Ch8 | Overhead Variance Control – Test Bank 17th - Horngrens Cost Accounting 17th Global Edition | Test Bank with Answer Key by Srikant M. Datar, Madhav V. Rajan. DOCX document preview.
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Horngren's Cost Accounting: A Managerial Emphasis, 17e, Global Edition by Datar/Rajan
Chapter 8 Flexible Budgets, Overhead Cost Variances, and Management Control
Objective 8.1
1) Compared to variable overhead costs planning, fixed overhead cost planning has an additional strategic issue beyond undertaking only essential activities and efficient operations. That additional requirement is best described as:
A) focusing on the highest possible quality
B) increasing the linearity between total costs and volume of production
C) choosing the appropriate level of capacity that will benefit the company in the long-run
D) identifying essential value-adding activities
Diff: 2
Objective: 1
AACSB: Analytical thinking
2) Effective planning of variable overhead costs means that managers must:
A) increase the expenditures in the variable overhead budgets
B) focus on activities that add value for the customer and eliminate nonvalue-added activities
C) increase the linearity between total costs and volume of production
D) identify the product advertising requirements and factor those into the variable overhead budget
Diff: 1
Objective: 1
AACSB: Analytical thinking
3) Which of the following is a true statement of energy costs?
A) Energy costs are not controllable.
B) Strategies to reduce energy costs will not impact variable cost budgets.
C) Energy costs are a fixed cost of doing business for a manufacturer.
D) Energy costs are a growing component of variable overhead costs.
Diff: 2
Objective: 1
AACSB: Analytical thinking
4) Fixed overhead costs include:
A) the cost of sales commissions
B) leasing of machinery used in a factory
C) energy costs
D) indirect materials
Diff: 1
Objective: 1
AACSB: Analytical thinking
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 investment in productive assets
Diff: 2
Objective: 1
AACSB: Analytical thinking
6) Effective planning of variable overhead costs includes:
A) choosing the appropriate level of investment
B) eliminating value-added costs
C) redesigning products or processes to use fewer resources
D) reorganizing management structure
Diff: 2
Objective: 1
AACSB: Analytical thinking
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
Diff: 1
Objective: 1
AACSB: Analytical thinking
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
Diff: 1
Objective: 1
AACSB: Analytical thinking
9) With regards to variable overhead costs, which of the following is true?
A) At the start of the budget period most decisions regarding variable costs will have been made.
B) Day to day decisions will have little impact of the per unit variable cost of a manufactured product.
C) When managers are concerned about improving quality, little focus is placed on variable costs and more focus is on fixed costs during an operating cycle.
D) Day-to-day operating decisions made by management affect the level of variable costs incurred in the period.
Diff: 2
Objective: 1
AACSB: Analytical thinking
10) An effective plan for variable overhead costs will eliminate activities that do not add value.
Diff: 1
Objective: 1
AACSB: Analytical thinking
11) At the start of the budget period, management will have made most decisions regarding the level of fixed overhead costs to be incurred.
Diff: 2
Objective: 1
AACSB: Analytical thinking
12) The planning of fixed overhead costs differs from the planning of variable overhead costs in terms of timing.
Diff: 2
Objective: 1
AACSB: Analytical thinking
13) The costs related to buildings (such as rent and insurance), equipment (such as lease payments or straight-line depreciation), and salaried labor in a factory are all examples of cost items that would be part of the fixed overhead budget.
Diff: 1
Objective: 1
AACSB: Analytical thinking
14) In planning variable overhead costs, managers must focus attention on activities that create a superior product or service and eliminate activities that do not add value.
Diff: 1
Objective: 1
AACSB: Analytical thinking
Objective 8.2
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
Diff: 2
Objective: 2
AACSB: Analytical thinking
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
Diff: 2
Objective: 2
AACSB: Analytical thinking
3) Which of the following best defines standard costing?
A) It is the same as actual costing but done in real time.
B) It is a system that traces direct cost to output by multiplying actual process or rates by actual quantities of inputs + allocates overhead by on the basis of actual quantities of the allocation base used.
C) It is a system that traces direct costs to output produced by multiplying the standard prices or rates by the standard quantities of inputs allowed for the actual output produced.
D) It is a system that allocates overhead costs on the basis of standard overhead cost rates times the actual quantities of the allocation based used.
Diff: 1
Objective: 2
AACSB: Analytical thinking
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
Diff: 2
Objective: 2
AACSB: Analytical thinking
5) In flexible budgets the costs that are not "flexed" because they remain the same within a relevant range of activity (such as sales or output) are called:
A) total overhead costs
B) total budgeted costs
C) fixed costs
D) variable costs
Diff: 1
Objective: 2
AACSB: Analytical thinking
6) Really Great Corporation manufactures industrial-sized landscaping trailers and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:
Budgeted output units 40,000 units
Budgeted machine-hours 10,000 hours
Budgeted variable manufacturing overhead costs for 40,000 units $310,000
Actual output units produced 36,500 units
Actual machine-hours used 14,600 hours
Actual variable manufacturing overhead costs $350,400
What is the budgeted variable overhead cost rate per output unit?
A) $9.60
B) $12.40
C) $7.75
D) $31.00
Diff: 2
Objective: 2
AACSB: Application of knowledge
7) Home Plate 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 7,000 units
Budgeted machine-hours 19,000 hours
Budgeted variable manufacturing overhead costs for 7,000 units $119,000
Actual output units produced 6,000 units
Actual machine-hours used 18,000 hours
Actual variable manufacturing overhead costs $108,000
What is the budgeted variable overhead cost rate per output unit?
A) $6.26
B) $6.00
C) $17.00
D) $18.00
Diff: 2
Objective: 2
AACSB: Application of knowledge
8) Healthy Earth Products Inc. produces fertilizer and distributes the product by using company trucks. The controller of the company uses budgeted fleet hours to allocate variable manufacturing overhead. The following information relates to the company's manufacturing overhead data:
Budgeted output units 800 truckloads
Budgeted fleet hours 520 hours
Budgeted pounds of fertilizer 28,000,000 pounds
Budgeted variable manufacturing overhead costs for 800 loads $93,600.00
Actual output units produced and delivered 760 truckloads
Actual fleet hours 460 hours
Actual pounds of fertilizer produced and delivered 29,400,000 pounds
Actual variable manufacturing overhead costs $91,200.00
What is the budgeted variable overhead cost rate per output unit?
A) $114.00
B) $117.00
C) $123.16
D) $120.00
Diff: 2
Objective: 2
AACSB: Application of knowledge
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.
Diff: 1
Objective: 2
AACSB: Analytical thinking
10) Fixed costs automatically increase or decrease with the level of activity within a relevant range of activity.
Diff: 1
Objective: 2
AACSB: Analytical thinking
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.
Diff: 2
Objective: 2
AACSB: Analytical thinking
12) Computing standard costs at the start of the budget period results in a complex record keeping system.
Diff: 2
Objective: 2
AACSB: Analytical thinking
13) A standard costing system 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.
Diff: 1
Objective: 2
AACSB: Analytical thinking
14) Ideal rate is synonymous with standard rate.
Diff: 2
Objective: 2
AACSB: Analytical thinking
15) List the four steps to develop budgeted variable overhead cost-allocation.
Step 2: Select the cost-allocation bases to use in allocating the variable overhead costs to the output produced.
