Gar003, Chapter 3 Systems Design: Job-Order Costing

1. Fixed costs should not be included in a flexible budget since such costs are not likely to be controllable by managers.

Level: Medium LO: 1 Ans: F

2. It is not important that the activity base and overhead costs be causally related when developing a flexible budget.

Level: Easy LO: 1 Ans: F

3. The activity base for a flexible budget should usually be expressed in units of activity rather than in dollars.

Level: Easy LO: 1 Ans: T

4. The static budget should be used primarily to determine whether cost control is being maintained.

Level: Easy LO: 1 Ans: F

5. A company that wants to report both spending and efficiency variances for overhead must compute budget allowances for both the actual amount of activity that occurred and the standard level of activity allowed for the level of output achieved.

Level: Medium LO: 4 Ans: T

6. Responsibility for the overhead efficiency variance should be assigned to whoever is responsible for control of the activity base underlying the flexible budget.

Level: Easy LO: 4 Ans: T

7. A favorable variable overhead efficiency variance indicates that overhead has been used efficiently.

Level: Medium LO: 4 Ans: F

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. The company’s choice of the denominator level of activity has no effect on the fixed overhead budget variance.

Level: Medium LO: 5,6 Ans: T

9. In a standard cost system, overhead is applied on the basis of the actual level of activity rather than the standard level of activity allowed for the output of a period.

Level: Medium LO: 5 Ans: F

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. The company’s choice of the denominator level of activity has no effect on the fixed portion of the predetermined overhead rate.

Level: Easy LO: 5 Ans: F

11. The budget variance for fixed overhead represents the difference between actual fixed overhead costs incurred and the amount of fixed overhead applied to work in process.

Level: Medium LO: 6 Ans: F

12. There can be no volume variance for variable overhead.

Level: Medium LO: 6 Ans: T

13. An unfavorable volume variance means that a company operated at an activity level greater than that planned for the period.

Level: Medium LO: 6 Ans: F

14. The volume variance for fixed overhead is an activity-related variance based on the difference between the denominator level of activity and the standard level of activity allowed for the output of a period.

Level: Medium LO: 6 Ans: T

15. 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 overhead volume variance will NOT necessarily occur in a month in which production volume differs from sales volume.

Level: Hard LO: 6 Ans: T