Exam (elaborations) TEST BANK FOR Introduction to Managerial Accounting 7th Edition Brewer Garrison
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Appendix 8A
Predetermined Overhead Rates and Overhead Analysis in a Standard Costing
System
True / False Questions
1. 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 NOT necessarily occur in a month in which production volume differs from sales volume.
True False
2. The fixed manufacturing overhead volume variance is more meaningful than the budget variance for cost
control purposes.
True False
3. In a standard costing system, if the actual fixed manufacturing overhead cost exceeds the budgeted fixed
manufacturing overhead cost for the period, then fixed manufacturing overhead cost would be overapplied
for the period.
True False
4. If all four of Argo Corporation's overhead variances are favorable, Argo's overhead will be underapplied.
True False
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 company's choice of the denominator level of
activity affects the fixed manufacturing overhead budget variance.
True False
6. The higher the denominator activity level used to compute the predetermined overhead rate, the lower the
predetermined overhead rate.
True False
App8A-1
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7. An unfavorable volume variance means that a firm operated at an activity level that was below the activity
level planned for the period.
True False
8. 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 NOT necessarily occur in a month in which the fixed manufacturing overhead applied to units of
product on the basis of standard hours allowed differs from the budgeted fixed manufacturing overhead.
True False
9. A fixed manufacturing overhead volume variance occurs as the result of a difference between the
denominator level of activity (in hours) and the standard hours allowed for the actual output of the period.
True False
10. 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 NOT necessarily occur in a month in which there is a fixed manufacturing overhead budget variance.
True False
11. In a standard costing system where the denominator activity for the predetermined overhead rate is laborhours,
overhead costs are applied to work in process on the basis of the standard labor-hours allowed for
the actual output.
True False
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. The company's choice of the denominator level of
activity has no effect on the variable portion of the predetermined overhead rate.
True False
13. A favorable volume variance means that the company operated at an activity level greater than that planned
for the period.
True False
14. 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 manufacturing overhead volume variance.
True False
App8A-2
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Multiple Choice Questions
15. Sulema, Inc. repairs and refinishes antique furniture. Manufacturing overhead at Sulema is applied to
production on the basis of standard direct labor-hours. Which overhead variance(s) at Sulema would be
unfavorably affected if the cost of solvents used to strip the old paint from the furniture unexpectedly
doubles in price?
A. variable overhead rate variance
B. variable overhead efficiency variance
C. fixed manufacturing overhead budget variance
D. fixed manufacturing overhead volume variance
16. When computing standard cost variances, the difference between actual and standard price multiplied by
actual quantity yields a(n):
A. combined price and quantity variance.
B. efficiency variance.
C. price or rate variance.
D. quantity variance.
17. The fixed manufacturing overhead budget variance is:
A. the difference between budgeted fixed manufacturing overhead cost and actual fixed manufacturing
overhead cost.
B. the difference between actual fixed manufacturing overhead cost and applied fixed manufacturing
overhead cost.
C. the difference between budgeted fixed manufacturing overhead cost and applied fixed manufacturing
overhead cost.
D. the difference between fixed overhead at the planned level of activity and the flexible budget for actual
activity.
18. A volume variance is computed for:
A. both variable and fixed manufacturing overhead.
B. variable manufacturing overhead only.
C. fixed manufacturing overhead only.
D. direct labor costs as well as overhead costs.
App8A-3
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19. Which of the following variances is generally the least significant from the standpoint of cost control?
A. Materials price variance.
B. Labor efficiency variance.
C. Fixed manufacturing overhead volume variance.
D. Variable overhead rate variance.
20. Traveller Corporation sells one product and uses a standard cost system. Last year the overhead volume
variance was zero. Which of the following is correct?
A. Actual variable manufacturing overhead cost was equal to standard variable manufacturing overhead
cost.
B. Total applied overhead was equal to total actual overhead.
C. The denominator activity was equal to actual activity.
D. The budgeted fixed costs were equal to the applied fixed costs.
21. The Santos Corporation made an error when selecting a denominator level of activity and chose a much
lower level than was realistic. This error would most likely result in a large:
A. favorable variable overhead efficiency variance.
B. favorable fixed manufacturing overhead budget variance.
C. favorable fixed manufacturing overhead volume variance.
D. unfavorable fixed manufacturing overhead budget variance.
22. In a standard cost system, overhead is applied to production on the basis of:
A. the denominator hours chosen for the period.
B. the actual hours required to complete the actual output of the period.
C. the standard hours allowed to complete the actual output of the period.
D. the actual cost of fixed overhead during the period.
23. Dori Castings is a job order shop that uses a standard cost system. Manufacturing overhead costs are
applied on the basis of standard direct labor-hours. A volume variance will exist for Dori in a month
where:
A. production volume differs from sales volume.
B. actual direct labor-hours differ from standard hours allowed.
C. there is a budget variance in fixed manufacturing overhead costs.
D. the fixed manufacturing overhead applied to units of product on the basis of standard hours allowed
differs from the budgeted fixed manufacturing overhead.
