Cost Exam 3 (7-9, 15)
7) Standard material cost per kg of raw material is $5. Standard material allowed per unit is 2 Kg. Actual material used per unit is 2.5 Kg. Actual cost per kg is $4.5. What is the standard cost per output unit?
$10
Dynondo Incorporated planned to use materials of $12 per unit but actually used materials of $13 per unit, and planned to make 1,500 units but actually made 1,800 units. 15) The flexible-budget variance for materials is ________.
$1,800 unfavorable Explanation: B) ($13 − $12) × 1,800 = $1,800 U
8) The above table is a ________.
4-variance analysis
23) The flexible-budget variance for variable costs is ________.
A) $19,200 unfavorable
9) ________ is the continuing reduction in the demand for a company's products that occurs when competitor prices are not met.
A) Downward demand spiral
8) Which of the following is a disadvantage of a dual-rate method?
A) It allocates fixed costs on the basis of budgeted long-run usage may tempt some managers to underestimate their planned usage.
4) Which of the following statements is true of gross-margin format of the income statement?
A) It distinguishes between manufacturing and nonmanufacturing costs.
5) Which of the following is true of master-budget capacity utilization?
A) It hides the amount of unused capacity.
28) Which of the following is an operating department?
A) machining
11) Using ________ as the denominator level also gives the manager a more accurate idea of the resources needed and used to produce a unit by excluding the cost of unused capacity.
A) practical capacity
16) The Internal Revenue Service requires the use of ________ for calculating fixed manufacturing costs per unit.
A) practical capacity
1) The variable overhead spending variance measures the difference between ________, multiplied by the actual quantity of variable overhead cost-allocation base used.
A) the actual variable overhead cost per unit and the budgeted variable overhead cost per unit
5) If 1,000 units are produced and only 700 units are sold, ________ results in the greatest amount of expense reported on the income statement.
A) throughput costing
52) Comfort Company manufactures pillows. The 2015 operating budget is based on production of 25,000 pillows with 0.75 machine-hour allowed per pillow. Budgeted variable overhead per hour was $25. Actual production for 2015 was 27,000 pillows using 19,050 machine-hours. Actual variable costs were $23 per machine-hour.
Answer: Budgeted variable overhead = $25 × (25,000 × 0.75) machine-hours = $468,750 Spending variance = ($25 − $23) × 19,050 = $38,100 favorable
4) Which of the following is the mathematical expression for the budgeted fixed overhead cost per unit of cost allocation base?
B) Budgeted fixed overhead cost per unit of cost allocation base = Budgeted total costs in fixed overhead cost pool ÷ Budgeted total quantity of cost allocation base
4) Which of the following is the correct mathematical expression to calculate the fixed overhead spending variance?
B) Flexible-budget amount — Actual costs incurred
2) Which of the following is an example of a revenue object?
B) products
3) Ways to "produce for inventory" that result in increasing operating income include ________.
C) deferring maintenance to accelerate production
8) The reciprocal allocation method ________.
C) highlights the complete reciprocated costs of support departments and how these costs differ from budgeted or actual costs of the departments
5) To discourage producing for inventory, management can ________.
C) incorporate a carrying charge for inventory in the internal accounting system
8) The marketing manager's performance evaluation is most fair when based on a denominator level using ________.
C) master-budget capacity utilization
6) Which of the following measures capacity levels in terms of demand for the output of the plant?
C) normal capacity utilization and master-budget capacity utilization
8) Under variable costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in ________.
C) not affecting the manager's bonus
1) Which of the following is included in an explicit written contract for cost allocation?
C) permissible cost-allocation bases
6) Which of the following capacity levels should a company choose, from a long-run product costing perspective, to allocate budgeted fixed manufacturing costs to products?
C) practical capacity for pricing decisions
4) The costs of unused capacity are highlighted when ________.
C) practical capacity-based allocations are used
4) The method that allocates costs by explicitly including all the services rendered among all support departments is the ________.
C) reciprocal method
6) Effective planning of variable overhead costs includes ________.
