accounting chapter 11

The activity base that is used to apply overhead to units of a product is usually machine-hours or direct labor-hours.

true

The variable overhead efficiency variance measures the difference between the actual hours used in production and the hours that should have been used times the standard variable overhead rate.

true

When residual income or EVA is used to measure performance, the objective is to maximize the total amount of residual income or EVA, not to maximize ROI. This is an important distinction. If the objective were to maximize ROI, then every company should divest all of its products except the single product with the highest ROI.

when a manager is evaluated on residual income, an invest ment is acceptable when: net operating income for the investmemt is above the minium requires

What is the fixed component of the predetermined overhead rate?

$3.50 Fixed component of the predetermined overhead rate = Budgeted fixed manufacturing overhead ÷ Budgeted machine-hours = $21,000/6,000 machine-hours = $3.50 per MH.

What is the fixed overhead volume variance?

$5,250 F Comparing the budgeted machine-hours with the standard hours allowed for actual activity, we can see that the standard hours allowed for actual activity is more than the budgeted machine-hours. Therefore, this signals an efficient usage of resources implying a favorable variance. Fixed overhead volume variance = Fixed component of predetermined overhead rate × (denominator hours − Standard hours for actual output) = $3.50 per MH × (6,000 machine-hours − 7,500 machine-hours) = $5,250 F.

What is the spending variance for the month of March?

180 U Comparing the actual hours used at the actual rate with the standard hours that should have been used at the standard rate, we determine that the company paid $180 more than what was expected, or that there was an unfavorable variance of $180 Actual hours of Input at actual rate (AH x AR) =(2200 hrs x $1.90) Actual Hrs of Input at standard rate (AH x SR) =(2200 hrs x $2.00) Standard Hrs Allowed for Actual Output at Standard Rate (SH x SR) =2000 hrs x $2.00)

What is the variable overhead efficiency variance?

600 U Comparing the actual labor-hours used with the standard labor-hours that should have been used, we determine that the company used more labor-hours than what was estimated. Therefore, the variable overhead allocated during the period will be more than what was estimated. Hence, the variable overhead efficiency variance is SR × (AH − SH ) =$2.00 × (3,300 − 3,000) = $600 U.

Budget variance is the difference between the _______ and the budgeted fixed overhead costs for the period.

Denominator Activity

If the denominator hours exceed the standard hours allowed for the actual output, the volume variance is _______

Unfavorable

The estimated amount of allocation base used in the calculation of the predetermined overhead rate is called the _______

denominator activity

When direct labor is used as the base for applying overhead, if the direct labor efficiency variance is unfavorable, the variable overhead efficiency variance will be favorable.

false

The variable overhead efficiency variance tells us how efficiently overhead resources were used.

fasle

companies that are strongly decentralized should give all their ________ the ability to make business decisions about the day to day operations of the company

managers