Chapter 8: Flexible Budgets, Overhead Cost Variances, and Management Control
Production- Variances Spending Efficiency Volume Variable MOH $7,500 F $30,000 U (B) Fixed MOH $28,000 U (A) $80,000 U 8) The above table is a ________. A) 4-variance analysis B) 3-variance analysis C) 2-variance analysis D) 1-variance analysis
A) 4-variance analysis
Russo Corporation manufactured 16,000 air conditioners during November. The overhead cost-allocation base is $31.50 per machine-hour. The following variable overhead data pertain to November: Actual Budgeted Production 16,000 units 18,000 units Machine-hours 7,875 hours 9,000 hours Variable overhead cost per machine-hour: $31.00 $31.50 30) What is the actual variable overhead cost? A) $244,125 B) $279,000 C) $248,063 D) $250,000
A) 7,875 mh × $31.00 = $244,125
7) What is the flexible-budget amount for variable manufacturing overhead? A) $6,500 unfavorable B) $6,500 favorable C) $11,250 unfavorable D) $11,250 favorable
A) Budgeted machine hours per unit = 22,500 ÷ 11,250 = 2 Budgeted machine hours allowed for 11,500 units = 11,500 × 2 = 23,000 Budgeted variable overhead rate per machine hour = $213,750 ÷ 22,500 = $9.5 Flexible-budget amount = 23,000 × $9.5 = $218,500 Flexible-budget variance = $225,000 − $218,500 = $6,500 U
7) Which of the following statements is true of Skizone's overhead variances? A) Budgeted variable overhead rate is higher than actual variable overhead rate. B) Static fixed overhead amount is higher than flexible fixed overhead amount. C) Budgeted variable overhead rate is lower than actual variable overhead rate. D) Static fixed overhead amount is lower than flexible fixed overhead amount.
A) Budgeted variable overhead rate is higher than actual variable overhead rate.
14) What is the amount of fixed overhead allocated to production? A) $252,000 B) $257,000 C) $256,250 D) $244,000
A) Fixed overhead cost per machine hour = $258,300 ÷ 6,150 = $42 Machine hours per unit = 6,150 ÷ 20,500 = 0.30 Fixed overhead cost per unit = $42 × 0.30 = $12.6 Fixed overhead allocated = 20,000 × $12.6 = $252,000
11) What is the amount of fixed overhead allocated to production? A) $51,060 B) $50,500 C) $50,600 D) $55,500
A) Fixed overhead cost per machine hour = $50,600 ÷ 1,100 = $46 Machine hours per unit = 1,100 ÷ 55,000 = 0.02 Fixed overhead cost per unit = $46 × 0.02 = $0.92 Fixed overhead allocated = 55,500 × $0.92 = $51,060
25) What is the variable overhead efficiency variance? A) $4,040 unfavorable B) $4,120 favorable C) $4,040 favorable D) $4,120 unfavorable.
A) Variable overhead efficiency variance = [9,800 − 9,000] × $5.05 = $4,040 unfavorable
33) What is the variable overhead efficiency variance? A) $3,937.50 favorable B) $3,937.50 unfavorable C) $4,500 favorable D) $4,500 unfavorable
A) [7,875 - (16,000 × 9,000/18,000) mh] × $31.50 = $3,937.50 favorable
3) When variable overhead spending variance is unfavorable, it can be safely assumed that ________. A) actual rate per unit of cost-allocation base is higher than budgeted rate B) actual quantity of cost-allocation base used is higher than budgeted quantity C) actual rate per unit of cost-allocation base is lower than budgeted rate D) actual quantity of cost-allocation base used is lower than budgeted quantity
A) actual rate per unit of cost-allocation base is higher than budgeted rate.
4) Under standard costing, ________. A) fixed overhead costs are treated as if they are a variable cost B) fixed overhead costs are treated as if they are a fixed cost C) variable overhead costs are treated as if they are a fixed cost D) fixed overhead costs are treated as if they are a sunk cost
A) fixed overhead costs are treated as if they are a variable cost.
1) The variable overhead spending variance measures the difference between ________, multiplied by the actual quantity of variable overhead cost-allocation base used. A) the actual variable overhead cost per unit and the budgeted variable overhead cost per unit B) the standard variable overhead cost rate and the budgeted variable overhead cost rate C) the actual variable overhead cost per unit and the budgeted fixed overhead cost per unit D) the actual quantity per unit and the budgeted quantity per unit
A) the actual variable overhead cost per unit and the budgeted variable overhead cost per unit
Lukehart Industries, Inc., produces air purifiers. Lukehart, Inc., produces the air purifiers in batches. To manufacture a batch of the purifiers, Lukehart, Inc., must set up the machines and assembly line tooling. Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and tooling for different models of the air purifiers. Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup-hours. The following information pertains to June 2015: Budget amounts Actual amounts Units produced and sold 10,000 9,000 Batch size (number of units per batch) 400 375 Setup-hours per batch 6 5.5 Variable overhead cost per setup-hour $50 $52 Total fixed setup overhead costs $18,000 $17,750 6) Calculate the efficiency variance for variable overhead setup costs. A) $150 favorable B) $114 favorable C) $264 unfavorable D) $264 favorable
A) {[(9,000 / 375) × 5.5] - [(9,000 / 400) × 6] } × $50 = $150 (F)
b. Prepare the flexible budget using the overhead items above and then compute the flexible-budget variances.
Actual, Flexible Budget, Variances Product handling $65,000; $64,875; $125 U Inspection 16,200; 15,180; 1,020 U Utilities 2,220; 2,190; 30 U Maintenance 2,850; 2,463; 388 U Supplies 39,900; 41,000; 1,100 F Totals $126,170; $125,708; $463 U
42) What are the arguments for prorating a production-volume variance that has been deemed to be material among work-in- process, finished goods, cost and cost of goods sold as opposed to writing it all off to cost of goods sold?
Answer: If variances are always written off to cost of goods sold, a company could set its standards to either increase (for financial reporting purposes) or decrease (for tax purposes) operating incomes. The proration method has the effect of approximating the allocation of fixed costs based on actual costs and actual output so it is not susceptible to the manipulation of operating income based on the choice of the denominator level.
39) Explain why there is no production-volume variance for variable manufacturing overhead costs.
Answer: There is no production-volume variance for variable overhead costs because the amount of variable overhead allocated is always the same as the flexible-budget amount.
3) Calculate the flexible-budget variance for variable overhead setup costs. A) $600 favorable B) $1,300 favorable C) $600 unfavorable D) $1,300 unfavorable
B) $1,900 (F) - $600 (U) = $1,300 (F)
4) Calculate the spending variance for fixed setup overhead costs. A) $3,200 unfavorable B) $2,025 unfavorable C) $3,600 unfavorable D) $2,025 favorable
B) $12,000 - $9,975 = $2,025 (U)
10) Calculate the production-volume variance for fixed overhead setup costs. A) $1,800 favorable B) $1,800 unfavorable C) $250 unfavorable D) $250 favorable
B) Normal setup hours = (10,000 / 400) × 6 = 150 hours OH rate = $18,000 / 150 = $120.00 per setup hour [(9,000 / 400) × 6 × $120] - $18,000 = $1,800 unfavorable
3) Which of the following is a component of sales-volume variance? A) Net-income volume variance B) Operating-income volume variance C) Taxable-income volume variance D) Budgeted revenue variance
B) Operating-income volume variance
12) The total overhead variance should be ________. A) $145,500 F B) $130,500 U C) $145,500 U D) $130,500 F
B) Total overhead variance = $7,500 F + $28,000 U + $30,000 U + $80,000 U = $130,500 U
11) The total production-volume variance should be ________. A) $80,000 F B) $80,000 U C) $108,000 F D) $108,000 U
B) Total production-volume variance = $80,000 U + 0 = $80,000
1) Which of the following statements is true of variable overhead costs? A) Variable overhead costs always have unused capacity. B) Variable overhead costs have no production-volume variance. C) Variable overhead costs have no spending variance. D) Variable overhead costs have no efficiency variance.
B) Variable overhead costs have no production-volume variance.
