Accounting, Chapter 9 Practice Test

ACCOUNTING 203 Chapter 9 Practice Test True and False Questions 1. With a flexible budget a manager can determine what costs should be attained at a given level of activity. 2. The flexible budget is a dynamic tool, in that a budget can be constructed to compare to any level of actual costs within the relevant range. 3. Fixed costs should never be considered when evaluating how well a manager has controlled costs. 4. The overhead spending variance contains price but not quantity elements. 5. Waste or excessive usage of overhead items will show up as part of the variable overhead efficiency variance. Multiple Choice Questions 6. A static budget: A) B) C) D) should be compared to actual costs to asses how well costs were controlled. should be compared to a flexible budget to asses how well costs were controlled. is valid for only one level of activity. represents the best way to set spending targets for managers. 7. The variable overhead spending variance is most effective in measuring: A) how well overhead spending matches the targets set in the original budget at the beginning of the year. B) the efficency with which the activity base was utilized in production. C) the excessive use of overhead resources. D) the utilization of plant facilities. 8. The higher the denominator level of activity: A) B) C) D) the higher the cost per unit of product. the lower the cost per unit of product. the less likely is the occurrence of a volume variance. the more profitable operations likely will be. 1 9. At Lund Company, maintenance is a variable cost that varies directly with machinehours. The performance report for July showed that actual maintenance costs totaled $8,650 and that the associated spending variance was $250 unfavorable. If 5,000 machine-hours were actually worked during July, the budgeted maintenance cost per machine-hour was: A) B) C) D) $1.73. $1.78. $1.68. $1.83. 10. The Apmon Company uses a standard cost system in which manufacturing overhead is applied to units on the basis of machine-hours. During July, the company budgeted $350,000 in manufacturing overhead cost at a denominator activity of 25,000 machinehours. At standard, each unit requires 5 machine-hours. The following cost and activity were recorded during July: Total actual manufacturing overhead cost incurred…….. $325,000 Units of product completed ……………………………. 4,500 Actual machine-hours worked………………………….. 23,000 The amount of overhead cost that the company applied to work in process for July was: A) $292,500. B) $315,000. C) $322,000. D) $325,000. Use the following to answer questions 11-16 A manufacturing company has a standard costing system based on direct labor-hours (DLHs) as the measure of activity. Data from the company’s flexible budget for manufacturing overhead are given below: Denominator level of activity ………………………… 3,700 DLHs Overhead costs at the denominator activity level: Variable overhead cost …………………… $28,490 Fixed overhead cost ……………………… $47,545 The following data pertain to operations for the most recent period: Actual hours …………………………………………… 3,900 DLHs Standard hours allowed for the actual output …………. 3,850 DLHs Actual total variable overhead cost …………………… $29,445 Actual total fixed overhead cost ……………………… $47,995 2 11. What is the predetermined overhead rate to the nearest cent? A) B) C) D) $20.93 $19.86 $19.50 $20.55 12. How much overhead was applied to products during the period to the nearest dollar? A) B) C) D) $79,118 $76,035 $77,440 $80,145 13. What was the variable overhead spending variance for the period to the nearest dollar? A) B) C) D) $585 U $585 F $955 U $955 F 14. What was the variable overhead efficiency variance for the period to the nearest dollar? A) B) C) D) $578 U $385 U $378 U $955 U 15. What was the fixed overhead budget variance for the period to the nearest dollar? A) B) C) D) $615 F $2,120 U $1,478 U $450 U 16. What was the fixed overhead volume variance for the period to the nearest dollar? A) B) C) D) $1,870 F $1,928 F $643 U $2,570 F 3 Use the following to answer questions 17-19. The Royale Company has a standard cost system in which manufacturing overhead is applied to units of product on the basis of direct labor-hours (DLHs). The company recorded the following activity and cost data relating to manufacturing overhead for October: Activity: Number of units completed …………………………… 31,200 units Standard direct labor-hours per unit ………………….. 1.6 DLHs Denominator activity …………………………………. 54,000 DLHs Cost: Actual fixed overhead costs incurred ………………… $51,300 Volume variance …………………………………… $3,468 Unfavorable Fixed portion of the predetermined overhead rate … $0.85 per DLH 17. The amount of fixed overhead cost contained in the company’s overhead budget for September was: A) B) C) D) $45,900. $54,768. $49,920. $47,703. 18. The amount of fixed manufacturing overhead cost applied to work in process during September was: A) B) C) D) $47,832. $26,520. $42,432. $43,605. 19. The fixed overhead budget variance for September was: A) B) C) D) $2,700 favorable. $2,700 unfavorable. $5,400 favorable. $5,400 unfavorable. Answers: 1. T 12. A 2. T 3. F 13. B 14. B 4. F 5. F 6. C 15. D 16. B 7. C 17. A 8. B 18. C 9. C 10. B 11. D 19. D 4