C) redesigning products to use fewer resources
*4) Throughput contribution equals ________.
C) revenues minus all direct material cost of goods sold
12) Which of the following inventory costing methods results in the least amount of costs being inventoried?
C) throughput costing
2) Which of the following costs is inventoried when using absorption costing?
C) variable manufacturing costs
10) Managers of supplier departments ________.
C) view the budgeted rates negatively if unfavorable cost variances occur due to price increases outside of their control
6) An unfavorable sales-volume variance could result from ________.
competitors taking market share
18) The flexible-budget variance for materials is ________.
D) $1,300 favorable
1) Which of the following mathematical expression is used to calculate budgeted variable overhead cost rate per output unit?
D) Budgeted input allowed per output unit × Budgeted variable overhead cost rate per input unit
2) Which of the following departments is a support department for a boat manufacturing company?
D) accounting
The primary reason for low operating profits was ________.
D) lower sales volume than planned
1) Which of the following can be a reason for a favorable price variance for direct materials?
a decrease in the price of materials due to an oversupply of materials
27) Favorable direct manufacturing labor efficiency variances are ________.
always credits
26) Unfavorable direct material price variances are ________.
always debits
11) Nonfinancial performance measures ________.
are usually used in combination with financial measures for control purposes
Management by exception is a practice whereby managers focus more closely on ________.
areas that are not operating as anticipated
6) The difference between budgeted fixed manufacturing overhead and the fixed manufacturing overhead allocated to actual output units achieved is called the fixed overhead ________.
flexible-budget variance
1) The fixed overhead cost variance can be further subdivided into the ________.
flexible-budget variance and the production-volume variance
2) A favorable efficiency variance for direct manufacturing labor indicates that ________.
less direct manufacturing labor-hours were used during production than planned for actual output
6) Standard cost per output unit for each variable direct cost input is calculated by multiplying ________.
standard input allowed for one output unit by standard price per input unit
An unfavorable variance indicates that ______.
the actual units sold are less than the budgeted units
2) Which of the following is a reason for a favorable material price variance?
the purchasing manager bargaining effectively with suppliers
8) Variance analysis should be used ________.
to understand why variances arise and to improve future performance
53) Skytalk Company manufactures weathervanes. The 2015 operating budget is based on the production of 5,300 weathervanes with 1.25 machine-hour allowed per weathervane. Variable manufacturing overhead is anticipated to be $145,750. Actual production for 2015 was 5,250 weathervanes using 6,050 machine-hours. Actual variable costs were $21.75 per machine-hour.
Answer: Budgeted variable overhead per hour = $145,750 ÷ (5,300 × 1.25) machine-hours = $22 Spending variance = ($21.75 − $22) × 6,050 = $1,512.50 favorable Efficiency variance = [6,050 − (5,300 × 1.25)] × $22 = $12,650 favorable
8) Standard labor rate is $8 per hour. Standard labor allowed per unit is 0.6 hours. Actual cost per labor hour is $7.5 and actual labour hour per unit is 0.7 hours. What is the standard labor cost per output unit?
$4.8
9) A flexible-budget variance is $600 favorable for unit-related costs. This indicates that costs were ________.
$600 less than standard for the achieved level of activity
19) The sales-volume variance for materials is ________.
$7,000 unfavorable Explanation: B) (1,300 − 1,500) × $35 = $7,000 U
1) ________ occurs when revenues are related to a particular revenue object but cannot be traced to it in an economically feasible (cost-effective) way.
B) Revenue allocation
5) ________ is the level of capacity based on producing at full efficiency all the time.
B) Theoretical capacity
43) When variances are immaterial, which of the following statements is true of the journal entry to write-off the variable overhead variance accounts?
B) Unfavorable efficiency variance will be credited.
11) ________ is a method of inventory costing in which only variable manufacturing costs are included as inventoriable costs.
B) Variable costing
1) Which of the following statements is true of variable overhead costs?
B) Variable overhead costs have no production-volume variance.