2) The production-volume variance may also be referred to as the ________. A) flexible-budget variance B) denominator-level variance C) spending variance D) efficiency variance
B) denominator-level variance
6) The difference between budgeted fixed manufacturing overhead and the fixed manufacturing overhead allocated to actual output units achieved is called the fixed overhead ________. A) efficiency variance B) flexible-budget variance C) combined-variance analysis D) production-volume variance
B) flexible-budget variance
9) Calculate the spending variance for fixed overhead setup costs. A) $250 unfavorable B) $150 unfavorable C) $250 favorable D) $150 favorable
C) $250 favorable
2) Calculate the spending variance for variable overhead setup costs. A) $1,900 unfavorable B) $1,900 favorable C) $600 unfavorable D) $600 favorable
C) (15,000 / 250) × 5 × ($38 - $40) = $600 (U)
7) Calculate the spending variance for variable overhead setup costs. A) $150 unfavorable B) $150 favorable C) $264 unfavorable D) $264 favorable
C) (9,000 / 375) × 5.5 × ($50 - $52) = $264 (U)
Answer the following questions using the information below: Roberson Corporation manufactured 30,000 ice chests during September. The variable overhead cost-allocation base is $11.25 per machine-hour. The following variable overhead data pertain to September: Actual Budgeted Production 30,000 units 24,000 units Machine-hours 15,000 hours 10,800 hours Variable overhead cost per machine-hour: $11.00 $11.25 26) What is the actual variable overhead cost? A) $121,500 B) $151,875 C) $165,000 D) $168,750
C) 15,000 mh × $11.00 = $165,000
Skizone Company's 4-Variance Analysis: SpendingVar EffVar ProdVolVar VariableOH $6,500 F $12,000 U No var Fixed overhead (a) No var $46,000 U 6) If Skizone's combined 4-Variance Analysis shows an unfavorable spending variance of $2,300, what is the fixed overhead spending variance (a)? A) $8,800 favorable B) $4,200 unfavorable C) $8,800 unfavorable D) $4,200 favorable
C) Fixed overhead spending variance = $2,300 U − $6,500 F = $8,800 U
5) Calculate the production-volume variance for fixed overhead setup costs. A) $3,325 unfavorable B) $400 unfavorable C) $3,325 favorable D) $400 favorable
C) Normal setup hours = (11,250 / 225) × 5.25 = 262.5 hours OH rate = $14,000 / 262.5 = $53.33 per setup hour [(15,000 / 225) × 5.25 × $38] - $9,975 = $3,325 favorable
10) In a combined 3-variance analysis, the total spending variance would be ________. A) $20,500 F B) $22,500 U C) $20,500 U D) $37,500 F
C) Spending variance = $7,500 F + $28,000 U = $20,500 U
5) Which of the following statements is true of fixed overhead cost variances? A) The difference between actual costs and flexible budget costs will give the production volume variance. B) The difference between actual costs and static budget costs will give the production volume variance. C) The difference between flexible budget costs and allocated overhead costs will give the production volume variance. D) The difference between static budget costs and flexible budget costs will give the production volume variance.
C) The difference between flexible budget costs and allocated overhead costs will give the production volume variance.
1) Standard costing can provide managers with reliable and timely information on variable distribution overhead ________. A) efficiency variances and production variances B) production-volume variances and spending variances C) efficiency variances and spending variances D) production-volume variances and sales variances
C) efficiency variances and spending variances
4) When fixed overhead spending variance is unfavorable, it can be safely assumed that ________. A) flexible budget amount is higher than actual costs incurred B) fixed overhead allocated for actual output is lower than actual costs incurred C) flexible budget amount is lower than actual costs incurred D) fixed overhead allocated for actual output is higher than actual costs incurred
C) flexible budget amount is lower than actual costs incurred.
2) Fixed overhead costs ________. A) never have any unused capacity B) have no spending variance C) have no efficiency variance D) have no production-volume variance
C) have no efficiency variance.
5) An unfavorable production-volume variance ________. A) is not a good measure of a lost production opportunity B) indicates that the company had reduced its per unit fixed overhead cost to improve sales C) measures the amount of extra fixed costs planned for but not used D) takes into account the effect of additional revenues due to maintaining higher prices
C) measures the amount of extra fixed costs planned for but not used.
Answer the following questions using the information below: Munoz, Inc., produces a special line of plastic toy racing cars. Munoz, Inc., produces the cars in batches. To manufacture a batch of the cars, Munoz, Inc., must set up the machines and molds. Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and molds for different styles of car. Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup-hours. The following information pertains to June 2015: Actual Static-budget Amounts Amounts Units produced and sold 15,000 11,250 Batch size (number of units per batch) 250 225 Setup-hours per batch 5 5.25 Variable overhead cost per setup-hour $40 $38 Total fixed setup overhead costs $12,000 $9,975 1) Calculate the efficiency variance for variable overhead setup costs. A) $1,900 unfavorable B) $600 unfavorable C) $1,900 favorable D) $600 favorable
C) {[(15,000/ 250) × 5] - [(15,000 / 225) × 5.25] } × $38 = $1,900 (F)
8) Calculate the flexible-budget variance for variable overhead setup costs. A) $114 favorable B) $264 favorable C) $264 unfavorable D) $114 unfavorable
D) $150 (F) - $264 (U) = $114 (U)
9) In the above table, the amounts for (A) and (B), respectively, are ________. A) $22,500 U; $110,000 U B) $22,500 U; Zero C) Zero; $110,000 U D) Zero; Zero
D) 0, 0
42) Which of the following journal entries is used to record actual variable overhead costs incurred? A) Accounts Payable Variable Overhead Control B) Variable Overhead Control Accounts Receivable C) Work-in- Process Control Variable Overhead Control D) Variable Overhead Control Accounts Payable
D) Variable Overhead Control Accounts Payable
11) One possible reason for unfavorable variable overhead efficiency variance for materials handling is ________. A) inefficient layout of product distribution channels B) loosely budgeted standard hours C) very low wait time at work centers D) experienced but unmotivated employees
D) experienced but unmotivated employees
1) The fixed overhead cost variance can be further subdivided into the ________. A) price variance and the efficiency variance B) spending variance and flexible-budget variance C) production-volume variance and the efficiency variance D) flexible-budget variance and the production-volume variance
D) flexible-budget variance and the production-volume variance.
27) A favorable fixed overhead flexible-budget variance indicates that actual fixed costs exceeded the lump-sum amount budgeted.
FALSE Explanation: A favorable fixed overhead flexible-budget variance indicates that actual fixed costs were less than the lump-sum amount budgeted.
29) An unfavorable production-volume variance indicates an overallocation of fixed overhead costs.
FALSE Explanation: A favorable production-volume variance indicates an overallocation of fixed overhead costs. An unfavorable production-volume variance indicates an underallocation of fixed overhead costs.
16) At the end of the fiscal year, the fixed overhead spending variance is always prorated among work-in- process control, finished goods control, and cost of goods sold on the basis of the fixed overhead allocated to these accounts.
FALSE Explanation: At the end of the fiscal year, the fixed overhead spending variance is written off to cost of goods sold if it is immaterial in amount; otherwise it is prorated among work-in- process control, finished goods control, and cost of goods sold on the basis of the fixed overhead allocated to these accounts.
28) Fixed costs for the period are by definition a lump sum of costs that remain unchanged and therefore the fixed overhead spending variance is always zero.
FALSE Explanation: Fixed costs for the period are by definition a lump sum of costs, but they can and do change from the amount that was originally budgeted.
51) If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be a favorable variable overhead efficiency variance.
FALSE Explanation: If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be an unfavorable variable overhead efficiency variance.
25) Lump-sum fixed costs of acquiring capacity decrease automatically if the capacity needed turns out to be less than the capacity acquired.
FALSE Explanation: Lump-sum fixed costs represent the costs of acquiring capacity. These costs do not decrease automatically if the capacity needed turns out to be less than the capacity acquired.
32) Prorated allocation of production-volume variance results in a higher operating income for current year than if the entire favorable production-volume variance were credited to Cost of Goods Sold.
FALSE Explanation: Proration of production-volume variance results in a lower operating income for current year than if the entire favorable production-volume variance were credited to Cost of Goods Sold.
13) An unfavorable price variance for materials-handling labor indicates that the actual cost per materials-handling labor-hour is less than the budgeted cost per materials-handling labor-hour.
FALSE Explanation: An unfavorable price variance for materials-handling labor indicates that the actual cost per materials-handling labor-hour exceeds the budgeted cost per materials-handling labor-hour.
10) A favorable production-volume variance arises when manufacturing capacity planned for is NOT used.
FALSE Explanation: An unfavorable production-volume variance arises when manufacturing capacity planned for is not used.
11) An unfavorable production-volume variance always infers that management made a bad planning decision regarding the plant capacity.
FALSE Explanation: An unfavorable production-volume variance does not always infer that management made a bad planning decision regarding the plant capacity.
