ACG6309 Ch 11

If the activity measure chosen for flexible budget is appropriate, the ______.

a. total variable cost will change in proportion to the change in activity b. pattern by which the cost and the activity vary will be similar

A budget that is not based on only one level of activity is called a(n) ______ budget.

flexible

An activity measure focused on activity required during production is called a(n) ______ measure.

input

A static budget:

is based on one anticipated activity level.

A flexible budget:

is both preferred over a static budget in the evaluation of performance and can be used to compare actual and budgeted costs at various levels of activity.

For control purposes, the budgeted fixed overhead ______.

is the same at all levels of activity

Overhead is overapplied when is when actual overhead is ______ than applied overhead

less

When actual activity is lower than planned activity, actual costs are expected to be ______.

lower than planned

Overhead costs that vary with appropriately chosen cost drivers occur in ______

manufacturing firms and service-industry organizations

Because variable overhead is a pool of indirect costs, when the variable overhead efficiency variance is unfavorable, it means that the company had an actual level of activity that was ______ than the standard level of activity allowed for the actual output.

more

Itemized overhead variances are presented along with actual and budgeted costs for each overhead item, in a ______ cost performance report.

overhead

To discover the reasons behind the total variable overhead variance, what additional variances should be calculated?

a. spending variance b. efficiency variance

The journal entry to apply overhead debits work in process for the ______.

predetermined overhead rate x standard allowed activity level

Match Point, Inc. has the following overhead standards: Variable overhead: 4 hours at $8 per hourFixed overhead: 4 hours at $10 per hourThe standards were based on a planned activity of 20,000 machine hours when 5,000 units were scheduled for production. Actual data follow.Variable overhead incurred: $167,750Fixed overhead incurred: $210,000Machine hours worked: 19,800Actual units produced: 5,100 Match Point's fixed-overhead budget variance is:

$10,000 unfavorable. 20,000 × $10 = $200,000 Std; $210,000 − $200,000 = $10,000 unfavorable.

Hickory Manufacturing makes rocking chairs. Based upon their master budget for the current year, the predetermined variable overhead rate is $3.60 per processing hour. Fixed overhead costs are budgeted at $54,000 per month. The budgeted processing time per rocking chair is 2.75 hours. During September, the company made 10,200 rocking chairs, had 30,000 processing hours, incurred $105,400 in variable overhead costs and $48,600 in fixed overhead costs. Calculate the projected budget for variable overhead for September.

$108,000. Reason: 30,000 x $3.60= $108,000

When actual overhead is greater than applied overhead, overhead is ______.

underapplied

True or false: Use of a flexible budget for comparison to actual costs focuses attention on differences caused by the differing activity levels.

False. Reason: Since flexible budgets are created based upon actual activity levels, the activity levels would be the same, so the differences would come from sources other than activity levels

Dealer Enterprises (DE) anticipated that 84,000 process hours would be worked during an upcoming accounting period when, in fact, 92,000 hours were actually worked. One of the company's cost functions is expressed as follows:Y = $16PH + $640,000 where PH is defined as process hoursWhat budgeted dollar amount would appear in DE's static budget and flexible budget for the preceding cost function? Static FlexibleA.$1,984,000 $1,984,000 B.$1,984,000 $2,112,000 C.$2,112,000 $1,984,000 D.$2,112,000 $2,112,000 E.None of the answers is correct.

Choice B Y = $16(84,000) + $640,000 = $1,984,000 Static; $16(92,000) + $640,000 = $2,112,000 Flexible

True or false: Flexible budgeting is not used in service industries as all costs are classified as operating expenses.

False

In a standard costing system, overhead is applied to work in process based on the predetermined rate times ______.

standard activity allowed

Applied fixed overhead is predetermined fixed overhead rate times the ______.

standard activity allowed for actual output

Assume that machine hours drive the cost for overhead. The difference between the actual variable overhead incurred and the applied variable overhead is the:

sum of the spending and efficiency variances.

The projected variable overhead budget is ______.

the benchmark against which the actual spending on variable overhead is assessed.