Step 3: Identify the variable overhead costs associated with each cost-allocation base.
Step 4: Compute the rate per unit of each cost-allocation base used to allocate the variable overhead costs to the output produced.
Diff: 2
Objective: 2
AACSB: Analytical thinking
16) What is a standard costing system?
Diff: 2
Objective: 2
AACSB: Analytical thinking
Objective 8.3
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
Diff: 2
Objective: 3
AACSB: Analytical thinking
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
Diff: 2
Objective: 3
AACSB: Analytical thinking
3) Majestic Corporation manufactures wheelbarrows and uses budgeted machine hours to allocate variable manufacturing overhead. The following information relates to the company's manufacturing overhead data:
Budgeted output units 28,475 units
Budgeted machine-hours 17,085 hours
Budgeted variable manufacturing overhead costs for 28,475 units $358,785
Actual output units produced 32,475 units
Actual machine-hours used 15,000 hours
Actual variable manufacturing overhead costs $384,060
What is the flexible-budget amount for variable manufacturing overhead?
A) $358,785
B) $409,185
C) $384,060
D) $336,755
Diff: 2
Objective: 3
AACSB: Application of knowledge
4) Majestic Corporation manufactures wheelbarrows and uses budgeted machine hours to allocate variable manufacturing overhead. The following information relates to the company's manufacturing overhead data:
Budgeted output units 43,500 units
Budgeted machine-hours 17,400 hours
Budgeted variable manufacturing overhead costs for 43,500 units $382,800
Actual output units produced 45,500 units
Actual machine-hours used 14,500 hours
Actual variable manufacturing overhead costs $435,709
What is the flexible-budget variance for variable manufacturing overhead?
A) $35,309 unfavorable
B) $52,909 unfavorable
C) $35,309 favorable
D) $52,909 favorable
Diff: 3
Objective: 3
AACSB: Application of knowledge
5) Majestic Corporation manufactures wheelbarrows and uses budgeted machine hours to allocate variable manufacturing overhead. The following information relates to the company's manufacturing overhead data:
Budgeted output units 43,500 units
Budgeted machine-hours 17,400 hours
Budgeted variable manufacturing overhead costs for 43,500 units $382,800
Actual output units produced 47,500 units
Actual machine-hours used 15,100 hours
Actual variable manufacturing overhead costs $387,518
What is the amount of the budgeted variable manufacturing overhead cost per unit? (Do not round any intermediary calculations. Round your final answer to the nearest cent.)
A) $8.91
B) $8.06
C) $8.80
D) $8.16
Diff: 3
Objective: 3
AACSB: Application of knowledge
6) Lancelot Corporation manufactures tennis gear and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information relates to the company's manufacturing overhead data:
Budgeted output units 8,000 units
Budgeted machine-hours 24,000 hours
Budgeted variable manufacturing overhead costs for 8,000 units $288,000
Actual output units produced 8,500 units
Actual machine-hours used 23,750 hours
Actual variable manufacturing overhead costs $250,000
What is the flexible-budget amount for variable manufacturing overhead?
A) $250,000
B) $306,000
C) $288,000
D) $235,294
Diff: 3
Objective: 3
AACSB: Application of knowledge
7) Lancelot Corporation manufactures tennis gear and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information relates to the company's manufacturing overhead data:
Budgeted output units 3,000 units
Budgeted machine-hours 15,000 hours
Budgeted variable manufacturing overhead costs for 3,000 units $180,000
Actual output units produced 3,350 units
Actual machine-hours used 14,700 hours
Actual variable manufacturing overhead costs $250,000
What is the flexible-budget variance for variable manufacturing overhead?
A) $49,000 unfavorable
B) $49,000 favorable
C) $70,000 unfavorable
D) $70,000 favorable
Diff: 3
Objective: 3
AACSB: Application of knowledge
8) Lancelot Corporation manufactures tennis gear and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information relates to the company's manufacturing overhead data:
Budgeted output units 9,500 units
Budgeted machine-hours 28,500 hours
Budgeted variable manufacturing overhead costs for 9,500 units $68,400
Actual output units produced 9,800 units
Actual machine-hours used 28,100 hours
Actual variable manufacturing overhead costs $250,000
What is the amount of the budgeted variable manufacturing overhead cost per unit?
A) $2.40 per unit
B) $6.98 per unit
C) $7.20 per unit
D) $25.51 per unit
Diff: 3
Objective: 3
AACSB: Application of knowledge
9) J&J Materials and Construction Corporation produces mulch and distributes the product by using dump trucks. The company uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:
Budgeted output units 690 truckloads
Budgeted fleet hours 621 hours
Budgeted variable manufacturing overhead costs for 690 loads $94,392
Actual output units produced and delivered 630 truckloads
Actual fleet hours 546 hours
Actual variable manufacturing overhead costs $89,592
What is the flexible-budget amount for variable manufacturing overhead? (Round intermediary calculations two decimal places and your final answer to the nearest whole dollar.)
A) $81,801
B) $94,392
C) $86,184
D) $89,592
Diff: 2
Objective: 3
AACSB: Application of knowledge
10) J&J Materials and Construction Corporation produces fertilizer and distributes the product by using dump trucks. The company uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:
Budgeted output units 680 truckloads
Budgeted fleet hours 476 hours
Budgeted variable manufacturing overhead costs for 680 loads $72,590.00
Actual output units produced and delivered 615 truckloads
Actual fleet hours 376 hours
Actual variable manufacturing overhead costs $67,790.00
What is the flexible-budget variance for variable manufacturing overhead?
A) $4,800 favorable
B) $4,800 unfavorable
C) $2,139 favorable
D) $2,139 unfavorable
Diff: 3
Objective: 3
AACSB: Application of knowledge
11) J&J Materials and Construction Corporation produces mulch and distributes the product by using dump trucks. The company uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:
Budgeted output units 710 truckloads
Budgeted fleet hours 568 hours
Budgeted variable manufacturing overhead costs for 710 loads $87,756.00
Actual output units produced and delivered 635 truckloads
Actual fleet hours 468 hours
Actual variable manufacturing overhead costs $82,896.00
What is the budgeted variable manufacturing overhead cost per unit?
A) $154.50 per unit
B) $177.13 per unit
C) $130.54 per unit
D) $123.60 per unit
Diff: 3
Objective: 3
AACSB: Application of knowledge
12) The variable overhead flexible-budget variance can be further explained by calculating 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
Diff: 1
Objective: 3
AACSB: Analytical thinking
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
Diff: 2
Objective: 3
AACSB: Analytical thinking
14) A company is using a standard cost system and receives its electricity bill. Electricity is considered a variable cost of operations for this company. The bill is for $15,000 and will be paid next month. Which of the following entries would be the correct recording of the electricity bill?
A) Work-in-Process Control $15,000
Variable Overhead Allocated $15,000
B) Variable Overhead Control $15,000
Accounts payable $15,000
C) Work-in-Process Control $15,000
Accounts Payable $15,000
D) Variable Overhead Control $15,000
Variable Overhead Allocated $15,000
Diff: 2
Objective: 3
AACSB: Analytical thinking
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
Diff: 2
Objective: 3
AACSB: Analytical thinking
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
Diff: 2
Objective: 3
AACSB: Analytical thinking
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
Diff: 2
Objective: 3
AACSB: Analytical thinking
18) Lazy Guy Corporation manufactured 4,000 chairs during June. The following variable overhead data relates to June:
Budgeted variable overhead cost per unit $10.00
Actual variable manufacturing overhead cost $49,000
Flexible-budget amount for variable manufacturing overhead $46,800
Variable manufacturing overhead efficiency variance $720 unfavorable
What is the variable overhead flexible-budget variance?
