Appendix 8A
Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System
True / False Questions
TrueFalse
2. / The fixed manufacturing overhead volume variance is more meaningful than the budget variance for cost control purposes.
TrueFalse
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.
TrueFalse
4. / If all four of Argo Corporation's overhead variances are favorable, Argo's overhead will be underapplied.
TrueFalse
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.
TrueFalse
6. / The higher the denominator activity level used to compute the predetermined overhead rate, the lower the predetermined overhead rate.
TrueFalse
7. / An unfavorable volume variance means that a firm operated at an activity level that was below the activity level planned for the period.
TrueFalse
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.
TrueFalse
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.
TrueFalse
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.
TrueFalse
11. / In a standard costing system where the denominator activity for the predetermined overhead rate is labor-hours, overhead costs are applied to work in process on the basis of the standard labor-hours allowed for the actual output.
TrueFalse
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.
TrueFalse
13. / A favorable volume variance means that the company operated at an activity level greater than that planned for the period.
TrueFalse
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.
TrueFalse
Multiple Choice Questions
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.
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.
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
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 machine-hours. 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
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 of activity is 8,900 machine-hours, the predetermined overhead rate would be:
A. / $9.50
B. / $115.98
C. / $106.48
D. / $950.00
31. / The Adlake Corporation makes and sells a single product and uses a standard cost system. During October, the company budgeted $300,000 in manufacturing overhead cost at a denominator activity of 20,000 machine-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
32. / Reidenbach Corporation applies manufacturing overhead to products on the basis of standard machine-hours. The budgeted fixed manufacturing overhead cost for the most recent month was $17,100 and the actual fixed manufacturing overhead cost for the month was $17,450. The company based its original budget on 4,500 machine-hours. The standard hours allowed for the actual output of the month totaled 4,810 machine-hours. What was the overall fixed manufacturing overhead budget variance for the month?
A. / $1,178 Unfavorable
B. / $350 Unfavorable
C. / $350 Favorable
D. / $1,178 Favorable
33. / Diseth Corporation applies manufacturing overhead to products on the basis of standard machine-hours. The company bases its predetermined overhead rate on 5,300 machine-hours. The company's total budgeted fixed manufacturing overhead is $12,720. In the most recent month, the total actual fixed manufacturing overhead was $12,370. The company actually worked 5,350 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 5,540 machine-hours. What was the overall fixed manufacturing overhead volume variance for the month?
A. / $350 Favorable
B. / $120 Favorable
C. / $120 Unfavorable
D. / $576 Favorable
34. / Masek 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 / 2,000 / MHs
Actual level of activity / 2,400 / MHs
Standard variable manufacturing overhead rate / $5.90 / per MH
Budgeted fixed manufacturing overhead cost / $50,000
Actual total variable manufacturing overhead / $14,880
Actual total fixed manufacturing overhead / $49,000
What was the fixed manufacturing overhead budget variance for the month?
A. / $2,360 Unfavorable
B. / $1,000 Unfavorable
C. / $2,360 Favorable
D. / $1,000 Favorable
35. / Pizzi, Inc. had the following fixed manufacturing overhead variances last year:
Fixed overhead budget variance / $30,000 / Unfavorable
Fixed overhead volume variance / $6,000 / Favorable
Pizzi uses machine-hours as an activity base for overhead and used 48,000 machine-hours as the denominator activity level for the year. Total actual fixed manufacturing overhead was $150,000. The actual number of machine-hours incurred were 50,000. What were Pizzi's standard hours allowed for actual output?
A. / 40,000
B. / 42,000
C. / 50,400
D. / 52,500
36. / Tropiano Electronics Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company had budgeted its fixed manufacturing overhead cost at $62,100 for the month and its level of activity at 3,200 MHs. The actual total fixed manufacturing overhead was $61,600 for the month and the actual level of activity was 3,000 MHs. What was the fixed manufacturing overhead budget variance for the month to the nearest dollar?