3) Service-sector companies have no use of variance analysis as only few costs can be traced to their outputs in a cost effective way.
FALSE Explanation: Even though service-sector companies have only few costs can be traced to their outputs in a cost effective way, service-sector companies can use variance analysis to good effect as most of their costs are fixed overhead costs.
7) The production volume variance arises only for variable overhead costs.
FALSE The production volume variance arises only for fixed overhead costs.
13) Fixed overhead has no production-volume variance.
FALSE, it does.
19) Explain why managers of small businesses prefer 3-variance analysis over 4-variance analysis.
Managers of small businesses understand their operations better based on personal observations and nonfinancial measures. They find less value in doing the additional measurements required for 4-variance analyses. For example, to simplify their costing systems, small companies may not distinguish variable overhead incurred from fixed overhead incurred because making this distinction is often not clear-cut. Many costs such as supervision, quality control, and materials handling have both variable- and fixed-cost components that may not be easy to separate. Managers may therefore use a less detailed analysis that combines the variable overhead and fixed overhead into a single total overhead cost.
4) Explain how service-sector companies can benefit from variance analysis.
Service-sector companies such as airlines, hospitals, hotels, and railroads can benefit from variance analyses. The output measures these companies commonly use are passenger-miles flown, patient days provided, room-days occupied, etc. Few costs can be traced to these outputs in a cost-effective way. Most of the costs are fixed overhead costs, such as the costs of equipment, buildings, and staff. Using capacity effectively is the key to profitability, and fixed overhead variances can help managers in this task.
12) The fixed setup overhead flexible-budget variance is calculated as actual costs - flexible-budget variance.
TRUE
14) Possible reasons for the larger actual materials-handling labor-hours per batch include the possibility of unmotivated, inexperienced, and underskilled employees
TRUE
14) The accounting for 3-variance analysis is simpler than the 4-variance analysis, but some information is lost because the variable and fixed overhead spending variances are combined into a single total overhead spending variance.
TRUE
15) Variance analysis of fixed nonmanufacturing costs, such as distribution costs, can also be useful when planning for capacity.
TRUE
2) Managers can use variance analysis to make decisions about the mix of products to make.
TRUE
26) When forecasting fixed costs, managers should concentrate on total lump-sum costs instead of unitized fixed overhead costs.
TRUE
30) Favorable overhead variances are always recorded with credits in a standard cost system.
TRUE
31) Under activity-based costing, the flexible-budget amount equals the static-budget amount for fixed overhead costs.
TRUE
33) Prorated allocation of production-volume variance has the effect of approximating the allocation of fixed costs based on actual costs and actual output.
TRUE
24) Allocated fixed overhead can be expressed in terms of allocation-base units or in terms of the budgeted fixed cost per unit.
TRUUU
8) The production-volume variance is a component of the sales-volume variance.
TRUUU
9) Under standard costing, fixed overhead costs are treated as if they are a variable cost.
TRUUU
16) Teecorp Company uses a flexible budget for its indirect manufacturing costs. For 2015, the company anticipated that it would produce 27,000 units with 4,800 machine-hours and 8,000 employee days. The costs and cost drivers were to be as follows: Fixed Variable Cost driver Product handling $45,000 $0.75 per unit Inspection 12,000 12.00 per 100 unit batch Utilities 600 6.00 per 100 unit batch Maintenance 1,250 0.25 per machine-hour Supplies -- 5.00 per employee day During the year, the company processed 26,500 units, worked 8,200 employee days, and had 4,850 machine-hours. The actual costs for 2015 were: Actual costs Product handling $65,000 Inspection 16,200 Utilities 2,220 Maintenance 2,850 Supplies 39,900 Required: a. Prepare the static budget using the overhead items above and then compute the static-budget variances.
Teecorp Company Overhead Static Budget with Variances 2015 Actual, Static Budget, Variances Product handling $65,000; $65,250; $250 F Inspection 16,200; 15,240; 960 U Utilities 2,220; 2,220; 0 Maintenance 2,850; 2,450; 400 U Supplies 39,900; 40,000; 100 F Total $126,170; $125,160; $1,010 U
43) Explain two concerns when interpreting the production-volume variance as a measure of the economic cost of unused capacity.
The first concern would be the fact that management might have maintained some extra capacity to meet uncertain demand surges that are important to satisfy. If these surges are not occurring in a given year an unfavorable production-volume variance might occur. The second concern would be to note that this variance only focuses on fixed overhead costs, and ignores the possibility that price decreases might have been necessary to spur the extra demand to make use of any idle capacity.
12) What are the two components of sales-volume variance? Explain why sales-volume variance could be helpful to managers.
The sales-volume variance is comprised of the operating income volume variance and the production volume variance. Production volume variance is the difference between the budgeted fixed overhead and the fixed overhead allocated on the basis of actual output produced. Operating income volume variance is the difference between the static-budget operating income and the budgeted operating income for actual sales. The sales-volume variance is useful because it helps managers understand the significant changes in contribution margin, which will occur as a result of selling fewer (or more) units than called for by the budgeted level. It assumes that the fixed costs remain at the budgeted level and can be helpful to managers as they perform sensitivity analysis to see the effects of potential changes in sales volume (up or down). Based on this type of information, they could potentially make more informed decisions on pricing and other strategies.
37) Explain why there is no efficiency variance for fixed manufacturing overhead costs.
There is no efficiency variance for fixed overhead costs because a given lump sum of fixed costs will be unaffected by how efficiently machine-hours are used to produce output in a given budget period.
9) Standard costing is a costing system that allocates overhead costs on the basis of the standard overhead-cost rates times the standard quantities of the allocation bases allowed for the actual outputs produced.
True
41) Explain how are the fixed manufacturing overhead costs treated under Generally Accepted Accounting Principles?
Under Generally Accepted Accounting Principles (GAAP), fixed manufacturing overhead costs are allocated as an inventoriable cost to the output units produced. Every output unit manufactured will include the fixed overhead cost per unit along with other costs. That is, for purposes of allocating fixed overhead costs to products, these costs are viewed as if they had a variable-cost behavior pattern.
38) Managers should be wary of using the same unitized fixed overhead costs for planning and control purposes'. Do you agree with this argument? Give reasons for your answer.
Yes. Managers should always be careful to distinguish the true behavior of fixed costs from the manner in which fixed costs are assigned to products. In particular, although fixed costs are unitized and allocated for inventory costing purposes, managers should be wary of using the same unitized fixed overhead costs for planning and control purposes. When forecasting fixed costs, managers should concentrate on total lump-sum costs instead of unitized costs. Similarly, when managers are looking to assign costs for control purposes or identify the best way to use capacity resources fixed in the short run, the use of unitized fixed costs often leads to incorrect decisions.
15) Casey Corporation produces a special line of basketball hoops. Casey Corporation produces the hoops in batches. To manufacture a batch of the basketball hoops, Casey Corporation must set up the machines and molds. Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and molds for different styles of basketball hoops. Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup-hours. The following information pertains to January 2005. Static-budget amounts, Actual amounts Basketball hoops produced and sold 30,000 28,000 Batch size (number of units per batch) 200 250 Setup-hours per batch 5 4 Variable overhead cost per setup hour $10 $9 Total fixed setup overhead costs $22,500 $21,000 Required: a. Calculate the efficiency variance for variable overhead setup costs. b. Calculate the spending variance for variable overhead setup costs. c. Calculate the flexible-budget variance for variable overhead setup costs. d. Calculate the spending variance for fixed overhead setup costs. e. Calculate the production-volume variance for fixed overhead setup costs.
a. ((28,000 / 250) × 4 × $10) - (28,000 / 200) × 5 × $10) = $2,520 (F) b. (28,000 / 250) × 4 × ($9 - $10) = $448 (F) c. $2,520 (F) + $448 (F) = $2,968 (F) d. $22,500 - $21,000 = $1,500 (F) e. Normal setup-hours = (30,000 / 200) × 5 = 750 hours OH rate = $22,500 / 750 = $30 per setup-hour $22,500 - ((28,000 / 200) × 5 × $30) = $1,500 (U)
34) Neon Company manufactured 2,500 units during April with a total overhead budget of $55,000. However, while manufacturing the 2,500 units the microcomputer that contained the month's cost information broke down. With the computer out of commission, the accountant has been unable to complete the variance analysis report. The information missing from the report is lettered in the following set of data: Variable overhead: Standard cost per unit: 1.2 labor hour at $10 per hour Actual costs: $26,250 for 2,250 hours Flexible budget: a Total flexible-budget variance: b Variable overhead spending variance: c Variable overhead efficiency variance: d Fixed overhead: Budgeted costs: e Actual costs: f Flexible-budget variance: $200 favorable Required: Compute the missing elements in the report represented by the lettered items.