A) $2,200 favorable
B) $1,480 favorable
C) $2,200 unfavorable
D) $1,480 unfavorable
Diff: 2
Objective: 3
AACSB: Application of knowledge
19) Lazy Guy Corporation manufactured 6,000 chairs during June. The following variable overhead data relates to June:
Budgeted variable overhead cost per unit $10.00
Actual variable manufacturing overhead cost $52,800
Flexible-budget amount for variable manufacturing overhead $46,900
Variable manufacturing overhead efficiency variance $790 unfavorable
What is the variable overhead spending variance?
A) $5,110 favorable
B) $5,900 favorable
C) $5,900 unfavorable
D) $5,110 unfavorable
Diff: 3
Objective: 3
AACSB: Application of knowledge
20) Outdoor Gear Corporation manufactured 2000 coolers during October. The following variable overhead data relates to October:
Variable overhead spending variance $1232 Unfavorable
Variable overhead efficiency variance $260 Unfavorable
Budgeted machine hours allowed for actual output 606 machine hours
Actual cost per machine hour $28
Budgeted cost per machine hour $26
Calculate the actual machine hours used by Stark during October.
A) 616 hours
B) 606 hours
C) 596 hours
D) 615 hours
Diff: 2
Objective: 3
AACSB: Application of knowledge
21) Outdoor Gear Corporation manufactured 1,000 coolers during October. The following variable overhead data relates to October:
Variable overhead spending variance $1,300 Unfavorable
Variable overhead efficiency variance $182 Unfavorable
Budgeted machine hours allowed for actual output 608 machine hours
Actual cost per machine hour $28
Budgeted cost per machine hour $26
Calculate the variable overhead flexible-budget variance.
A) $1,118 unfavorable
B) $1,118 favorable
C) $1,482 unfavorable
D) $1,482 favorable
Diff: 3
Objective: 3
AACSB: Application of knowledge
22) Zitrik Corporation manufactured 90,000 buckets during February. The variable overhead cost-allocation base is $5.10 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 $5.25 $5.10
What is the actual variable overhead cost?
A) $472,500
B) $459,000
C) $51,450
D) $49,980
Diff: 2
Objective: 3
AACSB: Application of knowledge
23) Zitrik Corporation manufactured 90,000 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 10,800 hours 10,000 hours
Variable overhead cost per machine-hour $5.05 $5.00
What is the flexible-budget amount?
A) $54,000
B) $50,000
C) $50,500
D) $54,540
Diff: 2
Objective: 3
AACSB: Application of knowledge
24) Zitrik Corporation manufactured 110,000 buckets during February. The variable overhead cost-allocation base is $5.45 per machine-hour. The following variable overhead data pertain to February:
Actual Budgeted
Production 110,000 units 110,000 units
Machine-hours 10,500 hours 10,000 hours
Variable overhead cost per machine-hour $5.55 $5.45
What is the variable overhead spending variance?
A) $1,050 favorable
B) $1,000 unfavorable
C) $1,050 unfavorable
D) $1,000 favorable
Diff: 3
Objective: 3
AACSB: Application of knowledge
25) Zitrik Corporation manufactured 130,000 buckets during February. The variable overhead cost-allocation base is $5.30 per machine-hour. The following variable overhead data pertain to February:
Actual Budgeted
Production 130,000 units 130,000 units
Machine-hours 9,500 hours 9,000 hours
Variable overhead cost per machine-hour $5.35 $5.30
What is the variable overhead efficiency variance?
A) $2,650 unfavorable
B) $2,675 favorable
C) $2,650 favorable
D) $2,675 unfavorable.
Diff: 3
Objective: 3
AACSB: Application of knowledge
26) Cold Products Corporation manufactured 34,000 ice chests during September. The variable overhead cost-allocation base is $14.50 per machine-hour. The following variable overhead data pertain to September:
Actual Budgeted
Production 34,000 units 30,000 units
Machine-hours 15,200 hours 10,800 hours
Variable overhead cost per machine-hour: $14.00 $14.50
What is the actual variable overhead cost?
A) $156,600
B) $177,480
C) $212,800
D) $220,400
Diff: 2
Objective: 3
AACSB: Application of knowledge
27) Cold Products Corporation manufactured 27,000 ice chests during September. The variable overhead cost-allocation base is $15.00 per machine-hour. The following variable overhead data pertain to September:
Actual Budgeted
Production 27,000 units 20,000 units
Machine-hours 21,600 hours 6,000 hours
Variable overhead cost per machine-hour: $14.75 $15.00
What is the flexible-budget amount?
A) $90,000
B) $121,500
C) $318,600
D) $324,000
Diff: 2
Objective: 3
AACSB: Application of knowledge
28) Cold Products Corporation manufactured 32,000 ice chests during September. The variable overhead cost-allocation base is $13.45 per machine-hour. The following variable overhead data pertain to September:
Actual Budgeted
Production 32,000 units 26,000 units
Machine-hours 15,200 hours 10,800 hours
Variable overhead cost per machine-hour: $13.25 $13.45
What is the variable overhead spending variance?
A) $3,040 favorable
B) $25,658 unfavorable
C) $22,618 unfavorable
D) $59,180 unfavorable
Diff: 3
Objective: 3
AACSB: Application of knowledge
29) Cold Products Corporation manufactured 27,000 ice chests during September. The variable overhead cost-allocation base is $11.75 per machine-hour. The following variable overhead data pertain to September:
Actual Budgeted
Production 27,000 units 26,000 units
Machine-hours 13,500 hours 7,800 hours
Variable overhead cost per machine-hour: $11.25 $11.75
What is the variable overhead efficiency variance?
A) $6,750 favorable
B) $63,450 unfavorable
C) $56,700 unfavorable
D) $66,975 unfavorable
Diff: 3
Objective: 3
AACSB: Application of knowledge
30) Russo Corporation manufactured 17,000 air conditioners during November. The overhead cost-allocation base is $34.75 per machine-hour. The following variable overhead data pertain to November:
Actual Budgeted
Production 17,000 units 20,000 units
Machine-hours 12,925 hours 14,000 hours
Variable overhead cost per machine-hour: $34.00 $34.75
What is the actual variable overhead cost?
A) $439,450
B) $476,000
C) $449,144
D) $486,500
Diff: 2
Objective: 3
AACSB: Analytical thinking
31) Russo Corporation manufactured 15,000 air conditioners during November. The overhead cost-allocation base is $33.25 per machine-hour. The following variable overhead data pertain to November:
Actual Budgeted
Production 15,000 units 18,000 units
Machine-hours 13,275 hours 14,400 hours
Variable overhead cost per machine-hour: $33.00 $33.25
What is the flexible-budget amount?
