,000,and 25,000 direct labour hours were budgeted.Suppose the fixed overhead volume variance was $10,000 favourable and the fixed overhead spending variance was $6,000 unfavourable.What would be the fixed manufacturing overhead applied?

Which of the following tasks is NOT required when building an activity-based budget?

When budgeting at the activity level,with respect to which of the following is the cost behaviour of each activity defined?

In an activity flexible budget,what does the fixed cost component typically correspond to?

Which of the following is a disadvantage of an activity-budgetary system?

Which of the following is the total fixed overhead variance?

In an activity flexible budget,what does the variable cost component typically correspond to?

Why does activity flexible budgeting provide a more accurate prediction of costs than a traditional flexible budgeting approach?

Where are the major differences found between activity-based budgeting and traditional budgeting?