a. 2,500 × 1.2 × $10 = $30,000 b. $26,250 − $30,000 = $3,750 favorable c. $26,250 − (2,250 × $10) = $3,750 unfavorable d. (($2,500 × 1.2) − 2,250) × $10 = $7,500 favorable e. $55,000 − $30,000 = $25,000 f. $25,000 − $200 favorable = $24,800
18) Different management levels in Bates, Inc., require varying degrees of managerial accounting information. Because of the need to comply with the managers' requests, four different variances for manufacturing overhead are computed each month. The information for the September overhead expenditures is as follows: Budgeted output units 3,200 units Budgeted fixed manufacturing overhead $20,000 Budgeted variable manufacturing overhead $5 per direct labor hour Budgeted direct manufacturing labor hours 2 hours per unit Fixed manufacturing costs incurred $26,000 Direct manufacturing labor hours used 7,200 Variable manufacturing costs incurred $35,600 Actual units manufactured 3,400 Required: a. Compute a 4-variance analysis for the plant controller. b. Compute a 3-variance analysis for the plant manager. c. Compute a 2-variance analysis for the corporate controller. d. Compute the flexible-budget variance for the manufacturing vice president.
a. 4-variance analysis: Variable overhead spending variance = $35,600 - (7,200 × $5) = $400 favorable Variable overhead efficiency variance = $5 × (7,200 - 6,800*) = $2,000 unfavorable *3,400 units × 2 hours = 6,800 hours Fixed overhead spending variance = $26,000 - $20,000 = $6,000 unfavorable Fixed overhead production-volume variance = $20,000 - (3,400 × 2 × $3.125*) = $1,250 favorable *$20,000/(3,200 units × 2 hours) = $3.125 b. 3-variance analysis: Spending variance = $400 favorable + $6,000 unfavorable = $5,600 unfavorable Efficiency variance = $2,000 unfavorable Production-volume variance = $1,250 favorable c. 2-variance analysis: Flexible-budget variance = $400 F + $2,000 U + $6,000 U = $7,600 unfavorable Production-volume variance = $1,250 favorable d. 1-variance analysis: Flexible Actual Budget Variances Fixed overhead $26,000 $21,250 * $4,750 U Variable overhead 35,600 34,000 ** 1,600 U Flexible-budget variance $6,350 U *$3.125 × 3,400 × 2 = $21,250 **3,400 × 2 × $5 = $34,000
36) Xenon Company makes watches. The fixed overhead costs for 2015 total $648,000. The company uses direct labor-hours for fixed overhead allocation and anticipates 21,600 hours during the year for 540,000 units. An equal number of units are budgeted for each month. During October, 48,000 watches were produced and $52,000 was spent on fixed overhead. Required: a. Determine the fixed overhead rate for 2015 based on the units of input. b. Determine the fixed overhead static-budget variance for October. c. Determine the production-volume overhead variance for October.
a. Fixed overhead rate = ($648,000 ÷ 21,600) = $30 per unit b. Fixed overhead static budget variance = $52,000 − ($648,000 ÷ 12) = $2,000 favorable c. Budgeted fixed overhead rate per output unit = $648,000 / 540,000 = $1.20 Production-volume overhead variance = (48,000 - (540,000 ÷ 12)) × $1.20 = $3,600 favorable
35) Argon Company makes clocks. The fixed overhead costs for 2015 total $880,000. The company uses direct labor-hours for fixed overhead allocation and anticipates 220,000 hours during the year for 330,000 units. An equal number of units are budgeted for each month. During June, 32,000 clocks were produced and $72,000 was spent on fixed overhead. Required: a. Determine the fixed overhead rate for 2015 based on units of input. b. Determine the fixed overhead static-budget variance for June. c. Determine the production-volume overhead variance for June.
a. Fixed overhead rate = ($880,000 ÷ 220,000) = $4.00 per hour b. Fixed overhead static budget variance = $72,000 − ($880,000/12) = $1,333.33 favorable c. Budgeted fixed overhead rate per output unit = $880,000/330,000 = $2.67 Production-volume overhead variance = (27,500 − 32,000) × $2.67 = $12,015 favorable
40) Abby Company has just implemented a new cost accounting system that provides two variances for fixed manufacturing overhead. While the company's managers are familiar with the concept of spending variances, they are unclear as to how to interpret the production-volume overhead variances. Currently, the company has a production capacity of 54,000 units a month, although it generally produces only 46,000 units. However, in any given month the actual production is probably something other than 46,000. Required: a. Does the production-volume overhead variance measure the difference between the 54,000 and 46,000, or the difference between the 46,000 and the actual monthly production? Explain. b. What advice can you provide the managers that will help them interpret the production-volume overhead variances?
a. It is the difference between the 46,000 and the actual production level for the period. The difference between the 54,000 and the 46,000 is the unused capacity that was planned for the period. The difference between the 46,000 and the actual level was not planned. b. When actual outputs are less than the denominator level, the production-volume variance is unfavorable. This is opposite the label given other variances that have a favorable label when costs are less than the budgeted amount; therefore, caution is needed. The production-volume variance is favorable when actual production exceeds what was planned for the period. This actually provides for a cost per unit amount that was less than budgeted using the planned denominator.
17) Lungren has budgeted construction overhead for August of $260,000 for variable costs and $435,000 for fixed costs. Actual costs for the month totaled $275,000 for variable and $445,000 for fixed. Allocated fixed overhead totaled $440,000. The company tracks each item in an overhead control account before allocations are made to individual jobs. Spending variances for August were $10,000 unfavorable for variable and $10,000 unfavorable for fixed. The production-volume overhead variance was $5,000 favorable. Required: a. Make journal entries for the actual costs incurred. b. Make journal entries to record the variances for August.
a. Variable Overhead Control 275,000 Accounts Payable and other accounts 275,000 (To record actual variable construction overhead) Fixed Overhead Control 445,000 Accumulated Depreciation, etc. 445,000 (To record actual fixed construction overhead) b. Variable Overhead Allocated 260,000 Variable Overhead Spending Variance 10,000 Variable Overhead Efficiency Variance* 5,000 Variable Overhead Control 275,000 (To record variances for the period) *Arrived at this number by $275,000 - $260,000 - $5,000 Fixed Overhead Allocated 440,000 Fixed Overhead Spending Variance 10,000 Fixed Overhead Production-Volume Variance 5,000 Fixed Overhead Control 445,000 (To record variances for the period)
31) What is the flexible-budget amount? A) $248,033 B) $252,000 C) $248,000 D) $279,000
c) $248000
21) What is the fixed overhead spending variance? A) $14,400 favorable B) $9,000 favorable C) $9,000 unfavorable D) $14,400 unfavorable
C) Fixed overhead spending variance = $153,000 − $144,000 = $9,000 unfavorable
44) The flexible budget enables to highlight the differences between budgeted costs and budgeted quantities versus actual costs and actual quantities for the budgeted output level.