13) Teddy Company uses a standard cost system. In May, $234,000 of variable manufacturing overhead costs were incurred and the flexible-budget amount for the month was $240,000. Which of the following variable manufacturing overhead entries would have been recorded for May?
B) Work-in-Process Control 240,000 Variable Manufacturing Overhead Allocated 240,000
7) In ________, fixed manufacturing costs are included as inventoriable costs.
B) absorption costing
4) Which of the following is true of variance?
A variance within an acceptable range is considered to be an "in-control occurrence" and calls for no investigation or action by managers.
10) Craylon Corp sells two products X and Y. X sells for $200 and Y sells for $150. Both X and Y sell for $300 as a bundle. What is the revenue allocated to product Y, if product X is termed as the primary product in the bundle?
A) $100 Explanation: A) Revenue allocated to Y = $300 - $200 = $100
11) The flexible-budget variance for materials is ________.
A) $2,700 favorable Explanation: A) ($147 − $150) × 900 = $2,700 F
16) The sales-volume variance for materials is ________.
A) $3,600 favorable Explanation: A) (1,800 − 1,500) × $12 = $3,600 F
Aurous Incorporated planned to use $35 of material per unit but actually used $34 of material per unit, and planned to make 1,500 units but actually made 1,300 units.17) The flexible-budget amount for materials is ________.
A) $45,500 Explanation: A) 1,300 units × $35 = $45,500
19) Which of the following statements is true of absorption costing?
A) Absorption costing allocates fixed manufacturing overhead to actual units produced during the period.
4) Which of the following is true of capacity costs?
A) Capacity costs are difficult to estimate.
5) ________ is subtracted from sales while calculating contribution margin.
A) Direct labor in factory
5) Which of the following is an advantage of the single-rate method?
A) It is less costly to implement.
7) Which of the following best describes practical capacity?
A) It is the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions, such as scheduled maintenance time and shutdowns for holidays.
3) Budgeted fixed manufacturing costs of a product using practical capacity ________.
A) represents the cost per unit of supplying capacity
6) The best method to determining weights for the stand-alone revenue-allocation method is ________.
A) selling prices revenue-allocation method because the weights explicitly consider the prices customers are willing to pay for the individual products
6) If 800 units are produced and 1,200 units are sold, the costing method which will result in the greatest operating income is ________.
A) throughput costing
5) The stand-alone revenue-allocation method ________.
A) uses product-specific information on the products in the bundle as weights for allocating the bundled revenues to the individual products
1) The contribution-margin format is used for ________.
A) variable costing income statement
*34) In general, if inventory increases during an accounting period, ________.
A) variable costing will report less operating income than absorption costing
16) The variable overhead efficiency variance measures the difference between the ________, multiplied by the budgeted variable overhead cost per unit of the cost-allocation base.
B) 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
2) Effective planning of variable overhead costs means that a company performs those variable overhead costs that primarily ________.
B) add value for the customer using the products or services
5) To discourage unnecessary use of a support department, management might ________.
B) allocate support department costs based upon user department usage
2) The use of theoretical capacity results in an unrealistically low fixed manufacturing cost per unit because it is based on ________.
B) an unattainable level of capacity
10) Under absorption costing, fixed manufacturing costs ________.
B) are inventoriable costs
14) The flexible budget enables to highlight the differences ________.
B) between budgeted costs and budgeted quantities versus actual costs and budgeted quantities for the budgeted output level
4) When using the dual-rate method, the fixed cost allocation is based on ________.
B) budgeted usage
4) Switching production to products that absorb the highest amount of fixed manufacturing costs is also called ________.
B) cherry picking
6) The step-down method ________.
B) does not recognize the total services that support departments provide to each other
5) For fixed manufacturing overhead, there is no ________.
B) efficiency variance
1) Which of the following costs is inventoried when using variable costing?
B) electricity consumed in manufacturing process
16) The difference between operating incomes under variable costing and absorption costing centers on how to account for ________.
B) fixed manufacturing costs
9) Complete reciprocated costs ________.
