Which of the following variances is least significant from a standpoint of cost control?

16. The purpose of a flexible budget is to:

            A)      allow management some latitude in meeting goals.

            B)      eliminate fluctuations in production reports by ignoring variable costs.

            C)      compare actual and budgeted results at virtually any level of activity.

            D)      reduce the time to prepare the annual budget.

           

            Ans:  C          Source:  CPA; adapted

      17. When using a flexible budget, a decrease in activity within the relevant range:

            A)      decreases variable cost per unit.

            B)      decreases total costs.

            C)      increases total fixed costs.

            D)      increases variable cost per unit.

           

            Ans:  B          Source:  CPA; adapted

      18. The activity base that is used for a flexible budget for an overhead cost should be:

            A)      direct labor-hours.

            B)      units of output.

            C)      expressed in dollars, if possible.

            D)      the cause of the overhead cost.

           

            Ans:  D    

      19. A budget that is based on the actual activity of a period is known as a:

            A)      continuous budget.

            B)      flexible budget.

            C)      static budget.

            D)      master budget.

           

            Ans:  B    

      20. The fixed manufacturing overhead budget variance equals:

            A)      Actual fixed manufacturing overhead cost--Applied fixed manufacturing overhead cost.

            B)      Actual fixed manufacturing overhead cost--Budgeted fixed manufacturing overhead cost.

            C)      Budgeted fixed manufacturing overhead cost--Applied fixed manufacturing overhead cost.

            D)      Actual fixed manufacturing overhead cost-- (Actual hours x Standard fixed overhead rate).

           

            Ans:  B     LO:  6    

      21. Which of the following variances is least significant from a standpoint of cost control?

            A)      materials price variance.

            B)      labor efficiency variance.

            C)      fixed overhead volume variance.

            D)      variable overhead spending variance.

           

            Ans:  C     LO:  6    

      22. The manufacturing overhead variance that is a measure of capacity utilization is:

            A)      the overhead spending variance.

            B)      the overhead efficiency variance.

            C)      the overhead budget variance.

            D)      the overhead volume variance.

           

            Ans:  D     LO:  6    

      23. If the denominator activity is less than the standard hours allowed for the actual output, one would expect that:

            A)      the variable overhead efficiency variance would be unfavorable.

            B)      the fixed overhead volume variance would be favorable.

            C)      the fixed overhead budget variance would be unfavorable.

            D)      the variable overhead efficiency variance would be favorable.

           

            Ans:  B     LO:  6    

      24. The volume variance is nonzero whenever:

            A)      standard hours allowed for the output of a period differ from the denominator level of activity.

            B)      actual hours differ from the denominator level of activity.

            C)      standard hours allowed for the output of a period differ from the actual hours during the period.

            D)      actual fixed overhead costs incurred during a period differ from budgeted fixed overhead costs as contained in the flexible budget.

           

            Ans:  A     LO:  6    

      25. A volume variance is computed for:

            A)      both variable and fixed overhead.

            B)      variable overhead only.

            C)      fixed overhead only.

            D)      direct labor costs as well as overhead costs.

           

            Ans:  C     LO:  6    

      26. Which of the following standard cost variances would usually be least controllable by a production supervisor?

            A)      Fixed overhead volume variance.

            B)      Variable overhead efficiency variance.

            C)      Direct labor efficiency variance.

            D)      Materials usage (quantity) variance.

           

            Ans:  A     LO:  6          Source:  CPA; adapted

      27. The following costs appear in Malgorzata Company's flexible budget at an activity level of 15,000 machine-hours:

           

		Total Cost
	Indirect materials...............	$7,800
	Factory rent.......................	$18,000

What would be the flexible budget amounts at an activity level of 12,000 machine-hours if indirect materials is a variable cost and factory rent is a fixed cost?

	Indirect Materials	Factory Rent
A)	$7,800	$14,400
B)	$7,800	$18,000
C)	$6,240	$14,400
D)	$6,240	$18,000

            Ans:  D    

            Solution:

           

            Budgeted number of machine hours: 15,000

	Cost Formula (per machine-hour)	Activity  (in machine-hours): 12,000
Variable costs:
Indirect materials..........	$0.52*	$6,240
Fixed costs:
Factory rent..................		$18,000

*$7,800 ÷ 15,000 MHs = $0.52 per MH

      28. Mongelli Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion. The Inn's guests appreciate its gourmet breakfasts and individually decorated rooms. The Inn's overhead budget for the most recent month appears below:

           

	Activity level.................................	90 guests
	Variable overhead costs:
	Supplies......................................	$  234
	Laundry......................................	315
	Fixed overhead costs:
	Utilities.......................................	220
	Salaries and wages.....................	4,290
	Depreciation...............................	2,680
	Total overhead cost.......................	$7,739

            The Inn's variable overhead costs are driven by the number of guests.

