Chapter 11 Flexible Budgets and Overhead Analysis True/False Questions 1. A key feature of a flexible budget is that actual results can be compared to budgeted costs at the same level of activity. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 2. Direct labor-hours would generally be a better measure of activity for a flexible budget than direct labor cost. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 3. In a flexible budget, when the activity declines, the variable costs per unit also declines. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 4. Fixed costs should not be included in a flexible budget because they do not change when the level of activity changes. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium 5. To assess how well a production manager has controlled costs, actual costs should be compared to what the costs should have been for the planned level of production. Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 11-5
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Chapter 11 Flexible Budgets and Overhead Analysis
True/False Questions
1. A key feature of a flexible budget is that actual results can be compared to budgeted costs at the same level of activity.
5. To assess how well a production manager has controlled costs, actual costs should be compared to what the costs should have been for the planned level of production.
7. The variable overhead efficiency variance provides a measure of how efficiently the activity base which underlies the flexible budget is being utilized in production.
8. A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours. The company's choice of the denominator level of activity affects the fixed overhead volume variance.
10. In a standard costing system, if the actual fixed manufacturing overhead cost exceeds the budgeted fixed manufacturing overhead cost for the period, then fixed manufacturing overhead cost would be underapplied for the period.
12. A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours. The company's choice of the denominator level of activity has no effect on the variable portion of the predetermined overhead rate.
14. If the denominator level of activity is less than the standard hours allowed for the output of the period, then the volume variance is unfavorable, indicating an overutilization of available facilities.
15. A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours. A fixed overhead volume variance will necessarily occur in a month in which actual direct labor-hours differ from standard hours allowed.
16. The purpose of a flexible budget is to:A) allow management some latitude in meeting goals.B) eliminate fluctuations in production reports by ignoring variable costs.C) compare actual and budgeted results at virtually any level of activity.D) reduce the time to prepare the annual budget.
17. When using a flexible budget, a decrease in activity within the relevant range:A) decreases variable cost per unit.B) decreases total costs.C) increases total fixed costs.D) increases variable cost per unit.
18. The activity base that is used for a flexible budget for an overhead cost should be:A) direct labor-hours.B) units of output.C) expressed in dollars, if possible.D) the cause of the overhead cost.
overhead cost.D) Actual fixed manufacturing overhead cost-- (Actual hours x Standard fixed
overhead rate).
Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
21. Which of the following variances is least significant from a standpoint of cost control?A) materials price variance.B) labor efficiency variance.C) fixed overhead volume variance.D) variable overhead spending variance.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
22. The manufacturing overhead variance that is a measure of capacity utilization is:A) the overhead spending variance.B) the overhead efficiency variance.C) the overhead budget variance.D) the overhead volume variance.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
23. If the denominator activity is less than the standard hours allowed for the actual output, one would expect that:A) the variable overhead efficiency variance would be unfavorable.B) the fixed overhead volume variance would be favorable.C) the fixed overhead budget variance would be unfavorable.D) the variable overhead efficiency variance would be favorable.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
24. The volume variance is nonzero whenever:A) standard hours allowed for the output of a period differ from the denominator
level of activity.B) actual hours differ from the denominator level of activity.C) standard hours allowed for the output of a period differ from the actual hours
during the period.D) actual fixed overhead costs incurred during a period differ from budgeted fixed
overhead costs as contained in the flexible budget.
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
25. A volume variance is computed for:A) both variable and fixed overhead.B) variable overhead only.C) fixed overhead only.D) direct labor costs as well as overhead costs.
26. Which of the following standard cost variances would usually be least controllable by a production supervisor?A) Fixed overhead volume variance.B) Variable overhead efficiency variance.C) Direct labor efficiency variance.D) Materials usage (quantity) variance.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Hard Source: CPA; adapted
27. The following costs appear in Malgorzata Company's flexible budget at an activity level of 15,000 machine-hours:
Total CostIndirect materials............... $7,800Factory rent........................ $18,000
What would be the flexible budget amounts at an activity level of 12,000 machine-hours if indirect materials is a variable cost and factory rent is a fixed cost?
28. Mongelli Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion. The Inn's guests appreciate its gourmet breakfasts and individually decorated rooms. The Inn's overhead budget for the most recent month appears below:
Fixed overhead costs:Utilities........................................ 220Salaries and wages...................... 4,290Depreciation................................ 2,680
Total overhead cost........................ $7,739
The Inn's variable overhead costs are driven by the number of guests.