B) include the support department's costs plus any interdepartmental cost allocations
12) The effect of spreading fixed manufacturing costs over a shrinking master-budget capacity utilization amount results in ________.
B) increased unit costs
7) The method that ranks individual products in a bundle for revenue allocation is the ________.
B) incremental revenue-allocation method
9) The advantage of using practical capacity to allocate costs ________.
B) is that it focuses management's attention on managing unused capacity
13) The higher the denominator level, the ________.
B) lower the amount of fixed manufacturing costs allocated to each unit produced
15) If the unit level of inventory increases during an accounting period, then ________.
B) more operating income will be reported under absorption costing than variable costing
7) Customers expect to pay a price that includes ________.
B) only the cost of actual capacity used
14) An favorable production-volume variance occurs when ________.
B) production exceeds the denominator level
4) Fixed overhead costs include ________.
B) property taxes paid on plant facilities
9) Which of the following costs will be treated as period costs under absorption costing?
B) sales commission paid on sale of product
41) When machine-hours are used as a cost-allocation base, the item most likely to contribute to a favorable variable overhead efficiency variance is ________.
B) skillful workforce
3) Under the dual-rate cost-allocation method, when fixed costs are allocated based on actual usage then ________.
D) variations in one division's usage affect another division's allocation
12) The total overhead variance should be ________.
Explanation: B) Total overhead variance = $7,500 F + $28,000 U + $30,000 U + $80,000 U = $130,500 U
11) The total production-volume variance should be ________.
Explanation: B) Total production-volume variance = $80,000 U + 0 = $80,000
10) In a combined 3-variance analysis, the total spending variance would be ________.
Explanation: C) Spending variance = $7,500 F + $28,000 U = $20,500 U
3) Which of the following is an advantage of using actual input data from past periods to develop a budget?
Information is available at a low cost.
8) Which of the following is true of flexible budget?
It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.
7) Which of the following statements is true about analyzing a single variance?
It can lead to different other variances.
13) A company has a policy "investigate all variances exceeding $3,000 or 15% of the budgeted cost, whichever is lower." There is a variance of $2,000 in repair and maintenance costs of $12,000. What does the company do in the given situation?
It deserves more attention as it is more than 15% of total repair cost.
3) Which of the following statements is true of benchmarking?
It is difficult to ensure that the benchmark numbers are comparable due to the existence of differences across companies.
3) Which of the following is a component of sales-volume variance?
Operating-income volume variance
4) Explain how service-sector companies can benefit from variance analysis.
Service-sector companies such as airlines, hospitals, hotels, and railroads can benefit from variance analyses. The output measures these companies commonly use are passenger-miles flown, patient days provided, room-days occupied, etc. Few costs can be traced to these outputs in a cost-effective way. Most of the costs are fixed overhead costs, such as the costs of equipment, buildings, and staff. Using capacity effectively is the key to profitability, and fixed overhead variances can help managers in this task.
14) What is a standard costing system?
Standard costing is a costing system that (1) traces direct costs to output produced by multiplying the standard prices or rates by the standard quantities of inputs allowed for actual outputs produced and (2) allocates overhead costs on the basis of the standard overhead-cost rates times the standard quantities of the allocation bases allowed for the actual outputs produced.
13) List the four steps to develop budgeted variable overhead cost-allocation.
Step 1: Choose the period to be used for the budget.Step 2: Select the cost-allocation bases to use in allocating the variable overhead costs to the output produced.Step 3: Identify the variable overhead costs associated with each cost-allocation base.Step 4: Compute the rate per unit of each cost-allocation base used to allocate the variable overhead costs to the output produced.
4) Which of the following is a disadvantage of using the standards developed by a firm itself to develop a budget?
They are not based on realized benchmarks.
17) One possible means of determining the difference between operating incomes for absorption costing and variable costing is by ________.
B) subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory
1) Throughput costing is also called ________.
B) super-variable costing
2) A $5,000 unfavorable flexible-budget variance indicates that ________.
