Fixed Manufacturing Overhead Variances
Easy to Medium Practice Test
Introduction to Accounting
Easy to Medium Practice Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. A favorable fixed overhead volume variance is most often caused by
a. budgeted fixed overhead being lower than actual fixed overhead
b. under applying fixed overhead to production
c. an increase in inventory because sales were lower than expected.
d. actual production exceeding budgeted production
Answer
D. A fixed overhead volume variance gives the difference in actual quantity produced and what was expected to be produced. The fixed overhead spending variance is (a.) Under applying fixed overhead would mean that less units were produced and it would be unfavorable. (b.). The volume variance comes about because expected production levels were met/not met and is not related to sales. (c.)
2. Which of the following is not a quantity variance?
a. labor efficiency variance
b. overhead efficiency variance
c. overhead budget variance
d. material usage variance
Answer
C. The overhead budget variance comes from a difference in what was spent and what was expected to be spent, quantities are constant, therefore, the difference is not due to quantity. a., b., and d, are all variances that occur because the quantity is different and the standard price is the same.
3. When the activity level is higher
a. the cost per unit is higher
b. the cost per activity is higher
c. the cost per unit is lower
d. the cost per activity is lower
Answer
D. The cost per is calculated by total costs divided by the activity level. As the activity level increases, the cost per activity is lower.
4. When the fixed overhead volume variance is 0
a. actual overhead is equal to budgeted overhead
b. total applied was equal to actual overhead
c. the budgeted activity was equal to the actual activity
d. the budgeted fixed costs were equal to the applied fixed costs
Answer
D. The volume variance compares the budgeted fixed costs to applied fixed costs. When the variance is 0, this means there was no difference and the two are equal.
5. What variance should be used to determine if a company has met its budget for units produced?
a. the spending variance
b. the budget variance
c. the volume variance
d. the price variance
Answer
C. The spending, budget, and price variance each measure if the cost is different per unit. The question is asking about units produced, or a quantity, which is related to the volume variance.
6. If actual manufacturing overhead costs were $110,000 and applied manufacturing overhead costs were $118,800 and the estimated activity base was 20,000 machine hours and 22,000 standard hours were allowed for actual production, what is the predetermined overhead rate per machine hour?
a. $5.00
b. $5.50
c. $5.40
d. $4.40
Answer
C. Applied overhead costs is determined by multiplying the standard hours allowed by the rate per hour. Applied is given at $118,800 / 22,000 standard hours allowed = $5.40. Stated another way, what multiplied by the 22,000 standard hours = $118,800 applied? You can not divided the actual $110,000 by the estimated activity base, you must divide a budget $ by a budget activity.
7. If the fixed manufacturing overhead rate is $4 per unit, 3,000 machine hours were used, and it actually takes 2 machine hours to make one unit, how much fixed overhead was applied?
a. $12,000
b. $24,000
c. $ 6,000
d. $ 8,000
Answer
C. 3,000 total used / 2 each = 1,500 units made x $4 per unit = $6,000 applied
8. The variance that is the least useful in controlling costs is the
a.material price variance
b. labor price variance
c. fixed overhead spending variance
d. fixed overhead volume variance
Answer
D. The price and spending variances can be used by management to determine if they are paying too much per unit and they can then make adjustments. The volume variance is dependent on how many units are produced, which is much more difficult to control in terms of spending less due to the costs being fixed.
9. The actual fixed overhead less the total budgeted overhead for actual units produced equals
a. the fixed overhead spending variance
b. the fixed overhead volume variance
c. total fixed overhead variance
d. all of the above
Answer
C. The total fixed overhead variance. This is the difference in the actual which is on left and the applied which is on the right. It is total and not either a. or b.