A) $441,394
B) $399,000
C) $396,000
D) $475,200
Diff: 2
Objective: 3
AACSB: Analytical thinking
32) Russo Corporation manufactured 21,000 air conditioners during November. The overhead cost-allocation base is $34.25 per machine-hour. The following variable overhead data pertain to November:
Actual Budgeted
Production 21,000 units 24,000 units
Machine-hours 13,300 hours 14,400 hours
Variable overhead cost per machine-hour: $34.00 $34.25
What is the variable overhead spending variance?
A) $3,600.00 unfavorable
B) $3,325.00 unfavorable
C) $3,600.00 favorable
D) $3,325.00 favorable
Diff: 3
Objective: 3
AACSB: Analytical thinking
33) Russo Corporation manufactured 17,000 air conditioners during November. The overhead cost-allocation rate is $35.50 per machine-hour. The following variable overhead data pertain to November:
Actual Budgeted
Production 17,000 units 19,000 units
Machine-hours 8,325 hours 9,500 hours
Variable overhead cost per machine-hour: $35.00 $35.50
What is the variable overhead efficiency variance?
A) $6,212.50 favorable
B) $6,212.50 unfavorable
C) $4,750.00 favorable
D) $4,750.00 unfavorable
Diff: 3
Objective: 3
AACSB: Analytical thinking
34) Russo Corporation manufactured 21,000 air conditioners during November. The overhead cost-allocation base is $34.50 per machine-hour. The following variable overhead data pertain to November:
Actual Budgeted
Production 21,000 units 23,000 units
Machine-hours 12,700 hours 13,800 hours
Variable overhead cost per machine-hour: $34.00 $34.50
What is the total variable overhead variance?
A) $2,900.00 unfavorable
B) $3,450.00 unfavorable
C) $2,900.00 favorable
D) $3,450.00 favorable
Diff: 3
Objective: 3
AACSB: Analytical thinking
35) Vision Ware had the following data for the month of July:
Actual machine hours 22,000
Total variable overhead (actual) $242,000
Spending Variance $22,000 U
Standard machine hours 400
Efficiency Variance $4000 F
What was standard rate per hour?
A) $11.00
B) $10.80
C) $10.00
D) $10.02
Diff: 3
Objective: 3
AACSB: Analytical thinking
36) 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
Diff: 2
Objective: 3
AACSB: Analytical thinking
37) Mendel Company makes the following journal entry:
Variable Manufacturing Overhead Allocated 229,000
Variable Manufacturing Overhead Efficiency Variance 7,000
Variable Manufacturing Overhead Control 179,000
Variable Manufacturing Overhead Spending Variance 57,000
Which of the following statements is true of the given journal entry?
A) A variable manufacturing overhead cost of $179,000 is written-off.
B) An unfavorable spending variance of $57,000 is recorded.
C) A favorable efficiency variance of $7,000 is recorded.
D) A favorable flexible-budget variance of $50,000 is recorded.
Diff: 2
Objective: 3
AACSB: Application of knowledge
38) The balances in the variable overhead account and the variable overhead control account are $120,000 and $125,000 respectively. The variable overhead spending variance is $6,000 and the variable overhead efficiency variance is $11,000. Which of the following entries would be required to record the variances in a standard costing system?
A)
Cost of Goods Sold $5,000
Variable Overhead Spending $6,000
Variable Overhead Efficiency Variance $11,000
B)
Work-in-Process $5,000
Variable Overhead Spending $6,000
Variable Overhead Efficiency Variance $11,000
C)
Variable Overhead Allocated $120,000
Variable Overhead Spending Variance $11,000
Variable Overhead Efficiency Variance $6,000
Variable Overhead Control $125,000
D)
Variable Overhead Control $120,000
Variable Overhead Spending Variance $11,000
Variable Overhead Efficiency Variance $6,000
Variable Overhead Allocated $125,000
Diff: 2
Objective: 3
AACSB: Analytical thinking
39) Osium Company made the following journal entry:
Variable Manufacturing Overhead Allocated 250,000
Variable Manufacturing Overhead Efficiency Variance 80,000
Variable Manufacturing Overhead Control 300,000
Variable Manufacturing Overhead Spending Variance 30,000
Which of the following statements is true of the given journal entry?
A) Osium overallocated variable manufacturing overhead.
B) A $30,000 unfavorable spending variance was recorded.
C) Work-in-Process is currently overstated.
D) A $80,000 unfavorable efficiency variance was recorded.
Diff: 2
Objective: 3
AACSB: Analytical thinking
40) 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
Diff: 1
Objective: 3
AACSB: Analytical thinking
41) Marshall Company uses a standard cost system. In March, $270,000 of variable manufacturing overhead costs were incurred and the flexible-budget amount for the month was $310,000. Which of the following variable manufacturing overhead entries would have been recorded for March?
A) Accounts Payable Control and other accounts 310,000
Work-in-Process Control 310,000
B) Variable Manufacturing Overhead Allocated 310,000
Accounts Payable and other accounts 310,000
C) Work-in-Process Control 270,000
Accounts Payable Control and other accounts 270,000
D) Variable Manufacturing Overhead Control 270,000
Accounts Payable Control and other accounts 270,000
Diff: 2
Objective: 3
AACSB: Analytical thinking
42) All of the following are possible causes of actual machine hours exceeding budgeted machine hours EXCEPT:
A) poor scheduling
B) actual leasing costs for the machine were higher than expected
C) machines were not maintained in good operating condition
D) budgeted standards were set to tight
Diff: 2
Objective: 3
AACSB: Analytical thinking
43) 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 and various other accounts
Diff: 1
Objective: 3
AACSB: Analytical thinking
44) 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.
Diff: 2
Objective: 3
AACSB: Analytical thinking
45) The flexible budget highlights the differences between budgeted costs and budgeted quantities versus actual costs and actual quantities for the budgeted output level.
Diff: 1
Objective: 3
AACSB: Analytical thinking
46) Managers can always view a favorable variable overhead spending variance as desirable.
Diff: 2
Objective: 3
AACSB: Analytical thinking
47) 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.
Diff: 1
Objective: 3
AACSB: Analytical thinking
48) Tightly budgeted machine time standards can lead to unfavorable variable overhead efficiency variance.
Diff: 1
Objective: 3
AACSB: Analytical thinking
49) If budgeted and actual machine hours are equal, spending variance will always be nil.
Diff: 2
Objective: 3
AACSB: Analytical thinking
50) Unskilled work force can lead to unfavorable efficiency variance.
Diff: 1
Objective: 3
AACSB: Analytical thinking
51) Causes of a favorable variable overhead efficiency variance might include using lower-skilled workers than expected.
Diff: 1
Objective: 3
AACSB: Analytical thinking
52) If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be a favorable variable overhead efficiency variance.
Diff: 1
Objective: 3
AACSB: Analytical thinking
53) If a company has only one product, then variable overhead could be thought of as being driven by units produced.
Diff: 1
Objective: 3
AACSB: Analytical thinking
54) Comfort Company manufactures pillows. The 2020 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 2020 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.
Spending variance = ($25 − $23) × 19,050 = $38,100 favorable
Efficiency variance = [19,050 − (27,000 × 0.75)] × $25 = $30,000 favorable
Diff: 3
Objective: 3
AACSB: Application of knowledge
55) Skytalk Company manufactures weathervanes. The 2020 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 2020 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.