When the amount spent for fixed overhead is greater than budgeted the budget variance will be ______.

unfavorable

Costs that change proportionately with changes in activity are ______ costs.

variable

The overhead cost performance report includes spending and efficiency variances for ______.

variable items only

For product costing purposes, fixed production overhead is treated as ______.

variable with the amount of the cost driver

A way of reconciling the two different purposes of the standard costing system is provided by the fixed overhead ______ variance.

volume

The difference between budgeted fixed overhead and applied fixed overhead is the ______ variance.

volume

The sales volume variance is the difference between actual and budgeted sales ______.

volume X budgeted sales price

Sugarland Company is using new cost drivers for its accounting system. One driver material handling for unit variable costs and number of inspections for a pool of batch-level costs. Data for the past year follow. Budget ActualMaterial handling 180,000 225,000 Number of inspections 6,000 6,600 Unit variable cost pool$810,000 $1,035,000 Batch-level cost pool$115,200 $126,060 What is the total flexible budget dollar amount for the actual level of material handling and actual number of inspections?

$1,139,220. Explanation These actual amounts are the flexible budget amount with two pools. ($810,000 / 180,000) × 225,000 = $1,012,500; ($115,200 / 6,000) × 6,600 = $126,720; $1,012,500 + $126,720 = $1,139,220.

Beech Manufacturing has identified utilities as a variable cost based upon machine hours. The rate per machine hour is $0.33. The company predicted the number of machine hours for June to be 10,000. At the end of June, it was determined that the company used 12,500 machine hours. The static budget for utilities is $

3,300

Beech Manufacturing has identified utilities as a variable cost based upon machine hours. The rate per machine hour is $0.33. The company predicted the number of machine hours for June to be 10,000. At the end of June, it was determined that the company used 12,500 machine hours. The flexible budget for utilities is $

4,125

If the flexible overhead budget for Slippery Manufacturing was $180,000 based on variable costs of $2.25/machine hour and total fixed costs of $33,750, the level of activity for the month was ______.

65,000 machine hours. Reason: $180,000 = ($2.25 x activity) + $33,750 $146,250 = $2.25 x activity $146,250/$2.25 = 65,000 machine hours

Zhou, Inc. is planning its overhead costs for an upcoming period when 85,000 machine hours are expected to be worked. Activity may drop as low as 78,000 hours if some overdue equipment maintenance procedures are performed; on the other hand, activity could jump to 94,000 hours if one of Zhou's major competitors likely goes bankrupt. A flexible overhead budget would best be based on:

78,000 hours, 85,000 hours, and 94,000 hours. Explanation: 78,000 hours, 85,000 hours, and 94,000 hours is best to have the most common activity levels within the relevant range.

Which of the following elements is (are) needed in a straightforward calculation of the variable-overhead spending variance?

Both variable overhead incurred during the period and budgeted variable overhead based on actual hours worked.

What is the most common treatment of the fixed-overhead budget variance at the end of the accounting period?

Charged or credited to Cost of Goods Sold.

Which of the following variances would be useful to help control overhead spending? Variable-Overhead Spending VarianceFixed-Overhead Budget VarianceFixed-Overhead Volume VarianceA.YesYesYesB.YesYesNoC.YesNoNoD.YesNoYesE.NoYesNo

Choice B Variable-Overhead Spending Variance and Fixed-Overhead Budget Variance are useful to help control overhead spending.