App8A-4
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24. Alex Corporation has a large underapplied overhead balance in the manufacturing overhead account. This
could be explained by:
A. an unfavorable volume variance, assuming all other variances are zero.
B. a favorable volume variance, assuming all other variances are zero.
C. standard hours allowed for the period's output being greater than denominator hours for the period.
D. favorable total variance for overhead.
25. Coblentz Fabrication Corporation has a standard cost system in which it applies manufacturing overhead to
products on the basis of standard machine-hours (MHs) at $6.20 per MH. The company had budgeted its
fixed manufacturing overhead cost at $40,000 for the month. During the month, the actual total variable
manufacturing overhead was $48,970 and the actual total fixed manufacturing overhead was $43,000. The
actual level of activity for the period was 8,300 MHs. What was the total of the variable overhead rate and
fixed manufacturing overhead budget variances for the month?
A. $2,490 Favorable
B. $510 Favorable
C. $510 Unfavorable
D. $2,490 Unfavorable
26. Omary 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:
Budgeted level of activity 3,900 MHs
Actual level of activity 4,100 MHs
Standard variable manufacturing
overhead rate $7.60
per
MH
Budgeted fixed manufacturing overhead
cost $50,000
Actual total variable manufacturing
overhead $31,980
Actual total fixed manufacturing
overhead $54,000
What was the total of the variable overhead rate and fixed manufacturing overhead budget variances for
the month?
A. $1,520 Unfavorable
B. $3,180 Favorable
C. $4,820 Unfavorable
D. $6,340 Unfavorable
App8A-5
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27. Dexter Corporation uses a standard cost system and applies manufacturing overhead cost to units of
product on the basis of standard direct labor-hours (DLHs). Information on Dexter Corporation's
manufacturing overhead costs for last period is given below:
Actual hours worked 40,000 DLHs
Standard hours allowed for actual production 38,000 DLHs
Denominator hours used in computing the predetermined overhead rate 35,000 DLHs
Predetermined overhead rate $4 per DLH
Actual overhead cost incurred $150,000
Given these data, the underapplied or overapplied overhead cost for the period would be:
A. $10,000 overapplied
B. $2,000 overapplied
C. $10,000 underapplied
D. $8,000 underapplied
28. Steinhagen Corporation applies manufacturing overhead to products on the basis of standard machinehours.
Budgeted and actual overhead costs for the most recent month appear below:
Original Budget Actual Costs
Variable overhead costs:
Supplies $5,460 $6,570
Indirect labor 3,640 4,410
Fixed overhead costs:
Supervision 9,100 9,450
Utilities 5,980 5,850
Factory depreciation 22,100 22,520
Total overhead cost $46,280 $48,800
The company based its original budget on 2,600 machine-hours. The company actually worked 2,790
machine-hours during the month. The standard hours allowed for the actual output of the month totaled
2,960 machine-hours. What was the overall fixed manufacturing overhead volume variance for the month?
A. $5,148 Favorable
B. $5,148 Unfavorable
C. $2,717 Favorable
D. $2,717 Unfavorable
App8A-6
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McGraw-Hill Education.
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29. Semaan Corporation applies manufacturing overhead to products on the basis of standard machine-hours.
Budgeted and actual overhead costs for the month appear below:
Original
Budget
Actual Costs
Variable overhead costs:
Supplies $11,340 $12,850
Indirect labor 15,120 17,080
Fixed overhead costs:
Supervision 14,900 14,640
Utilities 5,800 6,010
Factory depreciation 9,700 9,410
Total overhead cost $56,860 $59,990
The company based its original budget on 2,700 machine-hours. The company actually worked 2,960
machine-hours during the month. The standard hours allowed for the actual output of the month totaled
3,030 machine-hours. What was the overall fixed manufacturing overhead budget variance for the month?
A. $3,130 Unfavorable
B. $340 Unfavorable
C. $340 Favorable
D. $3,130 Favorable
30. Hairr Corporation bases its predetermined overhead rate on variable manufacturing overhead cost of $9.50
per machine-hour and fixed manufacturing overhead cost of $947,672 per period. If the denominator level [Show Less]