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Chapter 11-2A

Name_________________________
Acct 202

Select the best answer.

1. A static budget: 
A) is based totally on prior year's costs. 
B) is based on one anticipated activity level. 
C) is based on a range of activity. 
D) is preferred over a flexible budget in the evaluation of performance. 
E) presents a clear measure of performance when planned activity differs from actual activity. 

Ans: B

2. Lantern Corporation recently prepared a manufacturing cost budget for an output of 50,000 units, as follows:

Direct materials  $100,000
Variable overhead  $ 75,000
Direct labor  50,000
Fixed overhead 100,000

Actual units produced amounted to 60,000. Actual costs incurred were: direct materials, $110,000; direct labor, $60,000; variable overhead, $100,000; and fixed overhead, $97,000. If Lantern evaluated performance by the use of a flexible budget, a performance report would reveal a total variance of: 

A) $27,000 unfavorable. 
B) $42,000 unfavorable. 
C) $3,000 favorable. 
D) $23,000 favorable. 
E) none of the above amounts. 

Ans: C

3. A flexible budget: 
A) parallels a static budget with respect to format and advantages of use. 
B) is preferred over a static budget in the evaluation of performance. 
C) gives management flexibility in terms of meeting budget goals. 
D) can be used to compare actual and budgeted costs at various levels of activity. 
E) is characterized by choices "b" and "d" above. 

Ans: E

4. A flexible budget is appropriate for a:
Direct Labor Marketing Straight-Line 
Budget Budget Depreciation Budget

 

Direct labor budget

Marketing budget

Straight-line depreciation

A) No No No
B) No Yes Yes
C) Yes No Yes
D) Yes Yes No
E) No No No

Ans: D

5. The relationship between activity and total budgeted overhead cost is represented by which of the following formulas? 
A) Total activity units + budgeted fixed overhead cost per unit. 
B) Budgeted variable overhead cost per unit + budgeted fixed overhead cost. 
C) (Budgeted variable overhead cost per unit x total activity units) + budgeted fixed overhead costs. 
D) (Budgeted fixed overhead cost per unit x total activity units) + (budgeted variable overhead cost per unit x total activity units). 
E) None of the above. 

Ans: C

6. In so far as overhead is concerned, what is the difference between normal costing and standard costing? 
A) Use of a predetermined overhead rate. 
B) Use of standard hours versus actual hours. 
C) Use of a standard rate versus an actual rate. 
D) The choice of an activity measure. 
E) There is no difference. 

Ans: B

7. The difference between the total actual factory overhead and the total factory overhead applied to production is the: 
A) sum of the spending, efficiency, budget, and volume variances. 
B) controllable variance. 
C) efficiency variance. 
D) spending variance. 
E) volume variance. 

Ans: A

Nelson has a standard variable overhead rate of $4 per machine hour, and each unit produced has a standard time allowed of three hours. The company's static budget was based on 50,000 units. Actual results for the year follow.

Actual units produced: 45,000
Actual machine hours worked: 120,000
Actual variable overhead incurred: $500,000 

8. Nelson's variable-overhead spending variance is: 
A) $40,000 favorable. 
B) $60,000 favorable. 
C) $20,000 unfavorable. 
D) $50,000 unfavorable. 
E) not listed above. 

Ans: C

9. Nelson's variable-overhead efficiency variance is: 
A) $40,000 favorable. 
B) $60,000 favorable. 
C) $20,000 unfavorable. 
D) $50,000 unfavorable. 
E) not listed above. 

Ans: B

10. What is the most common treatment of the fixed-overhead budget variance at the end of the accounting period? 
A) Reported as a deferred charge or credit. 
B) Allocated among Work-in-Process Inventory, Finished-Goods Inventory, and Cost of Goods Sold. 
C) Charged or credited to Cost of Goods Sold. 
D) Allocated among Cost of Goods Manufactured, Finished-Goods Inventory, and Cost of Goods Sold. 
E) Charged or credited to Income Summary. 

Ans: C