Chapter 5, 7, & 8

Question 1

Overcosting a particular product may result in \_\_\_\_\_\_\_\_.
A) loss of market share 
B) pricing the product too low
C) operating efficiencies 
D) understating total product costs

Answer 1

A) loss of market share

Question 2

Product-cost cross-subsidization ________.
A) exists when one overcosted product results in more than one other product being overcosted
B) means that if a company undercosts more than one of its products, it will overcost more than one of its other products
C) means that if a company undercosts one of its products, it will overcost at least one of its other products
D) exists only when one overcosted product results in all other products being overcosted

Answer 2

C) means that if a company undercosts one of its products, it will overcost at least one of its other products

Question 3

ABC systems create ________.
A) one large cost pool
B) homogenous activity-related cost pools
C) activity-cost pools with a broad focus
D) activity-cost pools containing many direct costs

Answer 3

B) homogenous activity-related cost pools

Question 4

*Look at #4 Ch. 5 to answer:
Which of the following statement is true of Hebar's setup costs under traditional costing?
A) L3 pack is undercosted by $5,550
B) L7 pack is undercosted by $5,450
C) L3 pack is overcosted by $5,550
D) L7 pack is overcosted by $5,550

Answer 4

Explanation: C) Setup cost allocated using direct labor-hours - Setup cost allocated using setup-hours
= $18,750 − $13,200 = $5,550

Question 5

Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $80,000. The budgeted number of nozzles to be inserted is 40,000. What is the budgeted indirect cost allocation rate for this activity? 
A) $0.50 
B) $1.00 
C) $1.50 
D) $2.00

Answer 5

D) $2.00

Explanation: D) $80,000 / 40,000 = $2.00

Question 6

Activity-based costing is most likely to yield benefits for companies ________.
A) with complex product design processes
B) with operations that remain fairly consistent
C) in a monopolistic market
D) having nominal percentage of indirect costs

Answer 6

A) with complex product design processes

Question 7

*Look at #7 Ch. 5

Answer 7

*Look at #7 Ch. 5

Question 8

It is usually difficult to find good cause-and-effect relationships between \_\_\_\_\_\_\_\_ and a cost allocation base. 
A) unit-level costs 
B) batch-level costs 
C) product-sustaining costs 
D) facility-sustaining costs

Answer 8

D) facility-sustaining costs

Question 9

With traditional costing systems, products manufactured in small batches and in small annual volumes may be \_\_\_\_\_\_\_\_ because batch-related and product-sustaining costs are assigned using unit-related drivers. 
A) overcosted 
B) fairly costed 
C) undercosted 
D) ignored

Answer 9

C) undercosted

Question 10

________ is considered while choosing a cost allocation base for activity costs in ABC costing.
A) Marketing strategy and material price level
B) Availability of reliable data and measures
C) Product price level
D) Market share of a product

Answer 10

B) Availability of reliable data and measures

Question 11

A manufacturing firm produces multiple families of products requiring various combinations of different types of parts. Of the following, the most appropriate cost driver for assigning materials handling costs to the various products is \_\_\_\_\_\_\_\_.
A) direct labor hours 
B) number of units produced 
C) number of parts used 
D) number of suppliers involved

Answer 11

C) number of parts used

Question 12

Recognizing ABC information is not always perfect because ________.
A) it mostly uses far too many indirect cost pools than what is actually required
B) it balances the need for better information against the costs of creating a complex system
C) it lacks the simplicity that traditional systems used to have to allocate overhead costs
D) it never measures how the resources of an organization are used

Answer 12

B) it balances the need for better information against the costs of creating a complex system

Question 13

Activity-based costing information can be used for ________.
A) product-mix decisions
B) pricing decisions
C) advertisement decisions
D) inventory valuation
(Two Correct Answers, I Will Not Put on Final)

Answer 13

A) product-mix decisions

B) pricing decisions

Question 14

ABC and traditional systems are quite similar in \_\_\_\_\_\_\_\_.
A) the treatment of direct costs
B) the allocation of overheads
C) evaluating performance
D) the identification of cost pools

Answer 14

A) the treatment of direct costs

Question 15

Which of the following is a disadvantage of an activity-based costing system?
A) It classifies some indirect costs as direct costs.
B) It assumes all costs as direct costs.
C) It needs activity-cost rates to be updated regularly.
D) It ignores direct costs of a product

Answer 15

C) It needs activity-cost rates to be updated regularly.