True
28) What is the variable overhead spending variance? A) $3,750 favorable B) $16,875 unfavorable C) $13,125 unfavorable D) $30,375 unfavorable
A) ($11.00 - $11.25) × 15,000 mh = $3,750 favorable
Ecocomfort Corporation manufactured 1,000 coolers during October. The following variable overhead data relates to October: Variable overhead spending variance $1,230 Unfavorable Variable overhead efficiency variance $175 Unfavorable Budgeted machine hours allowed for actual output 615 machine hours Actual cost per machine hour $27 Budgeted cost per machine hour $25 20) Calculate the actual machine hours used by Stark during October. A) 622 hours B) 615 hours C) 608 hours D) 620 hours
A) (Actual machine hours − 615 budgeted machine hours) × $25 = $175 Actual machine hours = 7 hours + 615 hours = 622 hours
4) What is the flexible-budget variance for variable manufacturing overhead? A) $13,245 unfavorable B) $35,715 unfavorable C) $13,245 favorable D) $35,715 favorable
A) Budgeted machine hours per unit = 16,585 ÷ 31,000 = 0.535 Budgeted machine hours allowed for 33000 units = 33,000 × 0.535 = 17,655 Budgeted variable overhead rate per machine hour = $348,285 ÷ 16,585 = $21.00 Flexible-budget amount = 17,655 × $21.00 = $370,755 Flexible-budget variance = $384,000 − $370,755 = $13,245 unfavorable
12) What is the fixed overhead spending variance? A) $560 unfavorable B) $100 favorable C) $100 unfavorable D) $560 favorable
B) $100 favorable
Use the below information to answer the following questions: Bekits Corporation manufactured 25,000 grooming kits for horses during March. The following fixed overhead data relates to March: Actual Static Budget Production 37,500 units 36,000 units Machine-hours 6,100 hours 5,940 hours Fixed overhead costs for March $133,000 $124,740 7) What is the flexible-budget amount? A) $134,375.50 B) $124,740.00 C) $129,937.50 D) $133,000.00
B) $124,740, the same lump sum as the static budget
6) Luke's Football Manufacturing Company reported: Actual fixed overhead $400,000 Fixed manufacturing overhead spending variance $10,000 favorable Fixed manufacturing production-volume variance $15,000 unfavorable To isolate these variances at the end of the accounting period, John would debit Fixed Manufacturing Overhead Allocated for ________. A) $390,000 B) $395,000 C) $400,000 D) $405,000
B) $400,000 + $10,000 - $15,000 = $395,000
27) What is the flexible-budget amount? A) $121,500 B) $151,875 C) $165,000 D) $168,750
B) 30,000 × (10,800/24,000) × $11.25 = $151,875
4) Which of the following is the mathematical expression for the budgeted fixed overhead cost per unit of cost allocation base? A) Budgeted fixed overhead cost per unit of cost allocation base = Actual total costs in fixed overhead cost pool ÷ Budgeted total quantity of cost allocation base B) Budgeted fixed overhead cost per unit of cost allocation base = Budgeted total costs in fixed overhead cost pool ÷ Budgeted total quantity of cost allocation base C) Budgeted fixed overhead cost per unit of cost allocation base = Actual total costs in fixed overhead cost pool ÷ Actual total quantity of cost allocation base D) Budgeted fixed overhead cost per unit of cost allocation base = Budgeted total costs in fixed overhead cost pool ÷ Actual total quantity of cost allocation base
B) Budgeted fixed overhead cost per unit of cost allocation base = Budgeted total costs in fixed overhead cost pool ÷ Budgeted total quantity of cost allocation base
8) Green Energy Inc. produces fertilizer and distributes the product by using his tanker trucks. Green Energy uses budgeted fleet hours to allocate variable manufacturing overhead. The following information relates to the company's manufacturing overhead data: Budgeted output units 730 truckloads Budgeted fleet hours 511 hours Budgeted pounds of fertilizer 24,000,000 pounds Budgeted variable manufacturing overhead costs for 730 loads $89,425 Actual output units produced and delivered 720 truckloads Actual fleet hours 436 hours Actual pounds of fertilizer produced and delivered 25,200,000 pounds Actual variable manufacturing overhead costs $87,120 What is the budgeted variable overhead cost rate per output unit? A) $120.00 B) $122.50 C) $123.69 D) $121.00
B) Budgeted fleet hours per unit = 511 ÷ 730= 0.7 Budgeted cost per fleet hour = $89,425 ÷ 511 = $175 Budgeted cost per unit = $175 × 0.7 = $122.5
Use the following information to answer the following questions 3-5: Autogas Corporation manufactures industrial-sized gas furnaces and uses budgeted machine hours to allocate variable manufacturing overhead. The following information relates to the company's manufacturing overhead data: Budgeted output units 31,000 units Budgeted machine-hours 16,585 hours Budgeted variable manufacturing overhead costs for 31,000 units $348,285 Actual output units produced 33,000 units Actual machine-hours used 14,400 hours Actual variable manufacturing overhead costs $384,000 3) What is the flexible-budget amount for variable manufacturing overhead? A) $348,750 B) $370,755 C) $384,000 D) $360,727
B) Budgeted machine hours per unit = 16,585 ÷ 31,000 = 0.535 Budgeted machine hours allowed for 33000 units = 33,000 × 0.535= 17,655 Budgeted variable overhead rate per machine hour = $348,285 ÷ 16,585 = $21.00 Flexible-budget amount = 17,655 × $21.00 = $370,755
Use the following information to answer the questions below 6-8: Baseballic Corporation manufactures baseball uniforms and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information relates to the company's manufacturing overhead data: Budgeted output units 11,250 units Budgeted machine-hours 22,500 hours Budgeted variable manufacturing overhead costs for 11,250 units $213,750 Actual output units produced 11,500 units Actual machine-hours used 22,000 hours Actual variable manufacturing overhead costs $225,000 6) What is the amount for budgeted variable manufacturing overhead cost per unit? A) $225,000 B) $218,500 C) $213,750 D) $221,750
B) Budgeted machine hours per unit = 22,500 ÷ 11,250 = 2 Budgeted machine hours allowed for 11,500 units = 11,500 × 2 = 23,000 Budgeted variable overhead rate per machine hour = $213,750 ÷ 22,500 = $9.5 Flexible-budget amount = 23,000 × $9.5 = $218,500
20) Radon Corporation manufactured 25,000 grooming kits for horses during March. The following fixed overhead data pertain to March: Actual Static Budget Production 33,000 units 30,000 units Machine-hours 6,100 hours 6,000 hours Fixed overhead costs for March $153,000 $144,000 What is the fixed overhead production-volume variance? A) $9,000 unfavorable B) $14,400 favorable C) $14,400 unfavorable D) $9,000 favorable
B) Fixed cost per machine hour = $144,000 ÷ 6,000 = $24 Machine hours per unit = 6,000 ÷ 30,000 = 0.2 Fixed cost per unit = $24 × 0.2 = $4.8 Fixed overhead allocated = 33,000 × $4.8 = $158,400 Fixed overhead production-volume variance = $144,000 − $158,400 = $14,400 F
4) Which of the following is the correct mathematical expression to calculate the fixed overhead spending variance? A) Static-budget amount — Flexible-budget amount B) Flexible-budget amount — Actual costs incurred C) Static-budget amount — Fixed overhead allocated for actual output D) Flexible-budget amount — Fixed overhead allocated for actual output
B) Flexible budget amount - Actual costs incurred
23) What is the flexible-budget amount? A) $49,490 B) $45,450 C) $46,350 D) $47,650
B) Flexible-budget amount = 9,000 mh × $5.05 = $45,450
9) What is the fixed overhead spending variance? A) $3,062.5 unfavorable B) $8,260 favorable C) $8,260 unfavorable D) $3,062.5 favorable
C) Fixed overhead spending variance = $133,000 actual costs − $124,740 budgeted cost = $8,260 unfavorable
43) When variances are immaterial, which of the following statements is true of the journal entry to write- off the variable overhead variance accounts? A) Cost of Goods Sold account will always be debited. B) Unfavorable efficiency variance will be credited. C) Favorable efficiency variance will be credited. D) Cost of Goods Sold account will always be credited.
B) Unfavorable efficiency variance will be credited.