B) the actual variable manufacturing overhead exceeded the flexible-budget amount by $5,000
1) When budgeted cost-allocations rates are used ________.
B) the manager of the supplier division bears the risk of unfavorable cost variances
3) An unfavorable fixed overhead spending variance indicates that ________.
B) the price of fixed overhead items cost more than budgeted
15) Which of the following approaches spreads underallocated or overallocated overhead among ending balances in Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold?
B) the proration approach
35) The variable overhead efficiency variance is computed ________ and interpreted ________ the direct-cost efficiency variance.
B) the same as; differently than
2) Contract disputes regarding cost allocation can be reduced by defining ________.
B) the terms used, such as what constitutes direct labor
*8) The budgeted fixed manufacturing cost rate is the lowest for ________.
B) theoretical capacity
2) While calculating the costs of products and services, a standard costing system ________.
B) uses standard costs to determine the cost of products
8) Approaches used to rank products for revenue allocation can include ________.
B) using recent data on stand-alone sales performance
2) The dual-rate cost-allocation method classifies costs in each cost pool into a ________.
B) variable-cost pool and a fixed-cost pool
2) Under the stand-alone method of allocating common costs ________.
C) each party bears a proportionate share of the total costs in relation to their individual stand-alone costs
5) In flexible budgets, costs that remain the same regardless of the output levels within the relevant range are ________.
C) fixed costs
13) The only difference between variable and absorption costing is the expensing of ________.
C) fixed manufacturing costs
*7) Advocates of throughput costing maintain that ________.
C) fixed manufacturing costs are related to the capacity to produce rather than to the actual production of specific units
4) When fixed overhead spending variance is unfavorable, it can be safely assumed that ________.
C) flexible budget amount is lower than actual costs incurred
2) Fixed overhead costs ________.
C) have no efficiency variance
3) Cost-based prices ________.
C) pass the majority of risk to the buyer
12) Variable costing regards fixed manufacturing overhead as a(n) ________.
C) period cost
3) Which of the following is a step in developing budgeted variable overhead rates?
C) selecting the cost-allocation base to use in allocating machine-handling costs
1) The method that allocates costs in each cost pool using the same rate per unit is known as the ________.
C) single-rate cost allocation method
12) The variable overhead flexible-budget variance can be further subdivided into the ________.
C) spending variance and the efficiency variance
29) Which of the following is one of the methods of allocating support department costs to operating departments?
C) step-down method
1) Special cost-allocation problems arise when ________.
C) support departments provide reciprocal services to each other and operating departments
37) An unfavorable variable overhead efficiency variance indicates that ________.
C) the variable overhead cost-allocation base was not used efficiently
14) Operating income reported on the end-of-period financial statements is changed when ________ is used to handle the production-volume variance at the end of the accounting period.
C) the write-off variances to cost of goods sold approach
2) Many companies have switched from absorption costing to variable costing for internal reporting ________.
C) to reduce the undesirable incentive to build up inventories
1) When machine-hours are used as an overhead cost-allocation base and annual leasing costs for equipment unexpectedly increase, the most likely result would be to report a(n) ________.
C) unfavorable fixed overhead flexible-budget variance
2) When actual cost-allocations rates are used ________.
C) user divisions are unaware of the allocated amounts until the end of the budget period
1) A cost of operating a facility, department, activity area, or like cost object that is shared by two or more users is called a ________.
D) common cost
5) Product-sustaining costs in activity-based costing are similar to ________.
D) fixed costs
6) There is no output-level variance for variable costing, when ________.
D) fixed manufacturing overhead is not allocated to work in process
10) The biggest advantage of using practical capacity to allocate costs is that it ________.
D) focuses management's attention on unused capacity
5) In certain high-cost defense contracts involving new weapons and equipment, contracts are rarely subject to competitive bidding because ________.
D) no contractor is willing to assume all the risk of receiving a fixed price for the contract
1) It is most difficult to estimate ________ because of the need to predict demand for the next few years.
D) normal capacity utilization
*2) Advocates of throughput costing argue that ________.