A. / $3,381 Unfavorable
B. / $500 Favorable
C. / $500 Unfavorable
D. / $3,381 Favorable
37. / At the beginning of last year, Tari Corporation budgeted $300,000 of fixed manufacturing overhead and chose a denominator level of activity of 600,000 machine-hours. At the end of the year, Tari's fixed manufacturing overhead budget variance was $9,000 favorable. Its fixed manufacturing overhead volume variance was $15,000 favorable. Actual direct labor-hours for the year were 625,000. What was Tari's total standard machine-hours allowed for last year's output?
A. / 570,000
B. / 630,000
C. / 648,000
D. / 656,250
38. / Denby Corporation applies manufacturing overhead to products on the basis of standard machine-hours. Budgeted and actual fixed manufacturing overhead costs for the most recent month appear below:
Original Budget / Actual Costs
Fixed overhead costs:
Supervision / $12,800 / $13,190
Utilities / 8,320 / 8,260
Factory depreciation / 46,720 / 46,540
Total fixed manufacturing overhead cost / $67,840 / $67,990
The company based its original budget on 6,400 machine-hours. The company actually worked 6,710 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 6,540 machine-hours. What was the overall fixed manufacturing overhead volume variance for the month?
A. / $3,286 Favorable
B. / $1,484 Unfavorable
C. / $3,286 Unfavorable
D. / $1,484 Favorable
39. / Bakos Corporation bases its predetermined overhead rate on variable manufacturing overhead cost of $8.80 per machine-hour and fixed manufacturing overhead cost of $100,688 per period. If the denominator level of activity is 2,800 machine-hours, the variable component in the predetermined overhead rate would be:
A. / $44.76
B. / $35.96
C. / $43.52
D. / $8.80
40. / Acuff Corporation applies manufacturing overhead to products on the basis of standard machine-hours. Budgeted and actual overhead costs for the most recent month appear below:
Original Budget / Actual Costs
Fixed overhead costs:
Supervision / $15,600 / $15,950
Utilities / 5,000 / 5,070
Factory depreciation / 6,800 / 6,700
Total overhead cost / $27,400 / $27,720
The company based its original budget on 6,200 machine-hours. The company actually worked 6,560 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 6,420 machine-hours. What was the overall fixed manufacturing overhead budget variance for the month?
A. / $320 Favorable
B. / $320 Unfavorable
C. / $972 Favorable
D. / $972 Unfavorable
41. / Oldham Corporation bases its predetermined overhead rate on variable manufacturing overhead cost of $4.00 per machine-hour and fixed manufacturing overhead cost of $87,822 per period. If the denominator level of activity is 4,100 machine-hours, the fixed component in the predetermined overhead rate would be:
A. / $25.42
B. / $4.00
C. / $21.42
D. / $400.00
42. / Bruley Corporation applies manufacturing overhead to products on the basis of standard machine-hours. The company's predetermined overhead rate for fixed manufacturing overhead is $3.30 per machine-hour and the denominator level of activity is 3,500 machine-hours. In the most recent month, the total actual fixed manufacturing overhead was $11,570 and the company actually worked 3,430 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 3,450 machine-hours. What was the overall fixed manufacturing overhead volume variance for the month?
A. / $66 Favorable
B. / $231 Favorable
C. / $231 Unfavorable
D. / $165 Unfavorable
43. / Nitrol Corporation manufactures brass vases using a standard cost system with standard machine-hours as the activity base for overhead. The following information relates to vase production at Nitrol for last year:
Estimated for year / Actual results for year
Variable overhead / $50,000 / $53,560
Fixed overhead / $250,000 / $247,500
Machine-hours / 100,000 / 103,000
The standard machine-hours per vase is 1.25. Last year Nitrol produced 84,000 vases.
What was Nitrol's variable overhead rate variance for last year?
A. / $1,000 Favorable
B. / $1,060 Unfavorable
C. / $2,060 Unfavorable
D. / $9,500 Unfavorable
44. / Nitrol Corporation manufactures brass vases using a standard cost system with standard machine-hours as the activity base for overhead. The following information relates to vase production at Nitrol for last year:
Estimated for year / Actual results for year