Spending variance = ($21.75 − $22) × 6,050 = $1,512.50 favorable
Efficiency variance = [6,050 − (5,300 × 1.25)] × $22 = $12,650 favorable
Diff: 3
Objective: 3
AACSB: Application of knowledge
56) Briefly explain the meaning of the variable overhead efficiency variance and the variable overhead spending variance.
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.
Diff: 2
Objective: 3
AACSB: Analytical thinking
57) Define variable overhead spending variance. Briefly explain why a favorable variable overhead spending variance may not always be desirable.
Diff: 2
Objective: 3
AACSB: Analytical thinking
58) 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.
Diff: 2
Objective: 3
AACSB: Analytical thinking
Objective 8.4
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
Diff: 2
Objective: 4
AACSB: Analytical thinking
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
Diff: 1
Objective: 4
AACSB: Analytical thinking
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
Diff: 2
Objective: 4
AACSB: Analytical thinking
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) Actual costs incurred — Flexible-budget amount
C) Static-budget amount — Fixed overhead allocated for actual output
D) Flexible-budget amount — Fixed overhead allocated for actual output
Diff: 1
Objective: 4
AACSB: Analytical thinking
5) For fixed manufacturing overhead, there is no:
A) spending variance
B) efficiency variance
C) flexible-budget variance
D) production-volume variance
Diff: 1
Objective: 4
AACSB: Analytical thinking
6) Advanced Manufacturing Company reported:
Actual fixed overhead $430,000
Fixed manufacturing overhead spending variance $19,000 favorable
Fixed manufacturing production-volume variance $24,000 unfavorable
To isolate these variances at the end of the accounting period, John would debit Fixed Manufacturing Overhead Allocated for:
A) $411,000
B) $425,000
C) $430,000
D) $435,000
Diff: 2
Objective: 4
AACSB: Analytical thinking
7) Castleton Corporation manufactured 36,000 units during March. The following fixed overhead data relates to March:
Actual Static Budget
Production 36,000 units 34,000 units
Machine-hours 6,960 hours 6,800 hours
Fixed overhead costs for March $164,700 $156,400
What is the flexible-budget amount?
A) $170,379.31
B) $156,400.00
C) $165,600.00
D) $164,700.00
Diff: 2
Objective: 4
AACSB: Application of knowledge
8) Castleton Corporation manufactured 41,000 units during March. The following fixed overhead data relates to March:
Actual Static Budget
Production 41,000 units 39,000 units
Machine-hours 6,020 hours 5,850 hours
Fixed overhead costs for March $125,500 $117,000
What is the amount of fixed overhead allocated to production?
A) $128,210.13
B) $117,000.00
C) $125,500.00
D) $123,000.00
Diff: 3
Objective: 4
AACSB: Application of knowledge
9) Castleton Corporation manufactured 36,500 units during March. The following fixed overhead data relates to March:
Actual Static Budget
Production 36,500 units 35,000 units
Machine-hours 5,400 hours 5,250 hours
Fixed overhead costs for March $139,510 $131,250
What is the fixed overhead spending variance?
A) $2,635.00 unfavorable
B) $8,260.00 favorable
C) $8,260.00 unfavorable
D) $2,635.00 favorable
Diff: 2
Objective: 4
AACSB: Application of knowledge
10) Davidson Corporation manufactured 52,400 units during September. The following fixed overhead data relates to September:
Actual Static Budget
Production 52,400 units 52,000 units
Machine-hours 2485 hours 2600 hours
Fixed overhead costs for September $108,900 $109,200
What is the flexible-budget amount?
A) $108,900
B) $110,040
C) $109,200
D) $52,400
Diff: 2
Objective: 4
AACSB: Application of knowledge
11) Davidson Corporation manufactured 58,500 units during September. The following fixed overhead data relates to September:
Actual Static Budget
Production 58,500 units 58,000 units
Machine-hours 3,320 hours 3,480 hours
Fixed overhead costs for September $170,220 $170,520
What is the amount of fixed overhead allocated to production? (Round intermediary calculations two decimal places and your final answer to the nearest whole dollar.)
A) $171,990
B) $170,220
C) $170,520
D) $58,500
Diff: 3
Objective: 4
AACSB: Application of knowledge
12) Davidson Corporation manufactured 53,400 units during September. The following fixed overhead data relates to September:
Actual Static Budget
Production 53,400 units 53,000 units
Machine-hours 1,960 hours 2,120 hours
Fixed overhead costs for September $86,520 $86,920
What is the fixed overhead spending variance?
A) $1,056 unfavorable
B) $400 favorable
C) $400 unfavorable
D) $1,056 favorable
Diff: 2
Objective: 4
AACSB: Application of knowledge
13) Hockey Accessories Corporation manufactured 22,400 duffle bags during March. The following fixed overhead data pertain to March:
Actual Static Budget
Production 22,400 units 23,000 units
Machine-hours 10,450 hours 11,500 hours
Fixed overhead cost for March $451,700 $460,000
What is the flexible-budget amount?
A) $451,700
B) $472,321
C) $460,000
D) $448,000
Diff: 2
Objective: 4
AACSB: Application of knowledge
14) Hockey Accessories Corporation manufactured 23,000 duffle bags during March. The following fixed overhead data pertain to March:
Actual Static Budget
Production 23,000 units 23,500 units
Machine-hours 13,100 hours 14,100 hours
Fixed overhead cost for March $626,100 $634,500
What is the amount of fixed overhead allocated to production? (Round intermediary calculations two decimal places and your final answer to the nearest whole dollar.)
A) $621,000
B) $634,500
C) $639,711
D) $612,779
Diff: 3
Objective: 4
AACSB: Application of knowledge
15) Hockey Accessories Corporation manufactured 21,400 duffle bags during March. The following fixed overhead data pertain to March:
Actual Static Budget
Production 21,400 units 22,000 units
Machine-hours 3,400 hours 4,400 hours
Fixed overhead cost for March $176,300 $184,800
What is the amount of fixed overhead spending variance?
A) $8,500 unfavorable
B) $3,460 favorable
C) $3,460 unfavorable
D) $8,500 favorable
Diff: 3
Objective: 4
AACSB: Application of knowledge
16) Fixed overhead costs for March for a factory were Salaries of $44,000, depreciation of $10,000, and property taxes of $4,000. Which of the following journal entries would be correct?
A)
Fixed Overhead Control $58,000
Accounts Payable $58,000
B)
Depreciation Expense $10,000
Salaries Expense $44,000
Fixed Overhead Control $4,000
Accumulated Depreciation $10,000
Cash $44,000
Accounts Payable $4,000
C)
Work-in-Process $58,000
Accounts Payable $4,000
Salaries Payable $44,000
Accumulated Depreciation $10,000
D)
Fixed Overhead Control $58,000
Accounts Payable $4,000
Salaries Payable $44,000
Accumulated Depreciation $10,000
Diff: 2
Objective: 4
AACSB: Analytical thinking
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
Diff: 1
Objective: 4
AACSB: Analytical thinking
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
Diff: 1
Objective: 4
AACSB: Analytical thinking
19) Bismith Company reported:
Actual fixed overhead $700,000
Fixed manufacturing overhead spending variance $40,000 unfavorable
Fixed manufacturing production-volume variance $30,000 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 $700,000
B) debit Fixed Manufacturing Overhead Spending Variance for $40,000
C) credit Fixed Manufacturing Production-Volume Variance for $30,000
D) debit Fixed Manufacturing Control for $700,000
Diff: 2
Objective: 4
AACSB: Application of knowledge
20) Radon Corporation manufactured 37,500 units during March. The following fixed overhead data pertain to March:
Actual Static Budget
Production 37,500 units 34,000 units
Machine-hours 10,375 hours 10,200 hours
Fixed overhead costs for March $213,200 $204,000
What is the fixed overhead production-volume variance?
