Consider the seven statements that follow.1. An analysis of fixed overhead will typically result in the computation of the fixed-overhead spending variance and the fixed-overhead volume variance.2. The standard rate for fixed overhead is computed by dividing a company's budgeted fixed overhead for the period by the planned manufacturing activity.3. A company uses direct labor hours to apply manufacturing overhead to units of production. If the company reports an unfavorable labor efficiency variance, that same firm might report a favorable variable-overhead efficiency variance in the same accounting period.4. The amount of actual fixed overhead for an accounting period is used to compute the fixed-overhead volume variance.5. If a company's standard hours allowed for the manufacturing

Question

activity attained exceeds the planned manufacturing activity, the firm will report a favorable fixed-overhead volume variance.6. The amount of fixed overhead that a company has budgeted for an accounting period will increase or decrease with the actual number of units produced.7. The fixed-overhead volume variance indicates whether the level of production activity attained is higher or lower than the level originally anticipated.Required: Determine whether the preceding statements are true or false. If a statement is false, briefly explain why it is false.

What will be an ideal response?

Answer 1

1. False-The analysis produces the fixed-overhead budget variance and the fixed-overhead volume variance.
2. True
3. False-The two variances must be consistent (both unfavorable or both favorable) because each is based on direct labor hours.
4. False-The volume variance is the difference between budgeted fixed overhead and applied fixed overhead (i.e., Sq × Sp).
5. True
6. False-Budgeted fixed overhead is a constant amount that doesn't fluctuate with activity.
7. True