(Actual sale price - Budgeted sales price) x Actual sales volume is the ______ variance.

sales price

An integral part of a refined cost management system is the ______.

search for non-value added costs

Unit contribution margin is ______.

selling price per unit minus variable cost per unit

The variable overhead ______ variance measures the difference between the actual variable overhead cost and the projected budget for variable overhead cost.

spending

Actual variable overhead - (AQ × SVR) is the formula for the variable-overhead

spending variance

Forward Venture Company, which uses a standard cost system, budgeted $600,000 of fixed overhead when 40,000 machine hours were anticipated. Other data for the period were: Actual units produced: 10,000Standard production time per unit: 3.9 machine hoursFixed overhead incurred: $620,000Actual machine hours worked: 42,000 Forward Venture Company's fixed-overhead volume variance is:

$15,000 positive. Explanation 10,000 × 3.9 = 39,000; (40,000 − 39,000) × ($600,000 ÷ 40,000) = $15,000 positive

Hickory Manufacturing makes rocking chairs. Based upon their master budget for the current year, the predetermined variable overhead rate is $3.60 per processing hour. Fixed overhead costs are budgeted at $54,000 per month. The budgeted processing time per rocking chair is 2.75 hours. During September, the company made 10,200 rocking chairs, had 30,000 processing hours, incurred $105,400 in variable overhead costs and $48,600 in fixed overhead costs. What is Hickory's variable overhead spending variance for September?

$2,600 F. Reason: Projected variable overhead: 30,000 x $3.60 = $108,000 Spending variance: $105,400 - $108,000 = $2,600 favorable as less was spent than projected

Admac Technologies has a standard variable overhead rate of $4.50 per machine hour, and each unit produced has a standard time allowed of three hours. The company's static budget was based on 46,000 units. Actual results for the year follow. Actual units produced: 42,000Actual machine hours worked: 120,000Actual variable overhead incurred: $520,000 Admac's variable-overhead spending variance is:

$20,000 favorable. $4.50 × 120,000 = $540,000; $540,000 − $520,000 = $20,000 favorable.

Forward Venture Company, which uses a standard cost system, budgeted $600,000 of fixed overhead when 40,000 machine hours were anticipated. Other data for the period were: Actual units produced: 10,000Standard production time per unit: 3.9 machine hoursFixed overhead incurred: $620,000Actual machine hours worked: 42,000 Forward Venture Company's fixed-overhead budget variance is:

$20,000 unfavorable. $620,000 − $600,000 = $20,000 unfavorable.

A flexible budget for 15,000 hours revealed variable manufacturing overhead of $90,000 and fixed manufacturing overhead of $120,000. The budget for 20,000 hours would reveal total overhead costs of:

$240,000. Variable per unit = $90,000 ÷ 15,000 = $6; $6(20,000) + $120,000 = $240,000.

Hickory Manufacturing makes rocking chairs. Based upon their master budget for the current year, the predetermined variable overhead rate is $3.53 per processing hour. The budgeted processing hours per month are 19,100 hours. Fixed overhead costs are budgeted at $28,000 per month. The budgeted processing time per rocking chair is 4.25 hours. During September, the company made 4,500 rocking chairs and incurred $63,500 in variable overhead costs and $27,800 in fixed overhead costs. The fixed flexible overhead budget for September is ______.

$28,000. Reason: $28,000 is the given budgeted amount

Hickory Manufacturing makes rocking chairs. Based upon their master budget for the current year, the predetermined variable overhead rate is $3.53 per processing hour. Fixed overhead costs are budgeted at $28,000 per month. The budgeted processing time per rocking chair is 4 hours. During September, the company made 4,500 rocking chairs, had 18,900 processing hours, incurred $63,500 in variable overhead costs and $27,800 in fixed overhead costs. What was Hickory's variable overhead efficiency variance for September?

$3,177 U. Reason: Standard hrs allowed: 4,500 x 4 = 18,000 Variable overhead efficiency variance: SVR (AQ - SQ)= $3.53 (18,900 - 18,000) = $3,177 unfavorable as actual hours exceeded standard allowed

Hickory Manufacturing makes rocking chairs. Based upon their master budget for the current year, the predetermined variable overhead rate is $3.53 per processing hour. Fixed overhead costs are budgeted at $28,000 per month. The budgeted processing time per rocking chair is 4 hours. During September, the company made 4,500 rocking chairs, had 18,900 processing hours, incurred $63,500 in variable overhead costs and $27,800 in fixed overhead costs. What is Hickory's variable overhead spending variance for September?

