Final Exam
8-19: Culpepper Corporation had the following inventories at the beginning and end of the month of January: January 1 January 31 Finished goods $125,000 $117,000 Work-in-process 235,000 251,000 Direct materials 134,000 124,000 The following additional manufacturing data was available for the month of January. Direct materials purchased $189,000 Transportation in 3,000 Direct labor 400,000 Actual factory overhead 175,000 Culpepper Corporation applies factory overhead at a rate of 40% of direct labor cost, and any overapplied or underapplied factory overhead is deferred until the end of the year. Culpepper's balance in its factory overhead control account at the end of January was: 1. $15,000 overapplied. 2. $15,000 underapplied. 3. $5,000 underapplied. 4. $5,000 overapplied.
2. $15,000 underapplied. For Culpepper, factory (manufacturing) overhead is allocated based on 40% of DML costs. DML cost is $400,000, and factory (MOH) allocated would be $160,000. Actual OH is $175,000. Factory (MOH) is therefore underallocated by $15,000.
8-20: Fordham Corporation produces a single product. The standard costs for one unit of its Concourse product are as follows: Direct materials (6 pounds at $0.50 per pound) $ 3 Direct labor (2 hours at $10 per hour) 20 Variable manufacturing overhead (2 hours at $5 per hour) 10 Total 33 During November Year 2, 4,000 units of Concourse were produced. The costs associated with November operations were as follows: Material purchased (36,000 pounds at $0.60 per pound) $21,600 Material used in production (28,000 pounds) Direct labor (8,200 hours at $9.75 per hour) 79,950 Variable manufacturing overhead incurred 41,820 What is the variable overhead efficiency variance for Concourse for November Year 2? 1. $2,000 favorable. 2. $1,000 favorable. 3. $2,000 unfavorable. 4. $1,000 unfavorable.
4. $1,000 unfavorable. The actual hours used to produce the 4,000 units were 8,200 hours, and the standard hours to produce 4,000 units were 8,000 hours. VOH is based on LHrs. Because the actual hours were more than the standard hours, the VOH efficiency variance has to be unfavorable. The variance formula for the VOH efficiency variance can be stated as the standard rate of $5 per hour * the difference between the actual and standard hours used of 200 (8,200− 8,000), or $1,000 Unfavorable.
8-17: Steed Co. budgets production of 150,000 units in the next year. Steed's CFO expects that each unit will take 8 hours to produce at an hourly wage rate of $10 per hour. If factory overhead is applied on the basis of direct labor hours at $6 per hour, the budget for factory overhead will total: a. $7,200,000. b. $9,000,000. c. $12,000,000. d. $19,200,000.
a. $7,200,000 150,000 units * 8 hours = 1,200,000 * $6/DLhr = $7,200,000
8-16: Each of the following statements is correct regarding overhead variances except a. Actual overhead greater than applied overhead is unfavorable b. The efficiency overhead variance ignores the standard variable overhead rate c. Variable overhead rates are not a factor in the production-volume variance calculation d. Favorable spending and efficiency variances imply that the flexible budget variance must be favorable
b. The efficiency overhead variance ignores the standard variable overhead rate
8-18: As part of her annual review of her company's budgets versus actuals, Mary Gerard isolates unfavorable variances with the hope of getting a better understanding of what caused them and how to avoid them next year. The variable overhead efficiency variance was the most unfavorable over the previous year, which Gerard will specifically be able to trace to: a. Actual overhead costs below applied overhead costs. b. Actual production units below budgeted production units. c. Standard direct labor hours below actual direct labor hours. d. The standard variable overhead rate below the actual variable overhead rate.
c. Standard direct labor hours below actual direct labor hours.