Managerial Accounting Creating Value in a Dynamic Business Environment 10th Edition By Hilton – Test Bank

True / False Questions

1. Flexible budgets reflect a company’s anticipated costs based on variations in activity levels.

TRUE

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-01 Distinguish between static and flexible budgets and explain the advantages of a flexible overhead budget.

2. A flexible budget for 15,000 hours revealed variable manufacturing overhead of $90,000 and fixed manufacturing overhead of $120,000. The budget for 25,000 hours would reveal total overhead costs of $210,000.

FALSE

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 11-02 Prepare a flexible overhead budget; using both a formula and a columnar format.

3. The manufacturing overhead applied to Work-in-Process Inventory by a company that uses standard costing would be computed as actual hours times a predetermined (standard) overhead rate.

FALSE

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-03 Explain how overhead is applied to Work-in-Process Inventory under standard costing.

4. Efficient or inefficient use of a specific component of variable overhead (e.g., electricity) will cause the firm to have a variable-overhead efficiency variance.

TRUE

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 11-05 Compute and interpret the variable-overhead spending and efficiency variances and the fixed-overhead budget and volume variances.

5. The budget variance arises from a comparison of actual variable overhead expenditures with budgeted variable overhead costs.

FALSE

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-05 Compute and interpret the variable-overhead spending and efficiency variances and the fixed-overhead budget and volume variances.

Multiple Choice Questions

6. A static budget:

A. is based totally on prior year’s costs.

B. is based on one anticipated activity level.

C. is based on a range of activity.

D. is preferred over a flexible budget in the evaluation of performance.

E. presents a clear measure of performance when planned activity differs from actual activity.

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-01 Distinguish between static and flexible budgets and explain the advantages of a flexible overhead budget.

7. Flexible budgets reflect a company’s anticipated costs based on variations in:

A. activity levels.

B. inflation rates.

C. managers.

D. anticipated capital acquisitions.

E. standards.

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-01 Distinguish between static and flexible budgets and explain the advantages of a flexible overhead budget.

8. A flexible budget:

A. parallels a static budget with respect to format and advantages of use.

B. is preferred over a static budget in the evaluation of performance.

C. gives management flexibility in terms of meeting budget goals.

D. can be used to compare actual and budgeted costs at various levels of activity.

E. is both preferred over a static budget in the evaluation of performance and can be used to compare actual and budgeted costs at various levels of activity.

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 11-01 Distinguish between static and flexible budgets and explain the advantages of a flexible overhead budget.

9. Interspace Merchandising anticipated selling 29,000 units of a major product and paying sales commissions of $6 per unit. Actual sales and sales commissions totaled 31,500 units and $182,700, respectively. If the company used a static budget for performance evaluations, Interstate would report a cost variance of:

A. $6,300U.

B. $6,300F.

C. $8,700U.

D. $8,700F.

E. None of the other answers are correct.

AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Research
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 11-01 Distinguish between static and flexible budgets and explain the advantages of a flexible overhead budget.

10. Gridiron Merchandising anticipated selling 27,000 units of a major product and paying sales commissions of $6 per unit. Actual sales and sales commissions totaled 27,500 units and $171,400, respectively. If the company used a flexible budget for performance evaluations, Gridiron would report a cost variance of:

A. $6,400U.

B. $6,400F.

C. $9,400U.

D. $9,400F.

E. None of the other answers are correct.