$3,217 F. Reason: Projected variable overhead: 18,900 x $3.53 = $66,717 Spending variance: $63,500 - $66,717= $3,217 favorable as less was spent than projected

Hickory Manufacturing makes rocking chairs. The master budget is based upon a monthly volume of 5,000 chairs and shows a predetermined variable overhead rate of $3.53 per processing hour. The predetermined fixed overhead rate at the planned level is $1.30 per processing hour. The budgeted processing time per rocking chair is 4.25 hours. During September, the company made 4,400 rocking chairs and incurred $63,500 in variable overhead costs and $27,800 in fixed overhead costs. What is the fixed overhead volume variance for September?

$3,315 U. Reason: Budgeted fixed overhead: 5,000 x 4.25 hrs x $1.30/hr = $27,625 Std allowed hours: 4,400 x 4.25 = 18,700 x $1.30 = $24,310 applied overhead Volume variance: $27,625 - $24,310 = $3,315 unfavorable since budget is greater than applied

Pocono Co. uses a standard costing system and a standard overhead rate of $12 per process hour. Pocono's Production Overhead account shows a debit of $365,780 for the month. The company produced 7,900 products and used 30,800 process hours. The standard for each product is 4 process hours. What amount did Pocono Co. credit to the Production Overhead account for the month?

$379,200. Using a standard costing: Standard overhead rate × Standard hours allowed for actual output = $12PH × (7,900 × 4PH) = $379,200.

Aster, Inc. has determined gasoline used in factory maintenance vehicles is a variable cost, incurred at the rate $2.09/gallon. Management predicted 3,000 gallons of use during October, based upon the expectation that maintenance vehicles get 15 miles/gallon and that 45,000 miles would be driven during the month. The company actually drove 37,500 miles and incurred gasoline costs of $7,875. The static budget cost for gasoline for October is ______.

$6,270. Reason: $2.09 x 3,000 gal. = $6,270

Hickory Manufacturing makes rocking chairs. Based upon their master budget for the current year, the predetermined variable overhead rate is $3.53 per processing hour. Fixed overhead costs are budgeted at $28,000 per month. The budgeted processing time per rocking chair is 4 hours. During September, the company made 4,500 rocking chairs, had 18,900 processing hours, incurred $63,500 in variable overhead costs and $27,800 in fixed overhead costs. Calculate the projected budget for variable overhead for September.

$66,717. Reason: 18,900 actual processing hours x $3.53 = $66,717

Hickory Manufacturing makes rocking chairs. Based upon their master budget for the current year, the predetermined variable overhead rate is $3.53 per processing hour. Fixed overhead costs are budgeted at $28,000 per month. The budgeted processing time per rocking chair is 4.25 hours. During September, the company made 4,400 rocking chairs, had 17,800 processing hours, incurred $63,500 in variable overhead costs and $27,800 in fixed overhead costs. What is Hickory's variable overhead spending variance for September?

$666 U. Reason: Projected variable overhead: 17,800 x $3.53 =$62,834 Spending variance: $63,500 - $62,834 =$666 unfavorable as more was spent than projected

Hickory Manufacturing makes rocking chairs. Based upon their master budget for the current year, the predetermined variable overhead rate is $3.53 per processing hour. The budgeted processing hours per month are 19,100 hours. Fixed overhead costs are budgeted at $28,000 per month. The budgeted processing time per rocking chair is 4.25 hours. During September, the company made 4,500 rocking chairs and incurred $63,500 in variable overhead costs and $27,800 in fixed overhead costs. The variable flexible overhead budget for September rounded to the nearest whole dollar is ______.

$67,511. Reason: Processing time allowed= 4,500 chairs x 4.25 hrs/chair = 19,125 processing hrs. Variable overhead flexible budget: 19,125 x $3.53 =$67,511.25

The Step Company has the following information for the year just ended: Budget ActualSales in units 15,000 14,000 Sales$150,000 $147,000 Less: Variable Expenses 90,000 82,600 Contribution Margin$60,000 $64,400 Less: Fixed Expenses 35,000 40,000 Operating Income$25,000 $24,400 The Step Company's sales-price variance is:

$7,000 favorable. $147,000 ÷ 14,000 = $10.50; $10.50 − ($150,000 ÷15,000) = $0.50; 14,000 actual units × $0.50 = $7,000 favorable.

