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Unformatted text preview: Chapter 8 Flexible Budgets, Overhead Cost Variances, and Management Control 1) Overhead costs are a major part of costs for most companies more than 50% of all costs for some companies.. 2) At the start of the budget period, management will have made most decisions regarding the level of variable costs to be incurred. 3) One way to manage both variable and fixed overhead costs is to eliminate nonvalue- adding activities.. 4) The planning of fixed overhead costs does not differ from the planning of variable overhead costs. 5) In a standard costing system, the variable-overhead rate per unit is generally expressed as a standard cost per output unit.. 6) For calculating the cost of products and services, a standard costing system does not have to track actual costs.. 7) Standard costing is a cost system that allocates overhead costs on the basis of overhead cost rates based on actual overhead costs times the standard quantities of the allocation bases allowed for the actual outputs produced. 8) The budget period for variable-overhead costs is typically less than 3 months. 9) A favorable variable overhead spending variance can be the result of paying lower prices than budgeted for variable overhead items such as energy.. 10) The variable overhead efficiency variance is computed in a different way than the efficiency variance for direct-cost items. 11) The variable overhead flexible-budget variance measures the difference between standard variable overhead costs and flexible-budget variable overhead costs. 12) The variable overhead efficiency variance measures the efficiency with which the cost-allocation base is used.. 13) The variable overhead efficiency variance can be interpreted the same way as the efficiency variance for direct-cost items. 14) An unfavorable variable overhead efficiency variance indicates that variable overhead costs were wasted and inefficiently used. 15) Causes of a favorable variable overhead efficiency variance might include using lower-skilled workers than expected. 16) If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be an unfavorable variable overhead efficiency variance.. 17) If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be an unfavorable fixed overhead efficiency variance. 18) For fixed overhead costs, the flexible-budget amount is always the same as the static- budget amount.. 19) The fixed overhead flexible-budget variance is the difference between actual fixed overhead costs and the fixed overhead costs in the flexible budget.. 20) There is never an efficiency variance for fixed costs.. 21) All unfavorable overhead variances decrease operating income compared to the budget.....
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- Spring '10