10. An unfavorable fixed overhead volume variance is most likely caused by
a. actual fixed overhead costs higher than budgeted fixed overhead costs
b. actual fixed overhead costs lower than budgeted fixed overhead costs
c. applied fixed overhead costs higher than budgeted fixed overhead costs
d. applied fixed overhead costs lower than budgeted fixed overhead costs
Answer
D. A volume variance compared budgeted to applied, so it is not a. or b. Unfavorable means the budget you expected to produce was higher than you actually produced, making the applied lower (and the cost per unit higher)
11. James J. Company is a manufacturing company. The following data has been gathered:
Standard
Materials 1 pounds at $7 per pound
Labor 1.5 hours at $12 per hour
Variable Overhead $10 per labor hour
Fixed Overhead $3.50 per labor hour
Budgeted production for the year 6,000 units
Actual
Materials Purchased 5,200 pounds for $36,720
Materials Used 5,100 pounds
Direct Labor 7,000 hours at $86,100
Variable Overhead $56,170
Fixed overhead $19,680
Units produced 5,200
Compute the following and write the amount as favorable or unfavorable
Fixed overhead volume variance
Answer
Fixed Overhead:
Actual Budget Applied
$19,680 6,000 x 1.5 x $3.50 5,200 x 1.5 x $3.50
= $31,500 = $27,300
Variance $11,820 F $4,200 U
budget volume
Important to notice:
Use labor hour information for the quantity for overhead because the overhead rates are based on labor hours.
Applied is what it was estimated to cost to make the 5,200 actual units with each taking 1.5 hours at $3.50 per hour.
The fixed overhead budget must be calculated since it is not given.
Calculate it the same way you did applied except use budgeted units.
12. The following information is available for the company:
Standard Cost Card:
DM 6 feet at $2 per foot
DL 5 hours at $3 per hour
VOH $1 per hour
FOH ?
Information related to actual production:
Units Produced: 20,000
Materials Purchased: 130,000 feet at $2.10 per foot
Materials Used: 110,000 feet
Direct Labor 115,000 hours at $3.25 per hour
Variable OH $112,500
Fixed OH $440,000
Budgeted fixed overhead for the period is $450,000 and the activity base used for all overhead is an estimated 90,000 direct labor hours.
Compute the following and write the amount as favorable or unfavorable
Fixed overhead budget variance
Fixed overhead volume variance
Answer
Fixed Overhead:
Actual Budget Applied
$440,000 $450,000 20,000 x 5 x $5
Given Given = $500,000
Variance $10,000 F $50,000 F
budget volume
Important to notice:
The fixed overhead rate must be calculated; $450,000 / 90,000 hours equals $5 per labor hour.
Applied is what it was estimated to cost to make the 20,000 actual units with each taking 5 hours at $5.00 per hour.
13. Vulcan Company produces rubber seals used in the aerospace industry. The cost sheet calls for 3.5 pounds of material at $3.40 per pound, .5 hours of labor at $20 per hour, and variable overhead of $7 per direct labor hour. For the current year, expected production is 100,000 seals with a total budgeted fixed overhead of $100,000. During the year, a total of 99,000 seals were produced. The company purchased 350,000 pounds of material for $1,260,000 and put into production 341,550 pounds of material. The actual cost of direct labor used was $1,039,500, an average of $21 per hour. Actual variable overhead for the year was $350,000. Actual fixed overhead totaled $120,000.
Answer
Fixed Overhead:
Actual Budget Applied
$120,000 $100,000 99,000 x .5 x $2
= $99,000
budget volume
Important to notice:
The fixed overhead rate is calculated: $100,000 / 100,000 x .5 each = 50,000 total hours = $2 per direct labor hour
You may use either rate, a per direct labor hour or a per unit rate. You must multiply the rate x the same activity that the per is. You cannot multiply a rate per hour x # units or a rate per unit x # hours.
14. The company manufactured 18,000 units and budgeted to produce 15,000 units. 70,200 yards of material were purchased during the year and inventory increased by 500 yards. Materials cost $3.75 per yard. 29,400 direct labor hours were worked at a cost of $7.40 per hour. Actual variable manufacturing overhead costs were $61,980. Actual fixed manufacturing overhead costs were $136,900.
The standard cost sheet shows the following:
Direct labor 1.5 hours at $8.50 per hour
Variable Overhead 1.5 hours at $2.00 per hour
Fixed Overhead 1.5 hours at $6.00 per hour
Compute all of the fixed overhead variances and write the amount as favorable or unfavorable
Answer
Fixed Overhead:
Actual Budget Applied
$136,900 15,000 x 1.5 x $6 18,000 x 1.5 x $6
= $135,000 = $162,000
budget volume
Important to notice:
Answer
