09: Variable Cost and Overhead

Topics: Variable cost, Cost accounting, Cost Pages: 36 (6120 words) Published: March 19, 2015
Student: ___________________________________________________________________________


A flexible budget is "flexible" in the sense that a budget can be prepared for any level of activity, but once a budget is set the budget figures are not changed if actual activity later proves to be different than budgeted activity.

True False


In a performance report, actual costs should be compared to budgeted costs at the original budgeted activity level.
True False


The overhead spending variance and the overhead efficiency variance are useful only if variable overhead really should be proportional to the activity measure that is being used in the flexible budget. True False


The variable overhead efficiency variance reflects how efficiently variable overhead resources were used.
True False


A reason for keeping a constant denominator activity level is to maintain stability in the amount of overhead cost that is applied to each unit of product manufactured over the period. True False


The fixed portion of the predetermined overhead rate is used for product costing purposes and has no significance in terms of cost control.
True False


When choosing an activity measure for a flexible budget, it is best to choose an activity that is measured in dollars.
True False


In a standard costing system, under-applied or over-applied fixed overhead is equal to the sum of the fixed overhead budget variance and the fixed overhead volume variance. True False


If the standard hours allowed for the actual output of the period is greater than the denominator level of activity (in hours), then the overhead budget variance will be unfavourable. True False

10. The fixed overhead budget variance is not controllable by managers since fixed costs are not controllable.
True False
11. One cause of an unfavourable overhead volume variance would be increases in cost for fixed overhead items.
True False
12. If the denominator activity (in hours) used to compute the predetermined overhead rate is equal to the actual activity (in hours) for the period, then there is no volume variance. True False
13. Since managers want stable unit cost figures, the accountant creates an artificial stability so far as fixed costs are concerned by applying fixed costs to products as if the fixed costs were really variable. True False

14. A static budget is geared toward a single level of activity. True False
15. The static budget is a good tool for assessing whether variable costs are under control. True False
16. A flexible budget is a budget that is developed using budgeted revenue or cost amounts and is not adjusted at the end of the budgeted period.
True False
17. A flexible budget enables managers to compute a richer set of variances than a static budget does. True False
18. The flexible budget variance is the difference between the actual results and the flexible-budget amount for the actual levels of the revenue and cost drivers.
True False
19. The flexible budget variance pertaining to revenues is also called the variance of operating income. True False
20. If a company has a favourable efficiency variance, it uses less inputs than were budgeted for the output units achieved.
True False
21. A flexible budget variance can be decomposed into efficiency variance and a price variance. True False
22. The most important task in variance analysis is to understand why variances occur, and then to use that knowledge to promote learning and continual improvement.
True False
23. A limitation of a static budget is that a favourable revenue variance based upon higher than planned activity levels will usually result in unfavourable variable cost variances. True False
24. The activity base selected to use in preparing a flexible budget should cause, or at least be highly correlated with, changes in variable costs.
True False
25. The fixed overhead budget variance is measured by?
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