D) only direct material costs are included as inventoriable costs
9) To give more weight to the product that most likely drives the sales of the bundled product, the revenue allocation should be weighted using ________.
D) stand-alone product revenues
5) Under which allocation method are one-way reciprocal support services recognized?
D) step-down method
3) Under the incremental method of allocating common costs ________.
D) the primary user bears the maximum of the total cost
1) The process by which a company's products or services are measured relative to the best possible levels of performance is known as ________.
benchmarking
2) The production-volume variance may also be referred to as the ________.
denominator-level variance
A master budget is ________.
developed for a period for a planned output
14) Which of the following is an example of financial performance measure?
direct manufacturing labor efficiency variance
5) The degree to which a predetermined objective or target is met is known as ________.
effectiveness
23) The best label for the formula (AQ - BQ) BP is the ________.
efficiency variance
1) Standard costing can provide managers with reliable and timely information on variable distribution overhead ________.
efficiency variances and spending variances
6) In a flexible budget ________.
fixed costs are kept at the same level of static budget
4) Under standard costing, ________.
fixed overhead costs are treated as if they are a variable cost
5) An unfavorable production-volume variance ________.
measures the amount of extra fixed costs planned for but not used
12) Which of the following is an example of nonfinancial performance measure?
percentage of products started and completed without requiring any rework
24) The best label for the formula (AP - BP) AQ is the ________.
price variance
1) The flexible-budget variance for direct cost inputs can be further subdivided into a ________.
price variance and an efficiency variance
10) Cost reductions can be the result of ________.
producing products faster and more efficiently
7) 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
4) When benchmarking, management accountants are most valuable when they ________.
provide insight into why costs or revenues differ across companies
5) The sales-volume variance is sometimes due to ________.
quality problems leading to customer dissatisfaction
3) An unfavorable price variance for direct materials might indicate ________.
that the purchasing manager purchased in smaller quantities due to a change to just-in-time inventory methods
32) The most likely explanation of the above direct manufacturing labor variances is that ________.
the company may have assigned more experienced employees this month than originally planned
15) Effectiveness is ________.
the degree to which a predetermined objective or target is met
A variance is ________.
the difference between an actual result and a budgeted performance
3) Efficiency is ________.
the relative amount of inputs used to achieve a given output level
28) The best label for the formula [(AP)(AQ) - (BP)(BQ)] is the ________.
total flexible-budget variance
5) A favorable price variance for direct manufacturing labor might indicate that ________.
underskilled employees are being hired
6) If manufacturing machines are breaking down more than expected, this will contribute to a(n) ________.
unfavorable direct manufacturing labor efficiency variance
An unfavorable flexible-budget variance for variable costs may be the result of ________.
using more input quantities than were budgeted
9) Variances should be investigated ________.
when there is a small variance for critical items such as product defects
4) A favorable efficiency variance for direct materials might indicate that ________.
work is scheduled efficiently
6) An unfavorable efficiency variance for direct manufacturing labor might indicate that ________.
work is scheduled inefficiently
2) ________ reduces theoretical capacity for unavoidable operating interruptions.
A) Practical capacity
9) ________ provides the lowest estimate of denominator-level capacity in case demand of the product is not a limiting factor.
A) Practical capacity
3) ________ is a method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs and all fixed manufacturing costs are excluded.
A) Variable costing
6) ________ are subtracted from sales to calculate gross margin.
A) Variable manufacturing costs
12) Which of the following inventory costing methods shown below is most likely to cause undesirable incentives for managers to build up finished goods inventory?
A) absorption costing
13) Which of the following inventory costing methods shown below is most likely to cause undesirable incentives for managers to build up finished goods inventory?
A) absorption costing
18) Which of the following inventory costing methods shown below is required by GAAP (Generally Accepted Accounting Principles) for external financial reporting?
A) absorption costing
3) When variable overhead spending variance is unfavorable, it can be safely assumed that ________.