18) Which of the following journal entries is used to record fixed overhead costs allocated? A) Fixed Overhead Allocated Work-in- Process Control B) Work-in- Process Control Fixed Overhead Allocated C) Fixed Overhead Control Work-in- Process Control D) Fixed Overhead Allocated Fixed Overhead Control
B) Work-in- Process Control Fixed Overhead Allocated
13) Teddy Company uses a standard cost system. In May, $234,000 of variable manufacturing overhead costs were incurred and the flexible-budget amount for the month was $240,000. Which of the following variable manufacturing overhead entries would have been recorded for May? A) Accounts Payable Control and other accounts 240,000 Work-in- Process Control 240,000 B) Work-in- Process Control 240,000 Variable Manufacturing Overhead Allocated 240,000 C) Work-in- Process Control 234,000 Accounts Payable Control and other accounts 234,000 D) Accounts Payable Control and other accounts 234,000 Variable Manufacturing Overhead Control 234,000
B) Work-in- Process Control 240,000 Variable Manufacturing Overhead Allocated 240,000
29) What is the variable overhead efficiency variance? A) $3,750 favorable B) $16,875 unfavorable C) $13,125 unfavorable D) $30,375 unfavorable
B) [15,000 - (30,000 × 10,800/24,000) mh] × $11.25 = $16,875 unfavorable
16) The variable overhead efficiency variance measures the difference between the ________, multiplied by the budgeted variable overhead cost per unit of the cost-allocation base. A) budgeted quantity of the cost-allocation base used and the budgeted quantity of the cost-allocation base that should have been used to produce the actual output B) actual quantity of the cost-allocation base used and the budgeted quantity of the cost-allocation base that should have been used to produce the actual output C) actual cost incurred and the budgeted quantity of the cost-allocation base that should have been used to produce the actual output D) budgeted cost and the actual cost used to produce the actual output
B) actual quantity of the cost-allocation base used and the budgeted quantity of the cost-allocation base that should have been used to produce the actual output
14) The flexible budget enables to highlight the differences ________. A) between actual costs and actual quantities versus budgeted costs and budgeted quantities for the actual output level B) between budgeted costs and budgeted quantities versus actual costs and budgeted quantities for the budgeted output level C) between budgeted costs and actual quantities versus budgeted costs and budgeted quantities for the actual output level D) between actual costs and actual quantities versus budgeted costs and budgeted quantities for the budgeted output level
B) between budgeted costs and budgeted quantities versus actual costs and budgeted quantities for the budgeted output level
19) Bismith Company reported: Actual fixed overhead $500,000 Fixed manufacturing overhead spending variance $30,000 unfavorable Fixed manufacturing production-volume variance $20,000 unfavorable To record the write-off of these variances at the end of the accounting period, Bismith would ________. A) credit Fixed Manufacturing Overhead Allocated for $500,000 B) debit Fixed Manufacturing Overhead Spending Variance for $30,000 C) credit Fixed Manufacturing Production-Volume Variance for $20,000 D) debit Fixed Manufacturing Control for $500,000
B) debit Fixed Manufacturing Overhead Spending Variance for $30,000
5) For fixed manufacturing overhead, there is no ________. A) spending variance B) efficiency variance C) flexible-budget variance D) production-volume variance
B) efficiency variance
41) When machine-hours are used as a cost-allocation base, the item most likely to contribute to a favorable variable overhead efficiency variance is ________. A) excessive machine breakdowns B) skillful workforce C) additional machinery D) strengthened demand for the product
B) skillful workforce
2) A $5,000 unfavorable flexible-budget variance indicates that ________. A) the flexible-budget amount exceeded actual variable manufacturing overhead by $5,000 B) the actual variable manufacturing overhead exceeded the flexible-budget amount by $5,000 C) the flexible-budget amount exceeded standard variable manufacturing overhead by $5,000 D) the standard variable manufacturing overhead exceeded the flexible-budget amount by $5,000
B) the actual variable manufacturing overhead exceeded the flexible-budget amount by $5,000
35) The variable overhead efficiency variance is computed ________ and interpreted ________ the direct-cost efficiency variance. A) the same as; the same as B) the same as; differently than C) differently than; the same as D) differently than; differently than
B) the same as; differently than
52) Comfort Company manufactures pillows. The 2015 operating budget is based on production of 25,000 pillows with 0.75 machine-hour allowed per pillow. Budgeted variable overhead per hour was $25. Actual production for 2015 was 27,000 pillows using 19,050 machine-hours. Actual variable costs were $23 per machine-hour. Required: Calculate the variable overhead spending and efficiency variances.
Budgeted variable overhead = $25 × (25,000 × 0.75) machine-hours = $468,750 Spending variance = ($25 − $23) × 19,050 = $38,100 favorable Efficiency variance = [19,050 − (27,000 × 0.75)] × $25 = $30,000 favorable
53) Skytalk Company manufactures weathervanes. The 2015 operating budget is based on the production of 5,300 weathervanes with 1.25 machine-hour allowed per weathervane. Variable manufacturing overhead is anticipated to be $145,750. Actual production for 2015 was 5,250 weathervanes using 6,050 machine-hours. Actual variable costs were $21.75 per machine-hour. Required: Calculate the variable overhead spending and the efficiency variances.
Budgeted variable overhead per hour = $145,750 ÷ (5,300 × 1.25) machine-hours = $22 Spending variance = ($21.75 − $22) × 6,050 = $1,512.50 favorable Efficiency variance = [6,050 − (5,300 × 1.25)] × $22 = $12,650 favorable
7) Christine Corporation manufactures baseball uniforms and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data: Budgeted output units 10,000 units Budgeted machine-hours 15,000 hours Budgeted variable manufacturing overhead costs for 20,000 units $180,000 Actual output units produced 9,000 units Actual machine-hours used 14,000 hours Actual variable manufacturing overhead costs $171,000 What is the budgeted variable overhead cost rate per output unit? A) $12.00 B) $12.21 C) $18.00 D) $19.00
C) $180,000/10,000 = $18.00
Answer the following questions using the information below: Neocomfort Corporation manufactured 3,000 chairs during June. The following variable overhead data relates to June: Budgeted variable overhead cost per unit $ 12.00 Actual variable manufacturing overhead cost $49,900 Flexible-budget amount for variable manufacturing overhead $47,800 Variable manufacturing overhead efficiency variance $720 unfavorable 18) What is the variable overhead flexible-budget variance? A) $2,100 favorable B) $1,380 favorable C) $2,100 unfavorable D) $1,380 unfavorable
C) $2,100 unfavorable
Answer the following questions using the information below: Sport-in Corporation manufactured 10,000 golf bags during April. The following fixed overhead data pertain to March: Actual Static Budget Production 20,000 units 20,500 units Machine-hours 5,100 hours 6,150 hours Fixed overhead cost for March $250,000 $258,300 13) What is the flexible-budget amount? A) $250,000 B) $200,500 C) $258,300 D) $204,700
C) $258,300, the same lump sum as the static budget
Answer the following questions using the information below: Deocomfort Corporation manufactured 54,000 door jambs during September. The following fixed overhead data relates to September: Actual Static Budget Production 55,500 units 55,000 units Machine-hours 985 hours 1,100 hours Fixed overhead costs for September $50,500 $50,600 10) What is the flexible-budget amount? A) $50,500 B) $51,060 C) $50,600 D) $55,500
C) $50,600, the same lump sum as the static budget
34) What is the total variable overhead variance A) $7,875 unfavorable B) $3,937.50 f unfavorable C) $7,875 favorable D) $3,937.50 f favorable
C) Actual variable overhead - Flexible budgeted variable overhead (7,875 mh × $31.00) - [16,000 × (9,000/18,000) mh × $31.50] $244,125 - $252,000 = $7,875 favorable
Answer the following questions using the information below: Zitrik Corporation manufactured 100,000 buckets during February. The variable overhead cost-allocation base is $5.00 per machine-hour. The following variable overhead data pertain to February: Actual Budgeted Production 90,000 units 90,000 units Machine-hours 9,800 hours 9,000 hours Variable overhead cost per machine-hour $5.15 $5.05 22) What is the actual variable overhead cost? A) $463,500 B) $436,500 C) $50,470 D) $49,490
C) Actual variable overhead cost = 9,800 mh × $5.15 = $50,470
Use the following information to answer the questions below 9-12: Mynarc Corporation produces fertilizer and distributes the product by using his tanker trucks. Mynarc uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data: Budgeted output units 675 truckloads Budgeted fleet hours 540 hours Budgeted variable manufacturing overhead costs for 675 loads $82,350 Actual output units produced and delivered 630 truckloads Actual fleet hours 436 hours Actual variable manufacturing overhead costs $77,490 9) What is the flexible-budget amount for variable manufacturing overhead? A) $83,025 B) $82,350 C) $76,860 D) $77,490
C) Budgeted fleet hours per unit = 540 ÷ 675 = 0.8 Budgeted fleet hours allowed for 630 truckloads = 630 × 0.8 = 504 Budgeted variable overhead rate per machine hour = $82,350 ÷ 540 = $152.5 Flexible-budget amount = 504 × $152.5 = $76,860
5) What is the amount of the budgeted variable manufacturing overhead cost per unit? A) $11.745 B) $10.570 C) $11.235 D) $11.636
C) Budgeted machine hours per unit = 16,585 ÷ 31,000 = 0.535 Budgeted variable overhead rate per machine hour = $348,285 ÷ 16,585 = $21.00 Budgeted variable manufacturing overhead cost per unit = 0.535 × $21.00 = $11.235
8) What is the amount of the budgeted variable manufacturing overhead cost per unit? A) $9.50 per unit B) $18.58 per unit C) $19.00 per unit D) $19.56 per unit
C) Budgeted machine hours per unit = 22,500 ÷ 11,250 = 2 Budgeted variable overhead rate per machine hour = $213,750 ÷ 22,500 = $9.5 Budgeted variable manufacturing overhead cost per unit = 2 × $9.5 = $19.00
6) Alka Corporation manufactures industrial-sized gas furnaces and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data: Budgeted output units 29,000 units Budgeted machine-hours 10,150 hours Budgeted variable manufacturing overhead costs for 29,000 units $324,800 Actual output units produced 31,000 units Actual machine-hours used 14,400 hours Actual variable manufacturing overhead costs $333,250 What is the budgeted variable overhead cost rate per output unit? A) $11.70 B) $11.75 C) $11.20 D) $11.00
C) Machine hour per unit = 10,150 ÷ 29,000 = 0.35 Budgeted cost per machine hour = $324,800 ÷ 10,150 = $32 Budgeted cost per unit = $32 × 0.35 = $11.20
21) Calculate the variable overhead flexible-budget variance. A) $1,055 unfavorable B) $1,055 favorable C) $1,405 unfavorable D) $1,405 favorable
C) Variable overhead flexible-budget variance = $1,230 (U) + $175 (U) = $1,405 (U)
24) What is the variable overhead spending variance? A) $980 favorable B) $900 unfavorable C) $980 unfavorable D) $900 favorable
C) Variable overhead spending variance = ($5.15 − $5.05) × 9,800 mh = $980 unfavorable
12) The variable overhead flexible-budget variance can be further subdivided into the ________. A) price variance and the efficiency variance B) static-budget variance and sales-volume variance C) spending variance and the efficiency variance D) sales-volume variance and the spending variance
C) spending variance and the efficiency variance
37) An unfavorable variable overhead efficiency variance indicates that ________. A) the actual rate of variable overhead was more than budgeted rate B) the price of variable overhead items was less than budgeted C) the variable overhead cost-allocation base was not used efficiently D) the variable overhead cost-allocation base was used efficiently
C) the variable overhead cost-allocation base was not used efficiently
32) What is the variable overhead spending variance? A) $4,500 unfavorable B) $3,937.50 unfavorable C) $4,500 favorable D) $3,937.50 favorable
D) ($31.00- $31.50) × 7,875 mh = $3,937.50 favorable
36) Mendel Company makes the following journal entry: Variable Manufacturing Overhead Allocated 200,000 Variable Manufacturing Overhead Efficiency Variance 5,000 Variable Manufacturing Overhead Control 175,000 Variable Manufacturing Overhead Spending Variance 30,000 Which of the following statements is true of the given journal entry? A) A variable manufacturing overhead cost of $175,000 is written-off. B) An unfavorable spending variance of $30,000 is recorded. C) A favorable efficiency variance of $5,000 is recorded. D) A favorable flexible-budget variance of $25,000 is recorded.