A) $9,200.00 unfavorable
B) $21,000.00 favorable
C) $21,000.00 unfavorable
D) $9,200.00 favorable
Diff: 3
Objective: 4
AACSB: Analytical thinking
21) Radon Corporation manufactured 38,100 units during March. The following fixed overhead data pertain to March:
Actual Static Budget
Production 38,100 units 35,000 units
Machine-hours 14,200 hours 14,000 hours
Fixed overhead costs for March $289,100 $280,000
What is the fixed overhead spending variance?
A) $24,800.00 favorable
B) $9,100.00 favorable
C) $9,100.00 unfavorable
D) $24,800.00 unfavorable
Diff: 3
Objective: 4
AACSB: Application of knowledge
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.
Diff: 2
Objective: 4
AACSB: Analytical thinking
23) If the company's fixed overhead spending variance was unfavorable it could be attributed to higher plant-leasing costs.
Diff: 1
Objective: 4
AACSB: Analytical thinking
24) Allocated fixed overhead can be expressed in terms of allocation-base units or in terms of the budgeted fixed cost per unit.
Diff: 1
Objective: 4
AACSB: Analytical thinking
25) Lump-sum fixed costs of acquiring capacity decrease automatically if the capacity needed turns out to be less than the capacity acquired.
Diff: 2
Objective: 4
AACSB: Analytical thinking
26) When forecasting fixed costs, managers should concentrate on total lump-sum costs instead of unitized fixed overhead costs.
Diff: 1
Objective: 4
AACSB: Analytical thinking
27) A favorable fixed overhead flexible-budget variance indicates that actual fixed costs exceeded the lump-sum amount budgeted.
Diff: 2
Objective: 4
AACSB: Analytical thinking
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.
Diff: 2
Objective: 4
AACSB: Analytical thinking
29) An unfavorable production-volume variance indicates an overallocation of fixed overhead costs.
Diff: 2
Objective: 4
AACSB: Analytical thinking
30) Favorable overhead variances are always recorded with credits in a standard cost system.
Diff: 1
Objective: 4
AACSB: Analytical thinking
31) If fixed overhead cost variances are always written off to Cost of Goods Sold, operating income can be manipulated for either financial reporting or income tax purposes.
Diff: 1
Objective: 4
AACSB: Analytical thinking
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.
Diff: 2
Objective: 4
AACSB: Analytical thinking
33) Prorated allocation of production-volume variance has the effect of approximating the allocation of fixed costs based on actual costs and actual output.
Diff: 1
Objective: 4
AACSB: Analytical thinking
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
Diff: 3
Objective: 3, 4
AACSB: Analytical thinking
35) Time and Again Company makes clocks. The fixed overhead costs for 2020 total $900,000. The company uses direct labor-hours for fixed overhead allocation and anticipates 200,000 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 2020 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 = ($900,000 ÷ 200,000) = $4.50 per hour
b. Fixed overhead static budget variance = $72,000 − ($900,000/12) = $3,000 favorable
c. Budgeted fixed overhead rate per output unit = $900,000/330,000 = $2.73
Production-volume overhead variance = (27,500 − 32,000) × $2.73 = $12,285 favorable
Diff: 3
Objective: 4
AACSB: Analytical thinking
36) Timely Products Company makes watches. The fixed overhead costs for 2020 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 2020 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
Diff: 3
Objective: 4
AACSB: Analytical thinking
37) A company has the following data for the month of June:
Fixed overhead budget (static budget) $310,000
Budgeted machine-hours 16,000
Budgeted production (units) 20,000
Actual output 18,000
Actual fixed overhead costs $290,000
What was the production volume variance for June?
Diff: 3
Objective: 4
AACSB: Analytical thinking
38) Explain why there is no efficiency variance for fixed manufacturing overhead costs.
Diff: 2
Objective: 4
AACSB: Analytical thinking
39) '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.
Diff: 2
Objective: 4
AACSB: Application of knowledge
40) Explain why there is no production-volume variance for variable manufacturing overhead costs.
Diff: 2
Objective: 4
AACSB: Analytical thinking
41) 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.
Diff: 2
Objective: 4
AACSB: Analytical thinking
42) Explain how fixed manufacturing overhead costs are treated under Generally Accepted Accounting Principles?
Diff: 1
Objective: 4
AACSB: Analytical thinking
43) 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?
Diff: 2
Objective: 4
AACSB: Analytical thinking
44) Explain two concerns when interpreting the production-volume variance as a measure of the economic cost of unused capacity.
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.
Diff: 2
Objective: 4
AACSB: Analytical thinking
Objective 8.5
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.
Diff: 2
Objective: 5
AACSB: Analytical thinking
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
Diff: 1
Objective: 5
AACSB: Analytical thinking
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
Diff: 2
Objective: 5
AACSB: Application of knowledge
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
Diff: 2
Objective: 5
AACSB: Application of knowledge
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.
Diff: 2
Objective: 5
AACSB: Analytical thinking
6) Skizone Company's 4-Variance Analysis:
Spending Variance | Efficiency Variance | Production-Volume Variance | |
Variable overhead | $6,900 F | $16,000 U | No variance |
Fixed overhead | (a) | No variance | $44,000 U |
If Skizone's combined 4-Variance Analysis shows an unfavorable spending variance of $2,900, what is the fixed overhead spending variance (a)?
A) $9,800 favorable
B) $4,000 unfavorable
C) $9,800 unfavorable
D) $4,000 favorable
Diff: 2
Objective: 5
AACSB: Application of knowledge
7) Skizone Company's 4-Variance Analysis:
Spending Variance | Efficiency Variance | Production-Volume Variance | |
Variable overhead | $6,900 F | $11,000 U | No variance |
Fixed overhead | (a) | No variance | $45,000 U |
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.
Diff: 3
Objective: 5
AACSB: Application of knowledge
8) Variances Spending Efficiency Volume
Variable manufacturing overhead $7,900 F $34,000 U (B)
Fixed manufacturing overhead $28,300 U (A) $80,000 U
The above table is a:
A) 4-variance analysis
B) 3-variance analysis
C) 2-variance analysis
D) 1-variance analysis
Diff: 2
Objective: 5
AACSB: Application of knowledge
9) Variances Spending Efficiency Volume
Variable manufacturing overhead $7,400 F $33,000 U (B)
Fixed manufacturing overhead $28,400 U (A) $82,000 U
In the above table, the amounts for (A) and (B), respectively, are:
A) $25,600 U; $115,000 U
B) $25,600 U; Zero
C) Zero; $115,000 U
D) Zero; Zero
Diff: 3
Objective: 5
AACSB: Application of knowledge
10) Variances Spending Efficiency Volume
Variable manufacturing overhead $7,200 F $38,000 U (B)
Fixed manufacturing overhead $27,800 U (A) $81,000 U
In a combined 3-variance analysis, the total spending variance would be:
A) $20,600 F
B) $30,800 U
C) $20,600 U
D) $45,200 F
Diff: 3
Objective: 5
AACSB: Application of knowledge
11) Variances Spending Efficiency Volume
Variable manufacturing overhead $7,300 F $35,000 U (B)
Fixed manufacturing overhead $28,300 U (A) $90,000 U
The total production-volume variance should be:
A) $90,000 F
B) $90,000 U
C) $118,300 F
D) $118,300 U
Diff: 3
Objective: 5
AACSB: Application of knowledge
12) Variances Spending Efficiency Volume
Variable manufacturing overhead $7,500 F $38,000 U (B)
Fixed manufacturing overhead $27,500 U (A) $81,000 U
The total overhead variance should be:
A) $154,000 F
B) $139,000 U
C) $154,000 U
D) $139,000 F
Diff: 2
Objective: 5
AACSB: Application of knowledge
13) Variable overhead has no production-volume variance.
