EXAM 3 - ACC 311

The variable overhead efficiency variance measures the difference between the ____, multiplied by the budgeted variable overhead cost per unit of the cost-allocation base.

Actual quantity of the cost-allocation base used and the budgeted quantity of the cost-allocation base that should have been used to produce the actual output

Which of the following best defines standard costing?

It is a system that traces direct costs to output produced by multiplying the standard prices or rates by the standard quantities of inputs allowed for the actual output produced.

A disadvantage of a static budget is:

It is based on only one level of activity

In comparing the absorption and variable cost methods, each of the following statements is true except: a. SG&A fixed expenses are not included in inventory in either method. b. Only the absorption method may be used for external financial reporting. c. Variable costing charges fixed overhead costs to the period they are incurred. d. When inventory increases over the period, variable net income will exceed absorption net income.

When inventory increases over the period, variable net income will exceed absorption net income.

Which of the following is the correct mathematical expression to calculate the fixed overhead spending variance?

actual costs incurred - flexible-budget amount

Which of the following information is needed to prepare a flexible budget? actual variable cost actual selling price per unit actual fixed cost actual units sold

actual units sold

Most of the decision determining the level of fixed overhead costs to be incurred will be made:

at the start of a budget period

Static budget

based on the level of output planned at the start of the budget period

Operating Budget

begins with the Revenues budget, includes multiple schedules and concludes with the Budgeted Income Statement.

Flexible budget

budget developed using budgeted revenues and budgeted costs based on the actual output in the budget period

The flexible budget contains:

budgeted amounts for actual output

Compared to variable overhead costs planning, fixed overhead costs planning has an additional strategic issue beyond undertaking only essential activities and efficient operations. That additional requirement is best described as:

choosing the appropriate level of capacity that will benefit the company in the long run

An unfavorable sales-volume variance could result from:

competitors taking market share

Using master-budget capacity to allocate budgeted fixed manufacturing costs can result in a:

downward demand spiral

For fixed manufacturing overhead, there is no

efficiency variance

Which of the following costs is inventoried when using variable costing?

electricity consumed in manufacturing process

When reviewing the income statements of a firm prepared under both absorption costing and variable costing, which of the following observations would be made?

ending finished goods will differ between the two methods due to the different handling of fixed production costs

In a flexible budget:

fixed costs are kept at the same level of static budget

Which of the following steps can management take to reduce the undesirable effects of absorption costing?

it can encourage using non financial measures such as units in ending inventory compared to units in sales

Which of the following is true of absorption costing?

it includes fixed manufacturing overhead as an inventorial cost

Which of the following best describes practical capacity?

it is the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions, such as scheduled maintenance time and shutdowns for holidays

Fixed overhead costs include:

leasing of machinery used in a factory

Financial Budget

made up of the Capital Expenditure budget, the Cash budget, the Budgeted Balance Sheet, and the Budgeted Statement of Cash Flows.

Absorption Costing

method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs

Super Variable Costing/Throughput Costing

method of inventory costing in which only variable direct material costs are included as inventorial costs

Variable Costing

method of inventory costing that includes all direct manufacturing costs and variable indirect manufacturing costs as inventory (fixed indirect manufacturing costs are excluded).

Downward Demand Spiral

pricing context where prices are raised to spread capacity costs over a smaller number of output units. Continuing reduction in the demand for products that occurs when the prices of competitors' products are not met and, as demand drops further, higher and higher unit costs result in more and more reluctance to meet competitors' prices

If a sales-volume variance was caused by poor-quality products, then the ________ would be in the best position to explain the variance.

production manager

Budget

quantitative expression of a proposed plan of action by management for a specified period

Which of the following costs will be treated as period costs under absorption costing?

sales commission paid on sale of product

Strategy

specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives

One possible means of determining the difference between operating incomes for absorption costing and variable costing is by:

subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory

A $5,000 unfavorable flexible-budget variance indicates that:

the actual variable manufacturing overhead exceeded the flexible-budget amount by $5,000

The variable overhead spending variance measures the difference between _____, multiplied by the actual quantity of variable overhead cost-allocation base used.

the actual variable overhead cost per unit and the budgeted variable overhead cost per unit

Sales-Volume Variance

the difference between a flexible-budget amount and the corresponding static-budget amount

A variance is:

the difference between an actual result and a budgeted performance

Master-Budget Capacity Utilization

the expected level of capacity utilization for the current budget period (typically 1 year)

Theoretical Capacity

the level of capacity based on producing at full efficiency all the time

Practical Capacity

the level of capacity that reduces theoretical capacity by unavoidable operating interruptions such as scheduled maintenance time, shutdowns for holidays, and so on

Normal Capacity Utilization

the level of capacity utilization that satisfies average customer demand over a period (2 to 3 years) that includes seasonal, cyclical, and trend factors

Top management at Gifford manufacturing are planning capacity levels and how to assign capacity costs for an upcoming period. Which of the following factors should be considered while developing this plan so that proper control can be achieved?

the level of uncertainty of expected costs and demand

Which of the following statements is true of variable overhead costs?

the level of variable overhead costs incurred in a period is mainly determined by day-to-day operating decisions

An unfavorable fixed overhead spending variance indicates that

the price of fixed overhead items cost more than budgeted

Which of the following approaches spreads under allocated or overallocated overhead among ending balances in work in process control, finished goods control, and cost of goods sold?

the proration approach

The budgeted fixed manufacturing cost rate is the lowest for

theoretical capacity

Throughput is a variable of which of the following systems?

variable costing

The contribution margin format is used for

variable costing income statement

In general, if inventory increases during an accounting period:

variable costing will report less operating income than absorption costing