A) actual rate per unit of cost-allocation base is higher than budgeted rate
Which of the following elements are used in calculating revenue in a flexible budget?
A) budgeted selling price and actual quantity of output
36) Given a constant contribution margin per unit and constant fixed costs, the period-to-period change in operating income under variable costing is driven solely by ________.
A) changes in the quantity of units actually sold
4) An example of an allowable cost considered by U.S government contract is ________.
A) costs of economy-class airfares
30) The cost-allocation method that allocates each support-department's costs to operating departments only is the ________.
A) direct method
7) The direct allocation method ________.
A) does not allocate support department costs to other support departments
4) Businesses offer bundled products to ________.
A) increase customer exposure
*7) Under absorption costing, if a manager's bonus is tied to operating income, then increasing inventory levels compared to last year would result in ________.
A) increasing the manager's bonus
3) The single-rate cost-allocation method may base the denominator choice on ________.
A) master-budget capacity utilization
2) Which of the following capacity levels do proponents of activity-based costing recommend to be used as the denominator level to calculate activity cost rates?
A) practical capacity
1) Practical capacity is the denominator-level concept that ________.
A) reduces theoretical capacity for unavoidable operating interruptions
1) Compared to variable overhead costs planning, fixed overhead costs planning have an additional strategic issue of ________.
C) choosing the appropriate level of investment
Domose Inc. planned to use $150 of material per unit but actually used $147 of material per unit, and planned to make 1,100 units but actually made 900 units. 10) The flexible-budget amount for materials is ________.
B) $135,000 Explanation: B) 900 units × $150 = $135,000
________ for the fixed costs.
B) $270,000
39) Which of the following is the correct mathematical expression is used to calculate variable overhead efficiency variance?
B) (Actual quantity × Budgeted rate) - (Budgeted input quantity allowed for actual output × Budgeted rate)
8) ________ method includes fixed manufacturing overhead costs as inventoriable costs.
B) Absorption costing
35) At the end of the accounting period, Armstrong Corporation reports operating income of $30,000. Which of the following statements is true, if Armstrong's inventory levels decrease during the accounting period?
B) Absorption costing will report less operating income than variable costing.
4) Which of the following is true of normal capacity utilization?
B) It can result in setting selling prices that are not competitive.
3) Which of the following statements is true of contribution-margin format of the income statement?
B) It highlights the lump sum of fixed manufacturing costs.
3) Which of the following is true of unused capacity?
B) It is intended for future use.
6) Which of the following is a disadvantage of single-rate method?.
B) It may lead operating department managers to make sub-optimal decisions that are in their own best interest.
10) Which of the following is a reason for companies adopting variable costing for internal reporting purposes?
B) It reduces the incentives for undesirable buildup of inventories.
6) Which of the following is true of variable costing?
B) It treats direct manufacturing costs as a product cost.
4) ________ is the level of capacity utilization that managers expect for the current budget period, which is typically one year.
B) Master-budget capacity utilization
9) Critics of absorption costing suggest evaluating management on its ability to ________.
C) decrease fixed costs
13) Dynozz Corporation currently produces cardboard boxes in an automated process. Expected production per month is 15,000 units, direct material costs are $0.50 per unit, and manufacturing overhead costs are $15,000 per month. Manufacturing overhead is all fixed costs. What are the flexible budget for 10,000 and 15,000 units, respectively?
C) $20,000; $22,500
Dynondo Incorporated planned to use materials of $12 per unit but actually used materials of $13 per unit, and planned to make 1,500 units but actually made 1,800 units. 14) The flexible-budget amount for materials is ________.
C) $21,600 Explanation: C) 1,800 units × $12 = $21,600
12) The sales-volume variance for materials is ________.
C) $30,000 unfavorable Explanation: C) (900 − 1,100) × $150 = $30,000 U
20) Lunicious Corporation currently produces baseball caps in an automated process. Expected production per month is 15,000 units, direct material costs are $3.50 per unit, and manufacturing overhead costs are $40,000 per month. Manufacturing overhead is entirely fixed costs. What is the flexible budget for 12,000 and 15,000 units, respectively?