Diff: 1
Objective: 5
AACSB: Analytical thinking
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.
Diff: 1
Objective: 5
AACSB: Analytical thinking
15) The following overhead variances would result in a total-overhead variance of $15,000 favorable: spending variance $5,000 U, efficiency variance $20,000 F, and production-volume variance $30,000 U.
Diff: 1
Objective: 5
AACSB: Analytical thinking
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.
Diff: 1
Objective: 5
AACSB: Analytical thinking
17) Wainwright has budgeted construction overhead for August of $435,000 for fixed costs. Actual costs for the month totaled for $450,000 for fixed. Allocated fixed overhead totaled $430,000. The company tracks each item in an overhead control account before allocations are made to individual jobs. The fixed overhead spending variance for August was $15,000 unfavorable for fixed.
Required:
a. Make journal entries for the actual costs incurred.
b. Make journal entries to record the variances for August.
a.
Fixed Overhead Control 450,000
Accumulated Depreciation, etc. 450,000
To record actual fixed construction overhead
b.
Fixed Overhead Allocated 430,000
Fixed Overhead Spending Variance 15,000
Fixed Overhead Production-Volume Variance 5,000
Fixed Overhead Control 450,000
To record variances for the period
Diff: 3
Objective: 5
AACSB: Application of knowledge
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
Diff: 3
Objective: 5
AACSB: Application of knowledge
19) Explain why managers of small businesses prefer 3-variance analysis over 4-variance analysis.
Diff: 2
Objective: 5
AACSB: Analytical thinking
20) If a company expected to have 30,000 machine hours of good output but actually had 29,000 standard machine hours of good output, the products will be assigned less fixed overhead and this will cause an unfavorable production volume variance.
Diff: 2
Objective: 5
AACSB: Analytical thinking
21) A favorable production-volume variance arises when manufacturing capacity planned for is NOT used.
Diff: 1
Objective: 5
AACSB: Analytical thinking
22) An unfavorable production-volume variance always infers that management made a bad planning decision regarding the plant capacity.
Diff: 2
Objective: 5
AACSB: Analytical thinking
Objective 8.6
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
Diff: 1
Objective: 6
AACSB: Analytical thinking
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
Diff: 1
Objective: 6
AACSB: Analytical thinking
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
Diff: 2
Objective: 6
AACSB: Analytical thinking
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
Diff: 1
Objective: 6
AACSB: Analytical thinking
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
Diff: 2
Objective: 6
AACSB: Analytical thinking
6) Which of the following is NOT true of the 3 level variance analysis of operating income?
A) Level 1 shows the static budget variance for operating income
B) Level 2 shows the direct material price and efficiency variances
C) Level 2 shows the sales-volume variance for operating income
D) Level 3 shows the fixed overhead production volume variance as a component of the sales-volume variance for operating income
Diff: 1
Objective: 6
AACSB: Analytical thinking
7) The production volume variance arises only for variable overhead costs.
Diff: 1
Objective: 6
AACSB: Analytical thinking
8) The production-volume variance is a component of the sales-volume variance.
Diff: 1
Objective: 6
AACSB: Analytical thinking
9) The level 3 components for the fixed overhead variance are the fixed overhead spending variance and the fixed overhead production volume variance.
Diff: 2
Objective: 6
AACSB: Analytical thinking
10) The operating income volume variance is measured as operating income (based on actual units sold) minus operating income per the static budget and is one of three components of the sales-volume variance.
Diff: 2
Objective: 6
AACSB: Analytical thinking
11) The sales-volume variance reveals the lost contribution margin from selling fewer units than planned.
Diff: 2
Objective: 6
AACSB: Analytical thinking
12) What are the two components of sales-volume variance? Explain why sales-volume variance could be helpful to managers.
Diff: 3
Objective: 6
AACSB: Analytical thinking
Objective 8.7
1) Fun Wheels, Inc., produces a special line of plastic toy racing cars. Fun Wheels, Inc., produces the cars in batches. To manufacture a batch of the cars, Fun Wheels, 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 2020:
Actual Static-budget
Amounts Amounts
Units produced and sold 15,700 11,950
Batch size (number of units per batch) 325 265
Setup-hours per batch 3 4.25
Variable overhead cost per setup-hour $48 $45
Total fixed setup overhead costs $11,310 $9,010
Calculate the efficiency variance for variable overhead setup costs. (Round all intermediary calculations two decimal places and your final answer to the nearest whole number.)
A) $4,810 unfavorable
B) $435 unfavorable
C) $4,810 favorable
D) $435 favorable
Diff: 3
Objective: 7
AACSB: Application of knowledge
2) Fun Wheels, Inc., produces a special line of plastic toy racing cars. Fun Wheels, Inc., produces the cars in batches. To manufacture a batch of the cars, Fun Wheels, 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 2020:
Actual Static-budget
Amounts Amounts
Units produced and sold 14,550 11,550
Batch size (number of units per batch) 320 295
Setup-hours per batch 3 4
Variable overhead cost per setup-hour $43 $38
Total fixed setup overhead costs $10,130 $7,830
Calculate the spending variance for variable overhead setup costs. (Round all intermediary calculations two decimal places and your final answer to the nearest whole number.)
A) $2,313 unfavorable
B) $2,313 favorable
C) $682 unfavorable
D) $682 favorable
Diff: 3
Objective: 7
AACSB: Application of knowledge
3) Fun Wheels, Inc., produces a special line of plastic toy racing cars. Fun Wheels, Inc., produces the cars in batches. To manufacture a batch of the cars, Fun Wheels, 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 2020:
Actual Static-budget
Amounts Amounts
Units produced and sold 14,800 11,800
Batch size (number of units per batch) 285 245
Setup-hours per batch 2 2.75
Variable overhead cost per setup-hour $48 $45
Total fixed setup overhead costs $8,670 $6,620
Calculate the flexible-budget variance for variable overhead setup costs. (Round all intermediary calculations two decimal places and your final answer to the nearest whole number.)
A) $312 favorable
B) $2,490 favorable
C) $312 unfavorable
D) $2,490 unfavorable
Diff: 3
Objective: 7
AACSB: Application of knowledge
4) Fun Wheels, Inc., produces a special line of plastic toy racing cars. Fun Wheels, Inc., produces the cars in batches. To manufacture a batch of the cars, Fun Wheels, 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 2020:
Actual Static-budget
Amounts Amounts
Units produced and sold 14,400 11,300
Batch size (number of units per batch) 295 255
Setup-hours per batch 6 6.25
Variable overhead cost per setup-hour $43 $38
Total fixed setup overhead costs $16,050 $13,850
Calculate the spending variance for fixed setup overhead costs.
