5. One cause of a flexible-budget variance might be a difference between expected and actual
hourly wages for factory workers.
6. The difference between budgeted fixed overhead and allocated fixed overhead for actual output
units achieved is the production level variance.
7. The production volume overhead variance is favorable when actual outputs exceed the
8. The production volume variance arises because the actual output level differs from the output
level used as the denominator to calculate the budgeted fixed overhead rate.
9. Isolating individual variances enables managers to determine which areas utilize more
resources than were budgeted.
10. If the restated allocation rate approach is not considered cost effective, a company will
not be able to use the end-of-period account approach.
17. Two of the primary ways to manage variable-overhead costs include
a. eliminating non-value-added costs and reducing the consumption of cost drivers.
b. eliminating non-value-added costs and increasing fixed overhead expenses.
c. reducing the consumption of cost drivers and increasing variable costs.
d. using more energy-efficient equipment and planning for appropriate capacity levels.
18. Which of the following is NOT a step in developing budgeted variable overhead rates?
a. identify costs included in the variable overhead cost pools
b. estimate the budgeted denominator level
c. choose the cost allocation base that will be used
d. estimate the budgeted variable overhead rate
19. In order for the product costs to better reflect resource consumption, the allocation base
used to develop a budgeted variable overhead rate should, ideally, be
a. multiple cost drivers.
b. a non-value-added cost driver.
c. a single cost driver.
d. a value-added cost driver.
20. What is the variable manufacturing overhead static budget variance, given the following
Actual output units produced 28,000 units
Actual machine-hours used 10,000 hours
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Actual variable manufacturing overhead costs $300,000
Budgeted variable manufacturing overhead costs $250,000
Budgeted output units 25,000 units
a. $20,000 favorable b. $20,000 unfavorable c. $50,000 unfavorable d. $50,000 favorable
27. Actual overhead is $700,000, while budgeted overhead is $598,000. What is the fixed
overhead static-budget variance if 250,000 units are produced and 225,000 are budgeted?
a. $100,000 favorable b. $100,000 unfavorable
c. $102,000 favorable d. $102,000 unfavorable
28. In variance analysis, fixed manufacturing overhead will NEVER have
a. an efficiency variance. b. a flexible-budget variance.
c. a spending variance. d. a sales-volume variance.
29. The production volume overhead variance may be calculated by
a. dividing the actual output units achieved by the budgeted fixed overhead rate per output
b. subtracting the allocated fixed overhead according to budgeted inputs allowed for each unit
produced from the budgeted fixed overhead.
c. dividing the budgeted fixed overhead rate per output unit by the actual output units
d. subtracting the budgeted fixed overhead from the actual overhead incurred.
30. Which of the following statements is FALSE?
a. The difference between the static budget and the flexible budget is the sales-volume
b. The difference between allocated and budgeted overhead is the production volume variance.
c. The production volume variance arises for both fixed and variable costs.
d. The amount allocated always equals the flexible budget amount.
31. Leek Company predicted that the fixed overhead would be $200,000 in April 19x1. Actual
production included 50,000 decks of cards. Each deck takes approximately 0.20 machine-hours to
produce. The actual overhead costs per machine-hour is $25. What is the production volume
a. $ 50,000 unfavorable b. $ 50,000 favorable c. $150,000 unfavorable d. $150,000 favorable
32. Budgeted outputs for DuCane Small Engines, Inc. were 20,000 engines during February 19x1.
Budgeted fixed overhead per output unit was $2.50, and 30,000 engines were actually produced.
Actual fixed overhead was allocated at $3.00 per engine. What is the production volume
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a. $25,000 favorable b. $25,000 unfavorable c. $30,000 favorable d. $30,000 unfavorable
37-45. Michelle, Inc. is in the process of evaluating its manufacturing overhead costs. The
results for April are as follows, and Michelle uses a 4-variance analysis of its manufacturing
A. Budgeted direct labor-hours per unit is used to allocate variable manufacturing
overhead. Fixed overhead is allocated on a per unit basis.
B. Budgeted amounts for April 19x1 are:
Direct labor-hours: 0.30 /Unit
Variable labor-hour overhead rate: $ 20.00 /DLH
Fixed manufacturing overhead: $600,000
Budgeted output (denominator level output): 30,000 Units
C. Actual amounts for April 19x1 are:
Variable manufacturing overhead: $340,000
Fixed manufacturing overhead: $590,000
Direct labor-hours: 16,000
Actual output: 40,000
37 What is the variable spending variance using 4-variance analysis?
a. $30,000 unfavorable b. $28,500 favorable c. $20,000 unfavorable d. $16.000 favorable
38. What is the variable efficiency variance using 4-variance analysis?
a. $ 80,000 favorable b. $ 80,000 unfavorable c. $101,200 favorable d. $101,200 unfavorable
39. What is the variable production volume variance using 4-variance analysis?
a. $13,500 unfavorable b. $ 6,000 unfavorable c. $ 0
d. There is never a variable production volume variance.
