Flexible Budgets and Overhead Analysis

1. One cause of an unfavorable overhead volume variance would be increases in cost for fixed overhead items.
F
Medium

2. If the denominator activity (in hours) used to compute the predetermined overhead rate is equal to the actual
F activity (in hours) for the period, then there is no volume variance.
Hard

3. Since managers want stable unit cost figures, the accountant creates an artificial stability so far as fixed costs are
T concerned by applying fixed costs to products as if the fixed costs were really variable.
Medium

4. A static budget is geared toward a single level of activity.

T
Easy

5. 15. The static budget is a good tool for assessing whether variable costs are under control.
F
Medium

6. Hart Company's labor standards call for 500 direct labor hours to produce 250 units of product. During
C October the company worked 625 direct labor hours and produced 300 units. The standard hours allowed for
Easy October would be:
a. 625 hours.
b. 500 hours.
c. 600 hours.
d. 250 hours.

7. At Jacobson Company, indirect labor is a variable cost that varies with direct labor hours. Last month's
B performance report showed that actual indirect labor cost totaled $5,780 for the month and that the associated
Hard spending variance was $245 F. If 24,100 direct labor hours were actually worked last month, then the flexible
budget cost formula for indirect labor must be (per direct labor hour):
a. $0.20.
b. $0.25.
c. $0.30.
d. $0.35.

8. At Overland Company, maintenance cost is exclusively a variable cost that varies directly with machine-hours.
A The performance report for July showed that actual maintenance costs totaled $9,800 and that the associated
Hard spending variance was $200 unfavorable. If 8,000 machine-hours were actually worked during July, the
budgeted maintenance cost per machine-hour was:
a. $1.20.
b. $1.25.
c. $1.275.
d. $1.225.

9. Tyro Company has a standard cost system in which it applies manufacturing overhead to units of product on
C the basis of direct labor hours (DLHs). The following information is available:
Hard
CPA adapted Actual total overhead costs ............. $15,000
Actual fixed overhead costs ............ $ 7,200
Budgeted fixed overhead costs ........... $ 7,000
Actual hours worked ..................... 3,500 DLHs
Standard hours allowed for the output ... 3,800 DLHs
Variable overhead rate .................. $2.50 per DLH

Based on these data, what is the variable overhead spending variance?

a. $1,700 favorable.
b. $750 unfavorable.
c. $950 favorable.
d. $1,500 unfavorable.
 Flexible Budgets and Overhead Analysis

10. Web Company uses a standard cost system in which manufacturing overhead is applied to units of product on
B the basis of machine hours. During February, the company used a denominator activity of 80,000 machine
Hard hours in computing its predetermined overhead rate. However, only 75,000 standard machine hours were
allowed for the month's actual production. If the fixed overhead volume variance for February was $6,400
unfavorable, then the total budgeted fixed overhead cost for the month was:
a. $96,000.
b. $102,400.
c. $100,000.
d. $98,600.

11. The Adlake Company makes and sells a single product and uses a standard cost system. During October, the
D company budgeted $300,000 in manufacturing overhead cost at a denominator activity of 20,000 machine-
Medium hours. At standard, each unit of finished product requires 5 machine-hours. The following cost and activity
were recorded during October:

Total actual manufacturing overhead cost incurred ..... $294,000

Units of product completed ............................ 3,800
Actual machine-hours worked ........................... 19,422

The amount of overhead cost that the company applied to work in process for October was:
a. $279,300.
b. $291,330.
c. $294,000.
d. $285,000.

12. The predetermined overhead rate (variable and fixed) is $7.50 per machine hour and the denominator activity
B level is 135,000 machine hours. If the variable portion of the predetermined overhead rate is $3.00 per machine
Medium hours, then the budgeted fixed factory overhead for the year is:
a. $30,000.
b. $607,500.
c. $405,000.
d. $1,012,500.