VARIANCE ANALYSIS AND ABC

G Company

G Company uses a standard cost system for its production process and applies overhead based on
direct labor hours. The following information is available for September when Genesis produced
5,000 units:

Standard:
DLH per unit 3.00
Variable overhead per DLH $1.80
Fixed overhead per DLH $3.25
Budgeted variable overhead $27,250
Budgeted fixed overhead $49,500

Actual:
Direct labor hours 16,000
Variable overhead $31,325
Fixed overhead $49,750

1. Using the one-variance approach, what is the total overhead variance?

a. $ 275 U
b. $ 1,000 U
c. $ 4,325 U
d. $ 5,325 U

2. Using the two-variance approach, what is the controllable variance?

a. $4,075 U
b. $4,075 F
c. $4,575 U
d. $4,575 F

3. Using the two-variance approach, what is the noncontrollable variance?

a. $ 750 F
b. $ 750 U
c. $1,000 F
d. $1,000 U

4. Using the three-variance approach, what is the spending variance?

a. $2,525 U
b. $2,775 U
c. $4,375 U
d. $4,375 F

5. Using the three-variance approach, what is the efficiency variance?

a. $1,800 F
b. $1,800 U
c. $2,050 U
VARIANCE ANALYSIS AND ABC

d. $2,550 F

6. Using the three-variance approach, what is the volume variance?

a. $ 750 F
b. $ 750 U
c. $1,000 U
d. $1,000 F

7. Using the four-variance approach, what is the variable overhead efficiency variance?
a. $ 250 U
b. $ 250 F
c. $1,800 U
d. $1,800 F

8. Using the four-variance approach, what is the fixed overhead spending variance?
a. $ 250 U
b. $ 250 F
c. $1,000 U
d. $2,250 F

9. Using the four-variance approach, what is the volume variance?

a. $ 750 F
b. $ 750 U
c. $1,000 F
d. $1,000 U

10. Which of the following levels of costs should not be allocated to products for decision-
making purposes?
a. Unit-level activities.
b. Batch-level activities.
c. Product-level activities.

d. Organization-sustaining activities
11. Testing a prototype of a new product is an example of a:
a. Unit-level activity.
b. Batch-level activity.
c. Product-level activity.
d. Organization-sustaining activity.

12. Setting up equipment is an example of a:

a. Unit-level activity.
b. Batch-level activity.
c. Product-level activity
d. Organization-sustaining activity.
VARIANCE ANALYSIS AND ABC

13. The clerical activity associated with processing purchase orders to produce an order for a
standard product is an example of a:
a. Unit-level activity.
b. Batch-level activity.
c. Product-level activity.
d. Organization-sustaining activity.

14. Worker recreational facilities is an example of a cost that would ordinarily be considered to
be:
a. Unit-level.
b. Batch-level.
c. Product-level.
d. Organization-sustaining.

15. Arranging for a shipment of a number of different products to a customer is an example of

an activity at which of the following levels?
a. Unit-level activity.
b. Batch-level activity.
c. Customer-level activity.
d. Organization-sustaining activity.

16. Human resource management is an example of an activity at which of the following levels?
a. Unit-level activity.
b. Product-level activity.
c. Batch-level activity.
d. Organization-sustaining activity.

17. Setting up equipment is an example of a:

a. Unit-level activity.
b. Batch-level activity.
c. Product-level activity.
d. Organization-sustaining activity.

18. Which of the following would be classified as a product-level activity?

a. Machine setup for a batch of a standard product.
b. Cafeteria facilities available to and used by all employees.
c. Human resource management.
d. Advertising a product.

19. Departmental overhead rates may not correctly assign overhead costs due to:
a. the use of direct labor hours in allocating overhead costs to products rather than machine time
or quantity of materials used.
b. the high correlation between direct labor-hours and the incurrence of overhead costs.
c. over-reliance on volume as a basis for allocating overhead costs where products differ
regarding the number of units produced, lot size, or complexity of production.
d. difficulties associated with identifying cost pools for the first stage of the allocation process.