Question 16

Service companies, in particular, find great value from ABC because a vast majority of their cost structure is composed of \_\_\_\_\_\_\_\_ costs.
A) prime 
B) factory 
C) indirect
D) committed

Answer 16

C) indirect

Question 17

Management by exception is a practice whereby managers focus more closely on ________.
A) a static budget
B) areas that are not operating as anticipated
C) activity-based costing
D) exceptional decision-making models

Answer 17

B) areas that are not operating as anticipated

Question 18

A variance is ________.
A) the difference between actual fixed cost per unit and standard variable cost per unit
B) the standard units of inputs for one output
C) the difference between an actual result and a budgeted performance
D) the difference between actual variable cost per unit and standard fixed cost per unit

Answer 18

C) the difference between an actual result and a budgeted performance

Question 19

An unfavorable variance indicates that ________.
A) the actual costs are less than the budgeted costs
B) the actual revenues exceed the budgeted revenues
C) the actual units sold are less than the budgeted units
D) the budgeted contribution margin is more than the actual amount

Answer 19

C) the actual units sold are less than the budgeted units

Question 20

Lander Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and used a budgeted selling price of $18 per unit.

Actual Budgeted
Units sold 41,000 40,000
Variable costs $164,000 $156,000
Fixed costs $46,000 $48,000

What is the static-budget variance of revenues? 
A) $18,000 favorable 
B) $18,000 unfavorable 
C) $6,000 favorable 
D) $4,000 unfavorable

Answer 20

A) Static-budget variance of revenues = (41,000 units × $18) - (40,000 units × $18) = $18,000 F

Question 21

Lander Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and used a budgeted selling price of $18 per unit.

Actual Budgeted
Units sold 41,000 40,000
Variable costs $164,000 $156,000
Fixed costs $46,000 $48,000

What is the static-budget variance of variable costs? 
A) $2,000 favorable 
B) $8,000 unfavorable 
C) $4,000 favorable 
D) $6,000 unfavorable

Answer 21

B) Static-budget variance of variable costs = $164,000 − $156,000 = $8,000 U

Question 22

Lander Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and used a budgeted selling price of $18 per unit.

Actual Budgeted
Units sold 41,000 40,000
Variable costs $164,000 $156,000
Fixed costs $46,000 $48,000

What is the static-budget variance of operating income? 
A) $10,000 favorable 
B) $10,000 unfavorable 
C) $12,000 favorable 
D) $12,000 unfavorable

Answer 22

C) $12,000 favorable

*Look at #6 on Ch. 7 for full explanation

Question 23

A flexible-budget variance is $600 favorable for unit-related costs. This indicates that costs were ________.
A) $600 more than the master budget
B) $600 less than for the planned level of activity
C) $600 more than standard for the achieved level of activity
D) $600 less than standard for the achieved level of activity

Answer 23

D) $600 less than standard for the achieved level of activity

Question 24

The sales-volume variance is sometimes due to ________.
A) the difference between selling price and budgeted selling price
B) quality problems leading to customer dissatisfaction
C) unexpected increase in manufacturing labor time
D) unexpected increase in the use of quantities of inputs of raw material

Answer 24

B) quality problems leading to customer dissatisfaction

Question 25

An efficiency variance reflects the difference between ________.
A) actual input quantities used last period and current period
B) an actual input quantity and a budgeted input quantity
C) an actual input quantity used in a company and its main competitor’s
D) a standard input quantity in a company and its main competitor’s

Answer 25

B) an actual input quantity and a budgeted input quantity

Question 26

A price variance reflects the difference between ________.
A) a standard input price in a company and its competitor
B) an actual input price used last period and current period
C) an actual input price used in a company and its competitor
D) an actual input price and a budgeted input price

Answer 26

D) an actual input price and a budgeted input price

Question 27

Standard material cost per kg of raw material is $5. Standard material allowed per unit is 2 Kg. Actual material used per unit is 2.5 Kg. Actual cost per kg is $4.5. What is the standard cost per output unit?
A) $9
B) $11.25
C) $10
D) $12.5

Answer 27

C) $10

Standard cost per output unit = Standard material cost per kg × standard material allowed per unit = $5 × 2kg = $10

Question 28

Standard labor rate is $8 per hour. Standard labor allowed per unit is 0.6 hours. Actual cost per labor hour is $7.5 and actual labor hour per unit is 0.7 hours. What is the standard labor cost per output unit?
A) $4.5
B) $4.8
C) $5.6
D) $5.25