40. What is the fixed spending variance using 4-variance analysis?
a. $10,000 favorable b. $10,000 unfavorable c. $13,500 unfavorable d. $13,500 favorable
41. What are the fixed efficiency and the fixed production volume variances, respectively, using
a. no efficiency variance, $200,000 favorable
b. 0, $200,000 unfavorable
c. $50,500 favorable, $199,998 unfavorable
d. $50,500 unfavorable, $199,998 favorable
42. Which of the following journal entries is correct with respect to actual variable costs?
a. Variable Manufacturing Overhead Allocated $800,000
Variable Spending Variance $ 10,000
Variable Efficiency Variance 40,000
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Variable Manufacturing Overhead Control 750,000
b. Work-in-process Control $590,000
Variable Manufacturing Overhead Allocated $590,000
c. Variable Manufacturing Overhead $240,000
Variable Manufacturing Overhead Control $240,000
d. Variable Manufacturing Overhead Control $340,000
Accounts Payable and other accounts $340,000
43. Which of the following journal entries is correct, with respect to isolating fixed costs per
accounting period (month of April)?
a. Fixed Manufacturing Overhead Control $340,000
Accounts Payable and other accounts $340,000
b. Fixed Manufacturing Overhead Allocated $800,000
Fixed Spending Variance $ 10,000
Fixed Production Volume Variance 200,000
Fixed Manufacturing Overhead Control 590,000
c. Work-in-process Control $590,000
Fixed Manufacturing Overhead Allocated $590,000
d. Fixed Manufacturing Overhead Allocated $800,000
Fixed Spending Variance $ 10,000
Fixed Efficiency Variance 40,000
Fixed Manufacturing Overhead Control 750,000
44. What are the respective spending, efficiency, and production volume variances using 3-
a. $10,000 unfavorable, $80,000 favorable, $200,000 unfavorable
b. $10,000 unfavorable, $80,000 unfavorable, $200,000 favorable
c. $5,000 favorable, $25,000 unfavorable, $0
d. $5,000 unfavorable, $25,000 favorable, $0
45. The total flexible-budget variance is:
a. $90,000 favorable b. $90,000 unfavorable c. $80,000 unfavorable d. $80,000 favorable
56. If Miller Company makes the following journal entry:
Variable Overhead Allocated $ 50,000
Variable Overhead Efficiency Variance 15,000
Variable Overhead Control $ 62,500
Variable Overhead Spending Variance 2,500
It may be inferred that
a. Miller over-allocated variable manufacturing overhead.
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b. the net variance is a $5,000 favorable spending variance.
c. Work-in-Process, Finished Goods, and Cost of Goods Sold balances are understated.
d. the journal entry accounts are incorrect.
57. Bradley's Company used $125,000 in manufacturing overhead costs ($33,250 was variable)
during March 19x1. Budgeted manufacturing overhead was $114,750, of which $37,500 was
variable. Which of the following entries for manufacturing overhead could have been recorded?
a. Accounts Receivable $37,500
Work-in-process Control $37,500
b. Variable Manufacturing Overhead Allocated $37,500
Accounts Payable and other accounts $37,500
c. Work-in-process Control $33,250
Accounts Payable and other accounts $33,250
d. Variable Manufacturing Overhead Control $33,250
Accounts Payable and other accounts $33,250
58. Which variances are subject to proration for standard costing in a manufacturing setting?
a. only the sales-volume variance
b. only the price and spending variances
c. only flexible-budget variances and production volume variances
d. only flexible-budget variances
61. Trilite Windows manufactures windows. The 19x1 operating budget is based on production of
56,000 windows with 1.0 machine-hours allowed per window. Variable manufacturing overhead is
anticipated to be $896,000. Actual production for 19x1 was 58,000 windows using 60,000 machine-
hours. Actual variable costs were $15 per machine- hour.
Prepare all of the commonly used variances for a variable overhead report. Do not prepare the
62. All lean of Iowa manufactures individual shampoos for hotel/motel clientele. The fixed
manufacturing overhead costs for 19x1 will total $576,000. The company uses good units
finished for fixed overhead allocation and anticipates 300,000 units of production. Good units
finished average 92 percent of total units produced. During January, 20,000 units were produced.
Fixed overhead cost per good unit averaged $2.82 in January.
a. Determine the fixed overhead rate for 19x1.
b. Determine the fixed overhead static budget variance for January.
c. Determine the fixed overhead flexible budget variance for January.
d. Determine the fixed overhead spending variance for January.