C) $82,000; $92,500
4) ________ is a method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs.
C) Absorption costing
5) Which of the following is true of absorption costing?
C) It includes fixed manufacturing overhead as an inventoriable cost.
1) Which of the following is true of theoretical capacity?
C) It results in the lowest cost estimate of the four capacity options when used for product costing.
5) Which of the following statements is true of fixed overhead cost variances?
C) The difference between flexible budget costs and allocated overhead costs will give the production volume variance.
3) Tours Corp offers towing services, auto routing, travel brochures, and other travel services for one annual fee. This is an example of ________.
C) a bundled product
15) When machine-hours are used as an overhead cost-allocation base, the most likely cause of a favorable variable overhead spending variance is ________.
C) a decline in the cost of energy
3) Assume a manufacturing company that has started production in the current year. Which of the following would result in the highest profit being reported if the company has 1,000 units of ending inventory?
C) absorption costing
2) The gross-margin format is used for ________.
C) absorption costing income statement
3) The direct allocation method ________.
C) allocates each support-department's costs to operating departments only
2) The amount reported for fixed overhead on the static budget is also reported ________.
C) as flexible budget costs
10) Using master-budget capacity to set selling prices ________.
C) can result in a downward demand spiral
8) The major challenge when planning fixed overhead is ________.
C) choosing the appropriate level of capacity
25) The flexible-budget variance for materials is $5,000 (U). The sales-volume variance is $13,000 (U). The price variance for material is $31000 (F). The efficiency variance for direct manufacturing labor is $7,000 (F). Calculate the efficiency variance for materials.
D) $36,000 unfavorable Explanation: D) $5,000(U) = $31,000(F) + Price variance Price variance = $5,000 + $31,000 = $36,000 (U)
7) Which of the following is an advantage of a dual-rate method?
D) It allocates fixed cost as per the budgeted usage that helps in short and long-run planning.
6) Which of the following steps can a management take to reduce the undesirable effects of absorption costing?
D) It can encourage using nonfinancial measures such as units in ending inventory compared to units in sales.
1) Which of the following is a reason for companies to use absorption costing for internal accounting?
D) It can help prevent managers from taking actions that make their performance measure look good but that hurt the income they report to shareholders.
11) Which of the following is true of absorption costing?
D) It enables a manager to increase margins and operating income by producing more ending inventory.
3) ________ is based on the level of capacity utilization that satisfies average customer demand over periods generally longer than one year.
D) Normal capacity utilization
3) Which of the following statements is true of variable overhead costs?
D) The level of variable overhead costs incurred in a period is mainly determined by day-to-day operating decisions.
40) Marshall Company uses a standard cost system. In April, $266,000 of variable manufacturing overhead costs were incurred and the flexible-budget amount for the month was $300,000. Which of the following variable manufacturing overhead entries would have been recorded for March?
D) Variable Manufacturing Overhead Control 266,000 Accounts Payable Control and other accounts 266,000
42) Which of the following journal entries is used to record actual variable overhead costs incurred?
D) Variable Overhead Control
9) In the above table, the amounts for (A) and (B), respectively, are ________.
D) Zero; Zero
18) When comparing the operating incomes between absorption costing and variable costing, and ending finished inventory exceeds beginning finished inventory, it may be assumed that ________.
D) absorption costing operating income exceeds variable costing operating income
17) When variable overhead efficiency variance is favorable, it can be safely assumed that the ________.
D) actual quantity of the cost-allocation base used is lower than the budgeted quantity
7) Most of the decisions determining the level of fixed overhead costs to be incurred will be made ________.
D) at the start of a budget period
5) Effective planning of fixed overhead costs includes ________.
D) choosing the appropriate level of capacity
7) Which of the following information is needed to prepare a flexible budget?
actual units sold
5) A price variance reflects the difference between ________.
an actual input price and a budgeted input price
2) An efficiency variance reflects the difference between ________.
an actual input quantity and a budgeted input quantity