Given the following information, calculate the sales price variance. Budgeted units Budgeted $ Total $ Actual units Actual $ Total $ Sales 10,100 units $36/unit $363,600 10,200 $36.75/unit $374,850 Variable costs $10/unit $101,000 $11/unit $112,200 Fixed costs $123,000 $132,000

$7,650 F. Reason: ($36.75 - $36) x 10,200 = $7,650 favorable because the actual sales price is higher than budgeted

Hickory Manufacturing makes rocking chairs. The master budget predetermined variable overhead rate is $3.53 per processing hour. Fixed overhead costs are budgeted at $28,000 per month. Budgeted processing time is 4.25 hours per rocking chair. During September, the company made 4,000 rocking chairs and incurred $63,500 in variable overhead costs and $27,800 in fixed overhead costs. The total flexible budget overhead cost for September is ______.

$88,010. Reason: Processing time allowed= 4,000 chairs x 4.25 hrs/chair = 17,000 processing hrs. Variable overhead flexible budget: 17,000 x $3.53 =$60,010 Flexible overhead budget: $60,010 + 28,000 = $88,010

Hickory Manufacturing makes rocking chairs. The master budget predetermined variable overhead rate is $3.53 per processing hour. Fixed overhead costs are budgeted at $28,000 per month. Budgeted processing time is 4.25 hours per rocking chair. During September, the company made 4,400 rocking chairs and incurred $65,200 in variable overhead costs and $28,600 in fixed overhead costs. The total flexible budget overhead cost for September is ______.

$94,011. Reason: Processing time allowed= 4,400 chairs x 4.25 hrs/chair = 18,700 processing hrs. Variable overhead flexible budget: 18,700 x $3.53 = $66,011 Flexible overhead budget: 66,011 + 28,000 = $94,011

If the flexible overhead budget for Slippery Manufacturing was $60,000 based upon activity level of 12,000 machine hours and total fixed costs of $36,000, the budgeted variable overhead cost per machine hour was $

2

Hickory Manufacturing makes rocking chairs. Based upon their master budget for the current year, the predetermined variable overhead rate is $3.53 per processing hour. Fixed overhead costs are budgeted at $28,000 per month. The budgeted processing time per rocking chair is 4 hours. During September, the company made 4,500 rocking chairs, had 18,900 processing hours, incurred $63,500 in variable overhead costs and $27,800 in fixed overhead costs. Hickory's fixed overhead budget variance for September is $

200 F

Hickory Manufacturing makes rocking chairs. Based upon their master budget for the current year, the predetermined variable overhead rate is $3.60 per processing hour. Fixed overhead costs are budgeted at $54,000 per month. The budgeted processing time per rocking chair is 2.75 hours. During September, the company made 11,000 rocking chairs, incurred $105,400 in variable overhead costs and $48,600 in fixed overhead costs. If the company had an $8,100 favorable variable overhead efficiency variance, what were the actual processing hours in September?

28,000 processing hours. Reason: Standard processing hours allowed: 11,000 x 2.75 = 30,250 Variable overhead efficiency variance = SVR (AQ - SQ) $8,100 = $3.60 (AQ - 30,250) $8,100/$3.60 = AQ -30,250 2250 = AQ - 30,250. Since the variance was favorable, the actual quantity was 2,250 less than the standard allowed: 30,250 - 2,250 = 28,000 actual hours

Beech Manufacturing has identified utilities as a variable cost based upon machine hours. The rate per machine hour is $0.33. The company predicted the number of machine hours for June to be 10,000. At the end of June, it was determined that the company used 12,500 machine hours. The static budget for utilities is

3,300

Bannister Motors Corporation reported the following variances for the period just ended: Variable-overhead spending variance: $50,000UVariable-overhead efficiency variance: $28,000UFixed-overhead budget variance: $70,000UFixed-overhead volume variance: $30,000U If Bannister prepared an overhead cost performance report, which of these overhead variances is likely to be excluded from the report?