63. Johnston Equipment develops food processing equipment. The fixed overhead costs for 19x1
total $768,000. The company uses direct-labor hours for fixed overhead allocation and
anticipates 480,000 hours during the year for 960,000 units. An equal number of units are
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budgeted for each month. During April, 84,000 packages were produced and $66,000 was spent on
a. Determine the fixed overhead rate for 19x1 based on units of input.
b. Determine the fixed overhead static budget variance for April.
c. Determine the production volume overhead variance for April.
69. Fred's Flower Shop accounts for all material purchases using standard costing. For March,
Fred purchased 20,000 plants (its direct materials) for $0.60 per plant. The standard cost of
materials is $0.70 per plant. There was no beginning inventory. Due to experimentation, the
plants available for sale are normally 50 percent of plants purchased. The company used 18,000
plants during the month with finished plants of 8,000 available for sale. Of the finished
plants, 6,000 were sold.
a. Determine the variances for direct materials for March.
b. Prepare the journal entry to close the direct materials price variance account and prorate
it among the relevant materials accounts.
70. All-Green Company has traditionally used only financial accounting for its decision making
purposes. The president recently attended a seminar for small-business executives where the
importance of managerial accounting was stressed as a way to improve operating decisions. The
president was very interested in the use of managerial accounting as a way of planning the
company's manufacturing overhead. It seems that the managers have always been at odds over how
to best control the overhead accounts.
Explain how the planning of variable and fixed manufacturing overhead can improve the company's
decision making process.
20. c $300,000 - $250,000 = $50,000 unfavorable
27. d $700,000 - $598,000 = $102,000 unfavorable
31. b $200,000 - (0.20 x 50,000 x $25) = $50,000 favorable
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32. a (20,000 - 30,000) x $2.50 = 25,000 favorable
37. c $340,000 - ($20 x 16,000) = $20,000 unfavorable
38. b [16,000 - (40,000 x 0.30)] x $20 = $80,000 unfavorable
$590,000 - $600,000 = $10,000 favorable
41. a (30,000 - 40,000) x 20 = $200,000 favorable
43. b 40,000 x $20 = $800,000
(30,000 - 40,000) x $20 = $200,000 favorable
$600,000 - $590,000 = $10,000 favorable
44. b NET THE VARIANCES:
SPENDING: 20,000 U + 10,000 F = $ 10,000 unfavorable
EFFICIENCY: 80,000 U + 0 = 80,000 unfavorable
OUTPUT: 0 + 200,000 F = 200,000 favorable
Chapter:8 QUESTION: 64
45. b COMBINE $10,000 U + $80,000 U = $90,000 unfavorable
61. Budgeted variable overhead per hour = $896,000/56,000 machine-hours = $16
Spending variance = ($16 - $15) x 60,000 = $60,000 favorable
Efficiency variance = (60,000 - (58,000 x 1.0)) x $16 = $32,000 unfavorable
62. a. Fixed overhead rate = $576,000/(300,000 x 0.92) = $2.09 per finished unit
b. Fixed overhead for January = 20,000 x 0.92 x $2.82 = $51,888
Fixed overhead static budget variance = $51,888 - $576,000/12
= $51,888 - $48,000 = $3,888 unfavorable
c. Fixed overhead flexible budget variance = $51,888 - $48,000 = $3,888 unfavorable
d. Fixed overhead spending variance = $51,888 - $48,000 = $3,888 unfavorable
63. a. Fixed overhead rate = $768,000/480,000 = $1.60 per hour
b. Fixed overhead static budget variance = $66,000 - $768,000/12 = $66,000 - $64,000 = $2,000
c. Budgeted fixed overhead rate per output unit = $768,000/960,000 = $0.80
Denominator level in output units = (80,000 - 84,000) x $0.80 = $3,200 favorable
69. a. Direct materials spending variance = 20,000 x ($0.60 - $0.70) = $2,000 favorable
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Direct materials efficiency variance = $0.70 x (18,000 - 16,000*)= $1,400 unfavorable
*8,000 finished plants x 2
Plants Percentage Variance
To account for: 20,000 100% $2,000
Direct materials inventory 2,000 10 $ 200
Finished goods (2 for 1) 4,000 20 400
Cost of goods sold (2 for 1) 12,000 60 1,200
Direct materials efficiency var. 2,000 10 200
------ --- ------
Total accounted for: 20,000 100% $2,000
====== === ======
Direct Materials Inventory $ 200
Finished Goods Inventory 400
Cost of Goods Sold 1,200
Direct Materials Efficiency Variance 200
Direct Materials Price Variance $2,000
70. Effective planning of variable overhead costs involves the undertaking of only those
variable activities that add value to the process. It also includes the planning of the cost
drivers of the activities so that they can be utilized most efficiently.
Planning of fixed overhead costs likewise includes only those activities that add value. A
critical aspect of fixed cost planning is selecting the appropriate level of operations. The
selection of the denominator is important for determining the fixed rates that will be charged
during the year.
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