A) $15,548 unfavorable
B) $2,200 unfavorable
C) $3,100 unfavorable
D) $2,200 favorable
Diff: 3
Objective: 7
AACSB: Application of knowledge
5) Fun Wheels, Inc., produces a special line of plastic toy racing cars. Fun Wheels, Inc., produces the cars in batches. To manufacture a batch of the cars, Fun Wheels, 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 2020:
Actual Static-budget
Amounts Amounts
Units produced and sold 15,150 11,850
Batch size (number of units per batch) 260 230
Setup-hours per batch 6 7
Variable overhead cost per setup-hour $43 $39
Total fixed setup overhead costs $16,450 $16,286
Calculate the production-volume variance for fixed overhead setup costs. (Round all intermediary calculations to two decimal places and your final answer to the nearest whole number.)
A) $4,537 unfavorable
B) $99 unfavorable
C) $4,537 favorable
D) $99 favorable
Diff: 3
Objective: 7
AACSB: Application of knowledge
6) Bristol Fabricators, Inc., produces air purifiers in batches. To manufacture a batch of the purifiers, Bristol Fabricators, Inc, 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 2020:
Budget Actual
Amounts Amounts
Units produced and sold 13,100 12,000
Batch size (number of units per batch) 450 390
Setup-hours per batch 6 5
Variable overhead cost per setup-hour $51 $55
Total fixed setup overhead costs $22,707 $22,407
Calculate the efficiency variance for variable overhead setup costs. (Round all intermediary calculations two decimal places and your final answer to the nearest whole number.)
A) $315 favorable
B) $218 favorable
C) $533 unfavorable
D) $533 favorable
Diff: 3
Objective: 7
AACSB: Application of knowledge
7) Bristol Fabricators, Inc., produces air purifiers in batches. To manufacture a batch of the purifiers, Bristol Fabricator, 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 2020:
Budget Actual
Amounts Amounts
Units produced and sold 14,300 13,000
Batch size (number of units per batch) 450 410
Setup-hours per batch 6 5
Variable overhead cost per setup-hour $44 $50
Total fixed setup overhead costs $24,405 $24,305
Calculate the spending variance for variable overhead setup costs. (Round all intermediary calculations two decimal places and your final answer to the nearest whole number.)
A) $651 unfavorable
B) $651 favorable
C) $951 unfavorable
D) $951 favorable
Diff: 3
Objective: 7
AACSB: Application of knowledge
8) Bristol Fabricators, Inc., produces air purifiers in batches. To manufacture a batch of the purifiers, Bristol Fabricators, 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 2020:
Budget Actual
Amounts Amounts
Units produced and sold 12,100 11,000
Batch size (number of units per batch) 430 405
Setup-hours per batch 8 7.5
Variable overhead cost per setup-hour $47 $53
Total fixed setup overhead costs $29,040 $28,890
Calculate the flexible-budget variance for variable overhead setup costs. (Round all intermediary calculations two decimal places and your final answer to the nearest whole number.)
A) $1,178 favorable
B) $1,222 favorable
C) $1,222 unfavorable
D) $1,178 unfavorable
Diff: 3
Objective: 7
AACSB: Application of knowledge
9) Bristol Fabricators, Inc., produces air purifiers in batches. To manufacture a batch of the purifiers, Bristol Fabricators, 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 2020:
Budget Actual
Amounts Amounts
Units produced and sold 16,200 15,000
Batch size (number of units per batch) 460 410
Setup-hours per batch 8 7
Variable overhead cost per setup-hour $46 $51
Total fixed setup overhead costs $33,809 $33,709
Calculate the spending variance for fixed overhead setup costs.
A) $100 unfavorable
B) $220 unfavorable
C) $100 favorable
D) $220 favorable
Diff: 3
Objective: 7
AACSB: Application of knowledge
10) Bristol Fabricators, Inc., produces air purifiers in batches. To manufacture a batch of the purifiers, Bristol Fabricators, 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 2020:
Budget Actual
Amounts Amounts
Units produced and sold 14,100 13,000
Batch size (number of units per batch) 420 395
Setup-hours per batch 8 7
Variable overhead cost per setup-hour $51 $55
Total fixed setup overhead costs $36,300 $35,937
Calculate the production-volume variance for fixed overhead setup costs. (Round all intermediary calculations to two decimal places and your final answer to the nearest whole number.)
A) $2,832 favorable
B) $2,832 unfavorable
C) $363 unfavorable
D) $363 favorable
Diff: 3
Objective: 7
AACSB: Application of knowledge
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) very tight standards for materials-handling time
Diff: 2
Objective: 7
AACSB: Analytical thinking
12) The fixed setup overhead flexible-budget variance is calculated as actual costs - flexible-budget variance.
Diff: 1
Objective: 7
AACSB: Analytical thinking
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.
Diff: 2
Objective: 7
AACSB: Analytical thinking
14) Possible reasons for the larger actual materials-handling labor-hours per batch include the possibility of inefficient layout of production facilities.
Diff: 1
Objective: 7
AACSB: Analytical thinking
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 2019.
Static-budget Actual
Amounts 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)
Diff: 3
Objective: 7
AACSB: Application of knowledge
16) River Falls Company uses a flexible budget for its indirect manufacturing costs. For 2020, 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 2020 were:
Actual costs
Product handling $70,000
Inspection 16,000
Utilities 2,000
Maintenance 3,000
Supplies 40,000
Required:
a. Prepare the static budget using the overhead items above and then compute the static-budget variances.
b. Prepare the flexible budget using the overhead items above and then compute the flexible-budget variances.
Overhead Static Budget with Variances
2020
Static
Actual Budget Variances
Product handling $70,000 $65,250 $4,750 U
Inspection 16,000 15,240 760 U
Utilities 2,000 2,220 220 F
Maintenance 3,000 2,450 550 U
Supplies 40,000 40,000 0
Total $131,000 $125,160 $5,840 U
b. River Falls Company
Overhead Flexible Budget with Variances
2020
Flexible
Actual Budget Variances
Product handling $70,000 $64,875 $15,125 U
Inspection 16,000 15,180 820 U
Utilities 2,000 2,190 190 F
Maintenance 3,000 2,463 537 U
Supplies 40,000 41,000 1,000 F
Total $131,000 $125,708 $5,292 U
Diff: 3
Objective: 7
AACSB: Application of knowledge
Objective 8.8
1) When distribution costs are high, managers can use standard costing to analyze variances for spending and efficiency variances.
Diff: 2
Objective: 8
AACSB: Analytical thinking
2) Managers can use variance analysis to make decisions about the mix of products to make.
Diff: 1
Objective: 8
AACSB: Analytical thinking
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.
Diff: 2
Objective: 8
AACSB: Analytical thinking
4) Explain how service-sector companies can benefit from variance analysis.
Diff: 2
Objective: 8
AACSB: Analytical thinking
5) Explain how nonfinancial and financial measures are incorporated into the variance analysis for materials and labor.
Diff: 2
Objective: 8
AACSB: Analytical thinking
Document Information
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