D) A favorable flexible-budget variance of $25,000 is recorded.
10) What is the flexible-budget variance for variable manufacturing overhead? A) $4,860 favorable B) $4,860 unfavorable C) $630 favorable D) $630 unfavorable
D) Budgeted fleet hours per unit = 540 ÷ 675 = 0.8 Budgeted fleet hours allowed for 630 truckloads = 630 × 0.8 = 504 Budgeted variable overhead rate per machine hour = $82,350 ÷ 540 = $152.5 Flexible-budget amount = 504 × $152.5 = $76,860 Flexible-budget variance = $77,490 − $76,860 = $630 U
11) What is the budgeted variable manufacturing overhead cost per unit? A) $183.00 per unit B) $178.89 per unit C) $119.25 per unit D) $122.00 per unit
D) Budgeted fleet hours per unit = 540 ÷ 675 = 0.8 Budgeted variable overhead rate per machine hour = $82,350 ÷ 540 = $152.5 Budgeted variable manufacturing overhead cost per unit = 0.8 × $152.5 = $122.00
8) What is the amount of fixed overhead allocated to production? A) $134,375.50 B) $124,740.00 C) $133,000.00 D) $129,937.50
D) Fixed overhead cost per machine hour = $124,740 ÷ 5,940 = $21 Machine hours per unit = 5,940 ÷ 36,000 = 0.165 Fixed overhead cost per unit = $21 × 0.165 = $3.465 Fixed overhead allocated = 37,500 × $3.465 = $129,937.50
15) What is the amount of fixed overhead spending variance? A) $8,300 unfavorable B) $2,000 favorable C) $2,000 unfavorable D) $8,300 favorable
D) Fixed overhead spending variance = $250,000 actual costs − $258,300 budgeted cost = $8,300 favorable
16) Which of the following statements is true of fixed overhead variances? A) The difference between actual costs and static budget costs will give the production volume variance. B) The difference between actual costs and static budget costs will always be nil. C) The difference between actual costs and flexible budget costs will give the production volume variance. D) The difference between flexible budget costs and static budget costs will always be nil.
D) The difference between flexible budget costs and static budget costs will always be nil.
40) Marshall Company uses a standard cost system. In April, $266,000 of variable manufacturing overhead costs were incurred and the flexible-budget amount for the month was $300,000. Which of the following variable manufacturing overhead entries would have been recorded for March? A) Accounts Payable Control and other accounts 300,000 Work-in- Process Control 300,000 B) Variable Manufacturing Overhead Allocated 300,000 Accounts Payable and other accounts 300,000 C) Work-in- Process Control 266,000 Accounts Payable Control and other accounts 266,000 D) Variable Manufacturing Overhead Control 266,000 Accounts Payable Control and other accounts 266,000
D) Variable Manufacturing Overhead Control 266,000 Accounts Payable Control and other accounts 266,000
19) What is the variable overhead spending variance? A) $1,380 favorable B) $2,820 favorable C) $2,820 unfavorable D) $1,380 unfavorable
D) Variable overhead flexible-budget variance = $2,100 (U) Variable overhead efficiency variance = $720 (U) Variable overhead spending variance = $2,100 (U) − $720 (U) = $1,380 (U)
17) When variable overhead efficiency variance is favorable, it can be safely assumed that the ________. A) actual rate per unit of the cost-allocation base is higher than the budgeted rate B) actual quantity of the cost-allocation base used is higher than the budgeted quantity C) actual rate per unit of the cost-allocation base is lower than the budgeted rate D) actual quantity of the cost-allocation base used is lower than the budgeted quantity
D) actual quantity of the cost-allocation base used is lower than the budgeted quantity
17) Which of the following is the correct mathematical expression to calculate the fixed overhead production-volume variance? A) static-budget amount − flexible-budget amount B) flexible-budget amount − actual costs incurred C) actual costs incurred − fixed overhead allocated for actual output D) budgeted fixed overhead − fixed overhead allocated for actual output
D) budgeted fixed overhead − fixed overhead allocated for actual output
38) Osium Company made the following journal entry: Variable Manufacturing Overhead Allocated 200,000 Variable Manufacturing Overhead Efficiency Variance 60,000 Variable Manufacturing Overhead Control 250,000 Variable Manufacturing Overhead Spending Variance 10,000 Which of the following statements is true of the given journal entry? A) Osium overallocated variable manufacturing overhead. B) A $10,000 unfavorable spending variance was recorded. C) Work-in- Process is currently overstated. D) A $60,000 unfavorable efficiency variance was recorded.
D)A $60,000 unfavorable efficiency variance was recorded.
12) Computing standard costs at the start of the budget period results in a complex record keeping system.
FALSE Explanation: Computing standard costs at the start of the budget period simplifies record keeping because no records are needed of the actual overhead costs or of the actual quantities of the cost-allocation bases used.
48) If budgeted and actual machine hours are equal, spending variance will always be nil.
FALSE Explanation: Even if budgeted and actual machine hours are equal, spending variance can occur. Because even though the company used the correct number of machine-hours, the energy consumed per machine-hour could be higher than budgeted.
10) Fixed costs automatically increase or decrease with the level of activity within a relevant range of activity.
FALSE Explanation: Fixed costs do not automatically increase or decrease with the level of activity within the relevant range.
45) Managers can always view a favorable variable overhead spending variance as desirable.
FALSE Explanation: Managers should not always view a favorable variable overhead spending variance as desirable. For example, the variable overhead spending variance would be favorable if managers purchased lower-priced, poor-quality indirect materials. These decisions, however, are likely to hurt product quality and harm the long-run prospects of the business.
50) Causes of a favorable variable overhead efficiency variance might include using lower-skilled workers than expected.
FALSE Explanation: Possible causes of a favorable variable overhead efficiency variance might include using higher-skilled workers that are more efficient than expected.
11) Standard costing is a cost system that allocates overhead costs on the basis of overhead cost rates based on actual overhead costs times the standard quantities of the allocation bases allowed for the actual outputs produced.
FALSE Explanation: Standard costing is a costing system that traces direct costs to output produced by multiplying the standard prices or rates by the standard quantities of inputs allowed for actual outputs produced.