            What would be the total budgeted overhead cost for a month if the activity level is 99 guests? Assume that the activity levels of 90 guests and 99 guests are within the same relevant range.

            A)      $7,793.90

            B)      $61,541.00

            C)      $8,512.90

            D)      $7,739.00

           

            Ans:  A    

            Solution:

            Budgeted number of guests: 90

		Cost Formula (per guest)	Activity (in guests): 99
	Overhead Costs
	Variable overhead costs:
	Supplies ($234 ÷ 90 guests)...................	$2.60	$ 257.40
	Laundry ($315 ÷ 90 guests)...................	3.50	346.50
	Total variable overhead cost.....................	$6.10	603.90
	Fixed overhead costs:
	Utilities...................................................		220.00
	Salaries and wages.................................		4,290.00
	Depreciation...........................................		2,680.00
	Total fixed overhead cost..........................		7,190.00
	Total budgeted overhead cost....................		$7,793.90

      29. Kerekes Manufacturing Corporation has prepared the following overhead budget for next month.

           

	Activity level.................................	2,500	machine-hours
	Variable overhead costs:
	Supplies......................................	$12,250
	Indirect labor..............................	22,000
	Fixed overhead costs:
	Supervision................................	15,500
	Utilities.......................................	5,500
	Depreciation...............................	6,500
	Total overhead cost.......................	$61,750

            The company's variable overhead costs are driven by machine-hours.

            What would be the total budgeted overhead cost for next month if the activity level is 2,400 machine-hours rather than 2,500 machine-hours? Assume that the activity levels of 2,500 machine-hours and 2,400 machine-hours are within the same relevant range.

            A)      $59,830.00

            B)      $59,280.00

            C)      $60,380.00

            D)      $61,750.00

           

            Ans:  C    

            Solution:

		Budgeted variable overhead costs	Machine-hours	Per machine-hour
	Supplies................................	$12,250	2,500	$4.90
	Indirect labor........................	$22,000	2,500	$8.80

Budgeted number of machine-hours: 2,500

		Cost Formula (per MH)	Activity (in MHs): 2,400
	Overhead Costs
	Variable overhead costs:
	Supplies..................................................	$  4.90	$11,760
	Indirect labor..........................................	8.80	21,120
	Total variable overhead cost.....................	$13.70	13,880
	Fixed overhead costs:
	Supervision............................................		15,500
	Utilities...................................................		5,500
	Depreciation...........................................		6,500
	Total fixed overhead cost..........................		27,500
	Total overhead cost...................................		$60,380

      30. Sharifi Hospital bases its budgets on patient-visits. The hospital's static budget for October appears below:

           

	Budgeted number of patient-visits............	8,500
	Budgeted variable overhead costs:
	Supplies (@$4.70 per patient-visit).......	$ 39,950
	Laundry (@$7.80 per patient-visit).......	66,300
	Total variable overhead cost.....................	106,250
	Budgeted fixed overhead costs:
	Wages and salaries.................................	50,150
	Occupancy costs.....................................	84,150
	Total fixed overhead cost..........................	134,300
	Total budgeted overhead cost....................	$240,550

            The total overhead cost at an activity level of 9,200 patient-visits per month should be:

            A)      $260,360

            B)      $250,070

            C)      $249,300

            D)      $240,550

           

            Ans:  C    

            Solution:

           

            Budgeted number of patient-visits: 8,500

		Cost Formula (per patient-visit)	Activity (in patient visits): 9,200
	Overhead Costs
	Variable overhead costs:
	Supplies..................................................	$  4.70	$ 43,240
	Laundry..................................................	7.80	71,760
	Total variable overhead cost.....................	$12.50	115,000
	Fixed overhead costs:
	Wages and salaries.................................		50,150
	Occupancy costs.....................................		84,150
	Total fixed overhead cost..........................		134,300
	Total overhead cost...................................		$249,300

      31. Ostler Hotel bases its budgets on guest-days. The hotel's static budget for April appears below:

           

	Budgeted number of guest-days................	8,700
	Budgeted variable overhead costs:
	Supplies (@$7.00 per guest-day)...........	$ 60,900
	Laundry (@$3.80 per guest-day)...........	33,060
	Total variable overhead cost.....................	93,960
	Budgeted fixed overhead costs:
	Wages and salaries.................................	80,910
	Occupancy costs.....................................	38,280
	Total fixed overhead cost..........................	119,190
	Total budgeted overhead cost....................	$213,150