Answer 28

B) $4.8

Standard cost per output unit = Standard labor allowed per unit × Standard labor rate = $8 × 0.6 hours = $4.8 per unit

Question 29

An unfavorable price variance for direct materials might indicate ________.
A) that the purchasing manager purchased in smaller quantities due to a change to just-in-time inventory methods
B) congestion due to scheduling problems
C) that the purchasing manager skillfully negotiated a better purchase price
D) that the market had an unexpected oversupply of those materials

Answer 29

A) that the purchasing manager purchased in smaller quantities due to a change to just-in-time inventory methods

Question 30

A favorable price variance for direct manufacturing labor might indicate that ________.
A) employees were paid more than planned
B) unexpected increase in direct labor rates
C) under skilled employees are being hired
D) congestion due to scheduling problems

Answer 30

C) under skilled employees are being hired

Question 31

The best label for the formula (AQ - BQ) BP is the \_\_\_\_\_\_\_\_.
A) efficiency variance 
B) price variance 
C) total flexible-budget variance
D) spending variance

Answer 31

A) efficiency variance

Question 32

The best label for the formula (AP - BP) AQ is the \_\_\_\_\_\_\_\_.
A) efficiency variance 
B) price variance 
C) total flexible-budget variance 
D) spending variance

Answer 32

B) price variance

Question 33

Which of the following is a reason for a favorable material price variance?
A) the purchasing manager bargaining effectively with suppliers
B) the purchasing manager giving orders for small quantity to reduce storage cost
C) the purchasing manager accepting a bid from the highest-priced supplier to ensure the quality of material
D) the personnel manager hiring under skilled workers

Answer 33

A) the purchasing manager bargaining effectively with suppliers

Question 34

If manufacturing machines are breaking down more than expected, this will contribute to a(n) ________.
A) favorable direct manufacturing labor price variance
B) unfavorable direct manufacturing labor price variance
C) favorable direct manufacturing labor efficiency variance
D) unfavorable direct manufacturing labor efficiency variance

Answer 34

D) unfavorable direct manufacturing labor efficiency variance

Question 35

Variances should be investigated ________.
A) when they are kept below a certain amount
B) when there is a small variance for critical items such as product defects
C) even though the cost of investigation exceeds the benefit
D) when there is an in-control occurrence

Answer 35

B) when there is a small variance for critical items such as product defects

Question 36

Nonfinancial performance measures ________.
A) are usually used in combination with financial measures for control purposes
B) are used to evaluate overall cost efficiency
C) allow managers to make informed tradeoffs
D) are often the sole basis of a manager’s performance evaluations

Answer 36

A) are usually used in combination with financial measures for control purposes

Question 37

Effective planning of variable overhead costs means that a company performs those variable overhead costs that primarily ________.
A) increase the planned variable overhead budgets
B) add value for the customer using the products or services
C) increase the linearity between total costs and volume of production
D) identify the product advertising requirements

Answer 37

B) add value for the customer using the products or services

Question 38

Fixed overhead costs include \_\_\_\_\_\_\_\_. 
A) the cost of sales commissions 
B) property taxes paid on plant facilities 
C) energy costs 
D) indirect materials

Answer 38

B) property taxes paid on plant facilities

Question 39

The major challenge when planning fixed overhead is ________.
A) calculating total costs
B) calculating the cost-allocation rate
C) choosing the appropriate level of capacity
D) choosing the appropriate planning period

Answer 39

C) choosing the appropriate level of capacity

Question 40

Alka Corporation manufactures industrial-sized gas furnaces and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company’s manufacturing overhead data:

Budgeted output units 29,000 units
Budgeted machine-hours 10,150 hours
Budgeted variable manufacturing overhead costs for 10,150 hours $324,800

Actual output units produced 31,000 units
Actual machine-hours used 14,400 hours
Actual variable manufacturing overhead costs $333,250

What is the budgeted variable overhead cost rate per output unit? 
A) $11.70 
B) $11.75 
C) $11.20
D) $11.00

Answer 40

C) $11.20
Machine hour per unit = 10,150 ÷ 29,000 = 0.35
Budgeted cost per machine hour = $324,800 ÷ 10,150 = $32
Budgeted cost per unit = $32 × 0.35 = $11.20

Question 41

T or F?