22) If the production planners set the budgeted machine hours standards too loose, one could anticipate there would be a favorable fixed overhead efficiency variance.
FALSE Explanation: There is no efficiency variance for fixed costs because a given lump sum of fixed costs will be unaffected by how efficiently machine-hours are used to produce output in a given budget period.
14) What is a standard costing system?
Standard costing is a costing system that (1) traces direct costs to output produced by multiplying the standard prices or rates by the standard quantities of inputs allowed for actual outputs produced and (2) allocates overhead costs on the basis of the standard overhead-cost rates times the standard quantities of the allocation bases allowed for the actual outputs produced.
23) Under Generally Accepted Accounting Principles (GAAP), fixed manufacturing overhead costs are allocated as an inventoriable cost to the output units produced.
TRUE
46) The variable overhead efficiency variance is the difference between actual quantity of the cost-allocation base used and budgeted quantity of the cost-allocation base allowed for actual output, multiplied by the budgeted variable overhead cost per unit of the cost-allocation base.
TRUE
47) Tightly budgeted machine time standards can lead to unfavorable variable overhead efficiency variance.
TRUE
49) Unskilled workforce can lead to unfavorable efficiency variance.
TRUE
54) Briefly explain the meaning of the variable overhead efficiency variance and the variable overhead spending variance.
The variable overhead efficiency variance is the difference between actual quantity of the cost-allocation base used and the budgeted amount of the cost allocation base that should have been used to produce the actual output, multiplied by budgeted variable overhead cost per unit of the cost-allocation base. The efficiency variance for variable overhead cost is based on the efficiency with which the cost allocation base was used to make the actual output. The variable overhead spending variance is the difference between the actual variable overhead cost per unit of the cost-allocation base and the budgeted variable overhead cost per unit of the cost-allocation base, multiplied by actual quantity of the variable overhead cost-allocation base used for actual output. The meaning of this variance hinges on an explanation of why the per unit cost of the allocation base is lower or higher than the amount budgeted. Some explanations might include different-than- budgeted prices for the individual inputs to variable overhead or perhaps more efficient usage of some of the variable overhead items.
55) Define variable overhead spending variance. Briefly explain why a favorable variable overhead spending variance may not always be desirable.
The variable overhead spending variance is the difference between the actual variable overhead cost per unit of the cost-allocation base and the budgeted variable overhead cost per unit of the cost-allocation base, multiplied by the actual quantity of the variable overhead cost-allocation base used for the actual output. Variable overhead costs include costs of energy, machine maintenance, indirect materials, and indirect labor. If a favorable variable overhead spending variance had been obtained by the managers of the company purchasing low-priced, poor-quality indirect materials, hired less talented supervisors, or performed less machine maintenance there could be negative future consequences. The long-run prospects for the business may suffer as the company ends up putting out a lower quality product, or it may end up having very large equipment repairs as a result of cutting corners in the short term. Hence, manager should not always view a favorable variable overhead spending variance as desirable.
56) Can the variable overhead efficiency variance a. be computed the same way as the efficiency variance for direct-cost items? b. be interpreted the same way as the efficiency variance for direct-cost items? Explain.
a. Yes, the variable overhead efficiency variance can be computed the same way as the efficiency variance for direct-cost items. b. No, the interpretations are different. The variable overhead efficiency variance focuses on the quantity of allocation-base used, while the efficiency variance for direct-cost items focuses on the quantity of materials and labor-hours used.
39) Which of the following is the correct mathematical expression is used to calculate variable overhead efficiency variance? A) (Actual rate − Budgeted rate) × Budgeted quantity B) (Actual quantity × Budgeted rate) - (Budgeted input quantity allowed for actual output × Budgeted rate) C) (Actual quantity ÷ Budgeted rate) − (Budgeted quantity ÷ Budgeted rate) D) (Actual quantity ÷ Budgeted rate) × Budgeted quantity allowed for actual output
b) (Actual quantity * budgeted rate) - (Budgeted input quantity allowed for actual output * Budgeted rate)
2) Effective planning of variable overhead costs means that a company performs those variable overhead costs that primarily ________. A) increase the planned variable overhead budgets B) add value for the customer using the products or services C) increase the linearity between total costs and volume of production D) identify the product advertising requirements
b) add value for the customer using the products or services.
4) Fixed overhead costs include ________. A) the cost of sales commissions B) property taxes paid on plant facilities C) energy costs D) indirect materials
b) property taxes paid on plant facilities.
3) An unfavorable fixed overhead spending variance indicates that ________. A) there was more excess capacity than planned B) the price of fixed overhead items cost more than budgeted C) the fixed overhead cost-allocation base was not used efficiently D) the denominator level was more than planned
b) the price of fixed overhead items cost more than budgeted.
2) While calculating the costs of products and services, a standard costing system ________. A) allocates overhead costs on the basis of the actual overhead-cost rates B) uses standard costs to determine the cost of products C) does not keep track of overhead cost D) traces direct costs to output by multiplying the standard prices or rates by the actual quantities
b) uses standard costs to determine the cost of products.
15) When machine-hours are used as an overhead cost-allocation base, the most likely cause of a favorable variable overhead spending variance is ________. A) excessive machine breakdowns B) the production scheduler efficiently scheduled jobs C) a decline in the cost of energy D) strengthened demand for the product
c) a decline in the cost of energy
2) The amount reported for fixed overhead on the static budget is also reported ________. A) as actual fixed costs B) as allocated fixed overhead costs C) as flexible budget costs D) as committed variable costs
c) as flexible budget costs
8) The major challenge when planning fixed overhead is ________. A) calculating total costs B) calculating the cost-allocation rate C) choosing the appropriate level of capacity D) choosing the appropriate planning period
c) choosing the appropriate level of capacity
1) Compared to variable overhead costs planning, fixed overhead costs planning have an additional strategic issue of ________. A) eliminating activities that do not add value B) increasing the linearity between total costs and volume of production C) choosing the appropriate level of investment D) identifying essential value-adding activities
c) choosing the appropriate level of investment.
5) In flexible budgets, costs that remain the same regardless of the output levels within the relevant range are ________. A) allocated costs B) budgeted costs C) fixed costs D) variable costs
c) fixed costs
6) Effective planning of variable overhead costs includes ________. A) choosing the appropriate level of investment B) eliminating value-added costs C) redesigning products to use fewer resources D) reorganizing management structure
c) redesigning products to use fewer resources.
3) Which of the following is a step in developing budgeted variable overhead rates? A) identifying the fixed costs associated with direct manufacturing labor B) estimating the budgeted denominator level based on expected utilization of available capacity C) selecting the cost-allocation base to use in allocating machine-handling costs D) choosing the appropriate level of capacity or investment
c) selecting the cost-allocation base to use in allocating machine-handling costs
1) When machine-hours are used as an overhead cost-allocation base and annual leasing costs for equipment unexpectedly increase, the most likely result would be to report a(n) ________. A) unfavorable variable overhead spending variance B) favorable variable overhead efficiency variance C) unfavorable fixed overhead flexible-budget variance D) favorable production-volume variance
c) unfavorable fixed overhead flexible-budget variance.
1) Which of the following mathematical expression is used to calculate budgeted variable overhead cost rate per output unit? A) Budgeted output allowed per input unit × Budgeted variable overhead cost rate per input unit B) Budgeted input allowed per output unit ÷ Budgeted variable overhead cost rate per input unit C) Budgeted output allowed per input unit ÷ Budgeted variable overhead cost rate per input unit D) Budgeted input allowed per output unit × Budgeted variable overhead cost rate per input unit
d) Budgeted input allowed per output unit * Budgeted variable overhead cost rate per input unit
3) Which of the following statements is true of variable overhead costs? A) All the decisions determining the level of variable overhead costs are made at the start of a budget period. B) Planning of variable overhead costs includes choosing the appropriate level of capacity. C) Activities which add value are of least relevance while planning variable overhead costs. D) The level of variable overhead costs incurred in a period is mainly determined by day-to- day operating decisions.
d) The level of variable overhead costs incurred in a period is mainly determined by day-to-day operating decisions.
7) Most of the decisions determining the level of fixed overhead costs to be incurred will be made ________. A) by the end of a budget period B) by the middle of a budget period C) on a day-to- day ongoing basis D) at the start of a budget period
d) at the start of a budget period.
5) Effective planning of fixed overhead costs includes ________. A) planning day-to- day operational decisions B) eliminating value-added costs C) determining which products are to be produced D) choosing the appropriate level of capacity
d) choosing the appropriate level of capacity