            The total overhead cost at an activity level of 9,700 guest-days per month should be:

            A)      $213,150

            B)      $237,650

            C)      $223,950

            D)      $224,920

           

            Ans:  C    

            Solution:

           

            Budgeted number of guest-days: 8,700

		Cost Formula (per guest-day)	Activity (in guest-days): 9,700
	Overhead Costs
	Variable overhead costs:
	Supplies..................................................	$  7.00	$ 67,900
	Laundry..................................................	3.80	36,860
	Total variable overhead cost.....................	$10.80	104,760
	Fixed overhead costs:
	Wages and salaries.................................		80,910
	Occupancy costs.....................................		38,280
	Total fixed overhead cost..........................		119,190
	Total overhead cost...................................		$223,950

      32. Riggs Enterprise's flexible budget cost formula for indirect materials, a variable cost, is $0.45 per unit of output. If the company's performance report for last month shows a $90 favorable variance for indirect materials and if 8,700 units of output were produced last month, then the actual costs incurred for indirect materials for the month must have been:

            A)      $4,005

            B)      $3,915

            C)      $3,825

            D)      $3,735

           

            Ans:  C    

            Solution:

           

            Variable overhead spending variance = AH × (AR − SR) = 90 F

8,700 × (AR − 0.45) = -90

(8,700 × AR) − 3,915 = -90

(8,700 × AR) = 3,825

AR = 3,825 ÷ 8,700 = $0.4396

Actual indirect labor costs = 8,700 × $0.4396 = $3,825

      33. Chmielewski Medical Clinic measures its activity in terms of patient-visits. Last month, the budgeted level of activity was 1,560 patient-visits and the actual level of activity was 1,530 patient-visits. The clinic's director budgets for variable overhead costs of $1.10 per patient-visit and fixed overhead costs of $19,900 per month. The actual variable overhead cost last month was $1,400 and the actual fixed overhead cost was $21,720. In the clinic's flexible budget performance report for last month, what would have been the variance for the total overhead cost?

            A)      $33 F

            B)      $1,504 U

            C)      $1,537 U

            D)      $283 F

           

            Ans:  C    

            Solution:

           

            Budgeted number of patient-visits: 1,560

Actual number of patient-visits: 1,530

		Cost Formula (per patient-visit)	Actual Costs Incurred for 1,530 patient-visits	Budget Based on 1,530 patient-visits	Variance
	Variable overhead costs..........................	$1.10	$1,400	$1,683	$    283 F
	Fixed overhead costs....		$21,720	$19,900	1,820 U
					$1,537 U

      34. Rodriques Tile Installation Corporation measures its activity in terms of square feet of tile installed. Last month, the budgeted level of activity was 1,630 square feet and the actual level of activity was 1,720 square feet. The company's owner budgets for supply costs, a variable overhead cost, at $3.40 per square foot. The actual supply cost last month was $6,750. In the company's flexible budget performance report for last month, what would have been the variance for supply costs?

            A)      $353 U

            B)      $306 U

            C)      $902 U

            D)      $1,208 U

           

            Ans:  C    

            Solution:

           

            Budgeted number of square feet: 1,720

Actual number of square feet: 1,630

		Cost Formula (per square foot)	Actual Costs Incurred for 1,720 square feet	Budget Based on 1,720 square feet	Variance
	Variable overhead costs (Supply costs)............	$3.40	$6,750	$5,848	$902 U

      35. Rodabaugh Natural Dying Corporation measures its activity in terms of skeins of yarn dyed. Last month, the budgeted level of activity was 15,900 skeins and the actual level of activity was 16,100 skeins. The company's owner budgets for dye costs, a variable overhead cost, at $0.87 per skein. The actual dye cost last month was $14,800. In the company's flexible budget performance report for last month, what would have been the variance for dye costs?

            A)      $967 U

            B)      $174 U

            C)      $184 U

            D)      $793 U

           

            Ans:  D    

            Solution:

           

            Budgeted number of skeins: 15,900

Actual number of skeins: 16,100

		Cost Formula (per skein)	Actual Costs Incurred for 16,100 skeins	Budget Based on 16,100 skeins	Variance
	Variable overhead costs (Dye costs).................	$0.87	$14,800	$14,007	$793 U

      36. Andress Footwear Corporation's flexible budget cost formula for supplies, a variable overhead cost, is $2.17 per unit of output. The company's flexible budget performance report for last month showed a $4,531 unfavorable variance for supplies. During that month, 19,700 units were produced. Budgeted activity for the month had been 19,400 units. The actual costs incurred for indirect materials must have been closest to:

