VARIANCE

Static budgets are:

• Prepared for a range of activity levels

• Updated for the actual level of activity

• Provide valid basis for comparing actual and expected costs

• Prepared for a single, planned level of activity

Which of the following is true about flexible budgeting?

• Flexible budgets are prepared for one specific activity level

• Total variable costs change in direct proportion to changes in activity

• Total fixed costs change within the relevant range

What does a favourable variable overhead spending variance indicate?

• Actual variable overhead rate is higher than standard variable overhead rate

• Actual variable overhead rate is lower than standard variable overhead rate

• Actual variable overhead is lower than standard variable overhead

• Actual variable overhead is higher than standard variable overhead

What does a favourable fixed overhead budget variance indicate?

• Actual fixed overhead is lower than budgeted fixed overhead

• Actual fixed overhead is higher than budgeted fixed overhead

• Actual hours allowed is lower than standard hours allowed

• Actual hours allowed is higher than standard hours allowed

Which variable overhead variance is more useful in controlling variable overhead costs, and why?

• Efficiency variance, because it reflects how efficient our activity base is

• Efficiency variance, because it measures the standard hours based on actual output

• Spending variance, because it measures the difference between actual and standard direct labour hours

• Spending variance, because it adjusts for actual quantity of cost driver and reflects how efficiently we have been using overheads

Given that:

VOH spending variance = 960F

VOH efficiency variance = 600F

Fixed OH budget variance = 2,100F

Fixed OH volume variance = 2,600U,

What would be in the journal entry to record these variances?

• Debit VOH spending variance 960

• Debit Fixed OH volume variance 2,600

• Credit VOH efficiency variance 600

• Credit Fixed OH budget variance 2,100

Given that:

VOH spending variance = 960F

VOH efficiency variance = 600F

Fixed OH budget variance = 2,100F

Fixed OH volume variance = 2,600U,

How much manufacturing overhead is under/overapplied?

• $1,060 Underapplied

• $1,060 Overapplied

• $360 Underapplied

• $360 Overapplied

Which of the following models describes activity based budgeting?

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