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) should be compared to actual costs to asses how well costs were controlled.
B) should be compared to a flexible budget to asses how well costs were controlled.
C) is valid for only one level of activity.
D) 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) the higher the cost per unit of product.
B) the lower the cost per unit of product.
C) the less likely is the occurrence of a volume variance.
D) the more profitable operations likely will be.

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9. At Lund Company, maintenance is a variable cost that varies directly with machine-
hours. 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) $1.73.
B) $1.78.
C) $1.68.
D) $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 machine-
hours. 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

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11. What is the predetermined overhead rate to the nearest cent?
A) $20.93
B) $19.86
C) $19.50
D) $20.55

12. How much overhead was applied to products during the period to the nearest dollar?
A) $79,118
B) $76,035
C) $77,440
D) $80,145

13. What was the variable overhead spending variance for the period to the nearest
dollar?
A) $585 U
B) $585 F
C) $955 U
D) $955 F

14. What was the variable overhead efficiency variance for the period to the nearest
dollar?
A) $578 U
B) $385 U
C) $378 U
D) $955 U

15. What was the fixed overhead budget variance for the period to the nearest dollar?
A) $615 F
B) $2,120 U
C) $1,478 U
D) $450 U

16. What was the fixed overhead volume variance for the period to the nearest dollar?
A) $1,870 F
B) $1,928 F
C) $643 U
D) $2,570 F

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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) $45,900.
B) $54,768.
C) $49,920.
D) $47,703.

18. The amount of fixed manufacturing overhead cost applied to work in process during
September was:
A) $47,832.
B) $26,520.
C) $42,432.
D) $43,605.

19. The fixed overhead budget variance for September was:

A) $2,700 favorable.
B) $2,700 unfavorable.
C) $5,400 favorable.
D) $5,400 unfavorable.

Answers:
1. T 2. T 3. F 4. F 5. F 6. C 7. C 8. B 9. C 10. B 11. D

12. A 13. B 14. B 15. D 16. B 17. A 18. C 19. D

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