            A)      $2.17

            B)      $2.63

            C)      $2.67

            D)      $2.40

           

            Ans:  D    

            Solution:

           

            Budgeted number of units produced: 19,400

Actual number of units produced: 19,700

		Cost Formula (per unit produced)	Actual Costs Incurred for 19,700 units produced	Budget Based on 19,700 units produced	Variance
	Variable overhead costs (Supplies)........	$2.17	X	$42,749	$4,531 U

Actual costs − Budgeted costs = Supplies variance

X − $42,749 = $4,531

X = $47,280

Per unit cost = Total actual costs ÷ Number of units produced

Per unit cost = $47,280 ÷ 19,700 = $2.40

      37. Ocker Corporation's flexible budget performance report for last month shows that actual indirect materials cost, a variable overhead cost, was $28,420 and that the variance for indirect materials cost was $3,828 unfavorable. During that month, the company worked 11,600 machine-hours. Budgeted activity for the month had been 11,300 machine-hours. The cost formula per machine-hour for indirect materials cost must have been closest to:

            A)      $2.85

            B)      $2.18

            C)      $2.78

            D)      $2.12

           

            Ans:  D    

            Solution:

           

            Budgeted number of machine-hours: 11,300

Actual number of machine-hours: 11,600

		Cost Formula (per MH)	Actual Costs Incurred for 11,600 machine-hours	Budget Based on 11,600 machine-hours	Variance
	Variable overhead costs (Indirect materials).......	Y	$28,420	X	$3,828 U

Actual costs − Budgeted costs = Indirect materials variance

$28,420 − X = $3,828

X = $24,592

Y = Per machine-hour cost =

Per machine-hour cost = Actual cost ÷ Machine-hours =

Per machine-hour cost = $24,592 ÷ 11,600 = $2.12

      38. Viger 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...........................................	9,700	MHs
	Actual level of activity................................................	9,900	MHs
	Cost formula for variable manufacturing overhead cost..........................................................................	$6.30	per MH
	Budgeted fixed manufacturing overhead cost............	$49,000
	Actual total variable manufacturing overhead............	$60,390
	Actual total fixed manufacturing overhead................	$47,000

            What was the variable overhead spending variance for the month?

            A)      $2,000 favorable

            B)      $720 favorable

            C)      $1,260 unfavorable

            D)      $1,980 favorable

           

            Ans:  D    

            Solution:

           

            Actual rate =

Actual total variable manufacturing overhead ÷ Actual machine-hours

Actual rate = $60,390 ÷ 9,900 = $6.10

Variable overhead spending variance = AH × (AR − SR)

9,900 × ($6.10 − $6.30) = 9,900 × (-$0.20) = $1,980 F

      39. Teall 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...........................................	8,500	MHs
	Actual level of activity................................................	8,600	MHs
	Cost formula for variable manufacturing overhead cost..........................................................................	$5.70	per MH
	Budgeted fixed manufacturing overhead cost............	$50,000
	Actual total variable manufacturing overhead............	$51,600
	Actual total fixed manufacturing overhead................	$54,000

            What was the fixed overhead budget variance for the month?

            A)      $4,000 unfavorable

            B)      $4,000 favorable

            C)      $570 favorable

            D)      $570 unfavorable

           

            Ans:  A    

            Solution:

            Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost

            = $54,000 − $50,000 = $4,000 U

      40. Alapai 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...........................................	7,000	MHs
	Actual level of activity................................................	7,200	MHs
	Cost formula for variable manufacturing overhead cost..........................................................................	$9.40	per MH
	Budgeted fixed manufacturing overhead cost............	$40,000
	Actual total variable manufacturing overhead............	$66,960
	Actual total fixed manufacturing overhead................	$37,000

            What was the total of the variable overhead spending and fixed overhead budget variances for the month?

            A)      $3,720 favorable

            B)      $2,280 unfavorable

            C)      $1,840 favorable

            D)      $1,880 unfavorable

           

            Ans:  A    

            Solution:

           

            Actual rate =

Actual total variable manufacturing overhead ÷ Actual machine-hours =

$66,960 ÷ 7,200 = $9.30

Variable overhead spending variance = AH × (AR − SR)

= 7,200 × ($9.30 − $9.40)

= 7,200 × (−$0.10) = $720 F

Fixed overhead budget variance

= Actual fixed overhead costs − Budgeted fixed overhead cost

= $37,000 − $40,000 = $3,000 F

Total overhead variance = $720 F + $3,000 F = $3,720 F