TEST BANK
Introduction to
MANAGERIAL ACCOUNTING
seventh edition
, Appendix 8A
Predetermined Overhead Rates and Overhead Analysis in a Standard Costing
System
True / False Questions
1. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. A fixed manufacturing overhead volume variance
will NOT necessarily occur in a month in which production volume differs from sales volume.
True False
2. The fixed manufacturing overhead volume variance is more meaningful than the budget variance for cost
control purposes.
True False
3. In a standard costing system, if the actual fixed manufacturing overhead cost exceeds the budgeted fixed
manufacturing overhead cost for the period, then fixed manufacturing overhead cost would be overapplied
for the period.
True False
4. If all four of Argo Corporation's overhead variances are favorable, Argo's overhead will be underapplied.
True False
5. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. The company's choice of the denominator level of
activity affects the fixed manufacturing overhead budget variance.
True False
6. The higher the denominator activity level used to compute the predetermined overhead rate, the lower the
predetermined overhead rate.
True False
App8A-1
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
,7. An unfavorable volume variance means that a firm operated at an activity level that was below the activity
level planned for the period.
True False
8. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. A fixed manufacturing overhead volume variance
will NOT necessarily occur in a month in which the fixed manufacturing overhead applied to units of
product on the basis of standard hours allowed differs from the budgeted fixed manufacturing overhead.
True False
9. A fixed manufacturing overhead volume variance occurs as the result of a difference between the
denominator level of activity (in hours) and the standard hours allowed for the actual output of the period.
True False
10. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. A fixed manufacturing overhead volume variance
will NOT necessarily occur in a month in which there is a fixed manufacturing overhead budget variance.
True False
11. In a standard costing system where the denominator activity for the predetermined overhead rate is labor-
hours, overhead costs are applied to work in process on the basis of the standard labor-hours allowed for
the actual output.
True False
12. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. The company's choice of the denominator level of
activity has no effect on the variable portion of the predetermined overhead rate.
True False
13. A favorable volume variance means that the company operated at an activity level greater than that planned
for the period.
True False
14. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. The company's choice of the denominator level of
activity affects the fixed manufacturing overhead volume variance.
True False
App8A-2
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
, Multiple Choice Questions
15. Sulema, Inc. repairs and refinishes antique furniture. Manufacturing overhead at Sulema is applied to
production on the basis of standard direct labor-hours. Which overhead variance(s) at Sulema would be
unfavorably affected if the cost of solvents used to strip the old paint from the furniture unexpectedly
doubles in price?
A. variable overhead rate variance
B. variable overhead efficiency variance
C. fixed manufacturing overhead budget variance
D. fixed manufacturing overhead volume variance
16. When computing standard cost variances, the difference between actual and standard price multiplied by
actual quantity yields a(n):
A. combined price and quantity variance.
B. efficiency variance.
C. price or rate variance.
D. quantity variance.
17. The fixed manufacturing overhead budget variance is:
A. the difference between budgeted fixed manufacturing overhead cost and actual fixed manufacturing
overhead cost.
B. the difference between actual fixed manufacturing overhead cost and applied fixed manufacturing
overhead cost.
C. the difference between budgeted fixed manufacturing overhead cost and applied fixed manufacturing
overhead cost.
D. the difference between fixed overhead at the planned level of activity and the flexible budget for actual
activity.
18. A volume variance is computed for:
A. both variable and fixed manufacturing overhead.
B. variable manufacturing overhead only.
C. fixed manufacturing overhead only.
D. direct labor costs as well as overhead costs.
App8A-3
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
Introduction to
MANAGERIAL ACCOUNTING
seventh edition
, Appendix 8A
Predetermined Overhead Rates and Overhead Analysis in a Standard Costing
System
True / False Questions
1. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. A fixed manufacturing overhead volume variance
will NOT necessarily occur in a month in which production volume differs from sales volume.
True False
2. The fixed manufacturing overhead volume variance is more meaningful than the budget variance for cost
control purposes.
True False
3. In a standard costing system, if the actual fixed manufacturing overhead cost exceeds the budgeted fixed
manufacturing overhead cost for the period, then fixed manufacturing overhead cost would be overapplied
for the period.
True False
4. If all four of Argo Corporation's overhead variances are favorable, Argo's overhead will be underapplied.
True False
5. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. The company's choice of the denominator level of
activity affects the fixed manufacturing overhead budget variance.
True False
6. The higher the denominator activity level used to compute the predetermined overhead rate, the lower the
predetermined overhead rate.
True False
App8A-1
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
,7. An unfavorable volume variance means that a firm operated at an activity level that was below the activity
level planned for the period.
True False
8. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. A fixed manufacturing overhead volume variance
will NOT necessarily occur in a month in which the fixed manufacturing overhead applied to units of
product on the basis of standard hours allowed differs from the budgeted fixed manufacturing overhead.
True False
9. A fixed manufacturing overhead volume variance occurs as the result of a difference between the
denominator level of activity (in hours) and the standard hours allowed for the actual output of the period.
True False
10. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. A fixed manufacturing overhead volume variance
will NOT necessarily occur in a month in which there is a fixed manufacturing overhead budget variance.
True False
11. In a standard costing system where the denominator activity for the predetermined overhead rate is labor-
hours, overhead costs are applied to work in process on the basis of the standard labor-hours allowed for
the actual output.
True False
12. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. The company's choice of the denominator level of
activity has no effect on the variable portion of the predetermined overhead rate.
True False
13. A favorable volume variance means that the company operated at an activity level greater than that planned
for the period.
True False
14. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. The company's choice of the denominator level of
activity affects the fixed manufacturing overhead volume variance.
True False
App8A-2
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
, Multiple Choice Questions
15. Sulema, Inc. repairs and refinishes antique furniture. Manufacturing overhead at Sulema is applied to
production on the basis of standard direct labor-hours. Which overhead variance(s) at Sulema would be
unfavorably affected if the cost of solvents used to strip the old paint from the furniture unexpectedly
doubles in price?
A. variable overhead rate variance
B. variable overhead efficiency variance
C. fixed manufacturing overhead budget variance
D. fixed manufacturing overhead volume variance
16. When computing standard cost variances, the difference between actual and standard price multiplied by
actual quantity yields a(n):
A. combined price and quantity variance.
B. efficiency variance.
C. price or rate variance.
D. quantity variance.
17. The fixed manufacturing overhead budget variance is:
A. the difference between budgeted fixed manufacturing overhead cost and actual fixed manufacturing
overhead cost.
B. the difference between actual fixed manufacturing overhead cost and applied fixed manufacturing
overhead cost.
C. the difference between budgeted fixed manufacturing overhead cost and applied fixed manufacturing
overhead cost.
D. the difference between fixed overhead at the planned level of activity and the flexible budget for actual
activity.
18. A volume variance is computed for:
A. both variable and fixed manufacturing overhead.
B. variable manufacturing overhead only.
C. fixed manufacturing overhead only.
D. direct labor costs as well as overhead costs.
App8A-3
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
