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Chapter 11-1A

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 for 5,000 hours revealed variable manufacturing overhead of $25,000 and fixed manufacturing overhead of $10,000. The budget for 10,000 hours would reveal total overhead costs of: 
A) $35,000. 
B) $45,000. 
C) $50,000. 
D) $60,000. 
E) $70,000. 

Ans: D

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. Assume that machine hours is the cost driver for overhead. The difference between the actual variable overhead incurred and the applied variable overhead is the: 
A) volume variance. 
B) net overhead variance. 
C) efficiency variance. 
D) sum of the spending and efficiency variances. 
E) spending variance. 

Ans: D

6. A fixed-overhead volume variance would normally arise when: 
A) planned activity coincides with actual levels of production. 
B) budgeted fixed overhead is overapplied to production. 
C) there is a fixed-overhead budget variance. 
D) actual fixed overhead exceeds budgeted fixed overhead. 
E) there is a variable-overhead efficiency variance. 

Ans: B

7. When actual variable cost per unit equals standard variable cost per unit, the difference between actual and budgeted contribution margin is explained by a combination of which two variances? 
A) The sales-volume variance and the fixed-overhead volume variance. 
B) The sales-volume variance and the fixed-overhead budget variance. 
C) The sales-price variance and the fixed-overhead volume variance. 
D) The sales-price variance and sales-volume variance. 
E) The sales-price variance and fixed-overhead budget variance. 

Ans: D

8. The sales-volume variance equals: 
A) (actual sales volume - budgeted sales volume) x actual sales price. 
B) (actual sales volume - budgeted sales volume) x actual contribution margin. 
C) (actual sales volume - budgeted sales volume) x budgeted contribution margin. 
D) (actual sales price - budgeted sales price) x budgeted sales volume. 
E) (actual sales price - budgeted sales price) x fixed-overhead volume variance. 

Ans: C

Sussex Company uses a standard cost system and prepared the following budget for May when 24,000 machine hours of activity were anticipated:

Variable overhead: $48,000
Fixed overhead: $240,000

Actual data for May were:

Standard machine hours allowed for output attained: 25,000
Actual machine hours worked: 24,000
Variable overhead incurred: $50,000
Fixed overhead incurred: $250,000 

9. The standard variable overhead rate for May is: 
A) $2.00. 
B) $2.08. 
C) $3.00. 
D) $5.00. 
E) $5.21. 

Ans: A

10. Which of the following may best describe and/or measure the true cost of productive-capacity under-utilization? 
A) Lost sales revenues of products that are not produced. 
B) Lost contribution margins of products that are not produced. 
C) Zero. 
D) The fixed manufacturing overhead rate multiplied by the number of units not produced. 
E) An unfavorable variable-overhead efficiency variance. 

Ans: B