Fixed-overhead volume variance.

One of the accountants at Agave Industries is attempting to identify the activity measure best suited to use for the flexible budget. Based on the limited information provided, which of the following activity measures should be used for the flexible budget? ActivityVariable overhead cost Activitymeasure Month Machine hours 168,113 1,368 January Labor hours 6,432 January Set-ups 112 January Labor cost 96,555 January Machine hours $236,018 1,920 February Labor hours 6,498 February Set-ups 104 February Labor cost 97,897 February

Machine hours.

True or false: An activity measure that moves in proportion with a variable cost is a good activity measure.

True

Budgeted total contribution margin is budgeted ______.

a. contribution margin per unit x budgeted number of units b. total sales revenue minus budgeted total variable costs

The variable-overhead efficiency variance ______.

a. occurs when the actual activity base used differs from the standard b. reflects an adjustment in the company's expectation about overhead costs

The differences between a traditional product costing system and an activity based costing system for overhead costs are ______.

a. some costs classified as fixed under traditional systems might be classified as variable under activity based b. under activity based, different cost drivers could be identified for each variable overhead cost

The projected budget for variable overhead is ______ variable overhead rate.

actual activity level times the standard

The budget variance arises from a comparison of:

actual fixed overhead costs with budgeted fixed overhead costs.

The formula for the fixed overhead budget variance is ______.

actual fixed overhead minus budgeted fixed overhead

The formula for the total variable overhead variance is ______.

actual variable overhead - flexible budgeted variable overhead

The variable overhead spending variance is the difference between the ______.

actual variable overhead costs and the projected budget for variable overhead. Reason: This is the total variable overhead variance.

Several cost drivers are identified in ______.

an activity-based flexible budget

When actual costs are compared to a flexible budget, the difference will ______.

be due factors other than activity levels

The difference between actual fixed overhead and budgeted fixed overhead is called the ______ variance.

budget

The difference between actual fixed overhead and budgeted fixed overhead is called the fixed overhead ______ variance.

budget

The real control variance for fixed overhead is the ______ variance.

budget

A fixed-overhead volume variance would normally arise when:

budgeted fixed overhead is less than (or greater than) applied fixed overhead.

The total budgeted variable production overhead costs ______.

change proportionally with changes in activity

Selling price per unit less variable cost per unit is the unit ______.

contribution margin

Selling price per unit less variable cost per unit is unit

contribution margin

The purpose of an overhead cost performance report is to ______.

control overhead costs

The most significant factor affecting overhead costs is ______.

cost drivers

A flexible budget __.

covers a range of activity within which the organization may operate

The entry to apply manufacturing overhead to production includes a ______.

credit to production overhead

The entry to record production overhead costs incurred includes a ______.

debit to production overhead

The entry to apply manufacturing overhead to production includes a ______.

debit to work in process

The variable overhead ______ variance measures the difference between the actual activity level and the standard allowed activity level for variable overhead.

efficiency

The difference between the actual activity level and the standard allowed activity level for variable overhead is the variable-overhead

efficiency variance

If actual variable overhead is less than the variable overhead from the flexible budget, the total variable overhead variance will be ______.

favorable. Reason: When less is spent than expected under the flexible budget, the variance is favorable.

The key difference between an activity-based flexible budget and a conventional flexible-budget lies in the costs that were categorized as ______ on the conventional flexible budget.

fixed

The production overhead account is debited for the amount of overhead costs ______.

incurred in the production process

Activity levels in the flexible budgets are based on ______ measures such as process time.

input

Overhead is applied to work in process based on the predetermined rate times standard activity allowed in a ______ costing system.

standard

Overhead is applied to work in process based on the predetermined rate times standard activity allowed in a(n) ______ costing system.

standard