Question

1. Which one of the following journal entries in a standard cost system would be used to apply standard factory overhead costs to production?

A) A credit to the factory overhead account, at standard cost.

B) A credit to Finished Goods Inventory, at standard cost.

C) A debit to WIP inventory, at actual cost.

D) A credit to WIP inventory, at standard cost.

E) A debit to the factory overhead account, at standard cost.

2. Which one of the following factory overhead variances reflects the effect of deviation in input quantities only if the cost driver for applying variable overhead is a perfect predictor of variable overhead cost?

A) Variable overhead efficiency variance.

B) Variable overhead flexible-budget variance.

C) Total variable overhead variance.

D) Variable overhead rate variance.

E) Variable overhead spending variance.

3. In terms of allocating fixed overhead cost to products, generally accepted accounting principles in the U.S.:

A) Specify only that such costs be "reasonably allocated" to outputs.

B) Allow for the use of either practical capacity or theoretical capacity.

C) Require that such allocations be based on normal capacity.

D) Don't apply since the resulting data are used only internally (for control purposes).

E) Require that these costs be expensed in the period incurred.

4) Systematic variances, as this term is used in the text, are persistent and most likely:

A) Must be allocated at the end of the period to inventory and cost of goods sold accounts.

B) Average out to a steady-state amount over time.

C) Will recur unless corrected.

D) Are small in amount.

E) Are not worth management time and effort to investigate.

Answer 1

1) A. A credit to factory overhead at standard cost.

The factory overhead account is credited and the work in process account is debited. Remaining options are not correct for recording the factory overhead in standard cost system.

2) A. Variable overhead efficiency variance.

The effects of deviation in input quantities only is shown by the variable overhead efficiency variance. The total variable variance or flexible budget variance does not show the effects of input deviation.

3) A. Specify that only such costs be "reasonable allocated" to outputs.

The remaining is not specify by the generally accepted accounting principles in the U.S for allocating the fixed overhead to the production.

4) A. Must be allocated at the end of the period to inventory and cost of goods sold accounts.

As the name suggests, the systematic variances are the variance which are most interested by the management.