Fixed costs automatically increase or decrease with the level of activity within a relevant range of activity.

Answer 41

False:

Fixed costs do not automatically increase or decrease with the level of activity within the relevant range.

Question 42

The variable overhead flexible-budget variance can be further subdivided into the ________.
A) price variance and the efficiency variance
B) static-budget variance and sales-volume variance
C) spending variance and the efficiency variance
D) sales-volume variance and the spending variance

Answer 42

C) spending variance and the efficiency variance

Question 43

Zitrik Corporation manufactured 90,000 buckets during February. The variable overhead cost-allocation base is $5.05 per machine-hour. The following variable overhead data pertain to February:

Actual	Budgeted Production	90,000 	90,000 units Machine-hours	9,800 	9,000 hours Variable overhead cost per machine-hour	$5.15	$5.05

7) What is the actual variable overhead cost? 
A) $463,500 
B) $436,500 
C) $50,470 
D) $49,490

Answer 43

C) Actual variable overhead cost = 9,800 mh × $5.15 = $50,470

Question 44

Zitrik Corporation manufactured 90,000 buckets during February. The variable overhead cost-allocation base is $5.05 per machine-hour. The following variable overhead data pertain to February:

Actual	Budgeted Production	90,000 	90,000 units Machine-hours	9,800 	9,000 hours Variable overhead cost per machine-hour	$5.15	$5.05

What is the flexible-budget amount? 
A) $49,490 
B) $45,450 
C) $46,350 
D) $47,650

Answer 44

B) $45,450

Flexible-budget amount = 9,000 mh × $5.05 = $45,450

Question 45

Zitrik Corporation manufactured 90,000 buckets during February. The variable overhead cost-allocation base is $5.05 per machine-hour. The following variable overhead data pertain to February:

Actual	Budgeted Production	90,000 	90,000 units Machine-hours	9,800 	9,000 hours Variable overhead cost per machine-hour	$5.15	$5.05

What is the variable overhead spending variance? 
A) $980 favorable
B) $900 unfavorable 
C) $980 unfavorable
D) $900 favorable

Answer 45

C) $980 unfavorable

Variable overhead spending variance = ($5.15 − $5.05) × 9,800 mh = $980 unfavorable

Question 46

Zitrik Corporation manufactured 90,000 buckets during February. The variable overhead cost-allocation base is $5.05 per machine-hour. The following variable overhead data pertain to February:

Actual	Budgeted Production	90,000 	90,000 units Machine-hours	9,800 	9,000 hours Variable overhead cost per machine-hour	$5.15	$5.05

What is the variable overhead efficiency variance? 
A) $4,040 unfavorable
B) $4,120 favorable
C) $4,040 favorable
D) $4,120 unfavorable.

Answer 46

A) $4,040 unfavorable

Variable overhead efficiency variance = [9,800 − 9,000] × $5.05 = $4,040 unfavorable

Question 47

T or F?

If budgeted and actual machine hours are equal, spending variance will always be nil.

Answer 47

False
Even if budgeted and actual machine hours are equal, spending variance can occur. Because even though the company used the correct number of machine-hours, the energy consumed per machine-hour could be higher than budgeted.

Question 48

When machine-hours are used as an overhead cost-allocation base and annual leasing costs for equipment unexpectedly increase, the most likely result would be to report a(n) ________.
A) unfavorable variable overhead spending variance
B) favorable variable overhead efficiency variance
C) unfavorable fixed overhead flexible-budget variance
D) favorable production-volume variance

Answer 48

C) unfavorable fixed overhead flexible-budget variance

Question 49

For fixed manufacturing overhead, there is no \_\_\_\_\_\_\_\_.
A) spending variance 
B) efficiency variance 
C) flexible-budget variance 
D) production-volume variance

Answer 49

B) efficiency variance

Question 50

The production-volume variance may also be referred to as the \_\_\_\_\_\_\_\_. 
A) flexible-budget variance 
B) denominator-level variance 
C) spending variance 
D) efficiency variance

Answer 50

B) denominator-level variance

Question 51

Under standard costing, ________.
A) fixed overhead costs are treated as if they are a variable cost
B) fixed overhead costs are treated as if they are a fixed cost
C) variable overhead costs are treated as if they are a fixed cost
D) fixed overhead costs are treated as if they are a sunk cost

Answer 51

A) fixed overhead costs are treated as if they are a variable cost