What would be the total budgeted overhead cost for a month if the activity level is 99 guests? Assume that the activity levels of 90 guests and 99 guests are within the same relevant range.A) $7,793.90B) $61,541.00C) $8,512.90D) $7,739.00
Total overhead cost........................ $61,750
The company's variable overhead costs are driven by machine-hours.What would be the total budgeted overhead cost for next month if the activity level is 2,400 machine-hours rather than 2,500 machine-hours? Assume that the activity levels of 2,500 machine-hours and 2,400 machine-hours are within the same relevant range.A) $59,830.00B) $59,280.00C) $60,380.00D) $61,750.00
32. Riggs Enterprise's flexible budget cost formula for indirect materials, a variable cost, is $0.45 per unit of output. If the company's performance report for last month shows a $90 favorable variance for indirect materials and if 8,700 units of output were produced last month, then the actual costs incurred for indirect materials for the month must have been:A) $4,005B) $3,915C) $3,825D) $3,735
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
33. Chmielewski Medical Clinic measures its activity in terms of patient-visits. Last month, the budgeted level of activity was 1,560 patient-visits and the actual level of activity was 1,530 patient-visits. The clinic's director budgets for variable overhead costs of $1.10 per patient-visit and fixed overhead costs of $19,900 per month. The actual variable overhead cost last month was $1,400 and the actual fixed overhead cost was $21,720. In the clinic's flexible budget performance report for last month, what would have been the variance for the total overhead cost?A) $33 FB) $1,504 UC) $1,537 UD) $283 F
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Budgeted number of patient-visits: 1,560Actual number of patient-visits: 1,530
34. Rodriques Tile Installation Corporation measures its activity in terms of square feet of tile installed. Last month, the budgeted level of activity was 1,630 square feet and the actual level of activity was 1,720 square feet. The company's owner budgets for supply costs, a variable overhead cost, at $3.40 per square foot. The actual supply cost last month was $6,750. In the company's flexible budget performance report for last month, what would have been the variance for supply costs?A) $353 UB) $306 UC) $902 UD) $1,208 U
35. Rodabaugh Natural Dying Corporation measures its activity in terms of skeins of yarn dyed. Last month, the budgeted level of activity was 15,900 skeins and the actual level of activity was 16,100 skeins. The company's owner budgets for dye costs, a variable overhead cost, at $0.87 per skein. The actual dye cost last month was $14,800. In the company's flexible budget performance report for last month, what would have been the variance for dye costs?A) $967 UB) $174 UC) $184 UD) $793 U
36. Andress Footwear Corporation's flexible budget cost formula for supplies, a variable overhead cost, is $2.17 per unit of output. The company's flexible budget performance report for last month showed a $4,531 unfavorable variance for supplies. During that month, 19,700 units were produced. Budgeted activity for the month had been 19,400 units. The actual costs incurred for indirect materials must have been closest to:A) $2.17B) $2.63C) $2.67D) $2.40
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard
Solution:
Budgeted number of units produced: 19,400Actual number of units produced: 19,700
Cost Formula (per unit
produced)
Actual Costs
Incurred for
19,700 units
produced
Budget Based on 19,700 units
produced VarianceVariable overhead costs
(Supplies).............................. $2.17 X $42,749 $4,531 U
37. Ocker Corporation's flexible budget performance report for last month shows that actual indirect materials cost, a variable overhead cost, was $28,420 and that the variance for indirect materials cost was $3,828 unfavorable. During that month, the company worked 11,600 machine-hours. Budgeted activity for the month had been 11,300 machine-hours. The cost formula per machine-hour for indirect materials cost must have been closest to:A) $2.85B) $2.18C) $2.78D) $2.12
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard
Solution:
Budgeted number of machine-hours: 11,300Actual number of machine-hours: 11,600
Cost Formula
(per MH)
Actual Costs
Incurred for
11,600 machine-
hours
Budget Based on 11,600
machine-hours Variance
Variable overhead costs (Indirect materials)........... Y $28,420 X $3,828 U
Actual costs − Budgeted costs = Indirect materials variance$28,420 − X = $3,828X = $24,592
Y = Per machine-hour cost =Per machine-hour cost = Actual cost ÷ Machine-hours =Per machine-hour cost = $24,592 ÷ 11,600 = $2.12
38. Viger Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company has provided the following data for the most recent month:
Budgeted level of activity................................................. 9,700 MHsActual level of activity..................................................... 9,900 MHsCost formula for variable manufacturing overhead cost. . $6.30 per MHBudgeted fixed manufacturing overhead cost.................. $49,000Actual total variable manufacturing overhead................. $60,390Actual total fixed manufacturing overhead...................... $47,000
What was the variable overhead spending variance for the month?A) $2,000 favorableB) $720 favorableC) $1,260 unfavorableD) $1,980 favorable
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Actual rate = Actual total variable manufacturing overhead ÷ Actual machine-hoursActual rate = $60,390 ÷ 9,900 = $6.10Variable overhead spending variance = AH × (AR − SR)9,900 × ($6.10 − $6.30) = 9,900 × (-$0.20) = $1,980 F
39. Teall Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company has provided the following data for the most recent month:
Budgeted level of activity.................................................. 8,500 MHsActual level of activity....................................................... 8,600 MHsCost formula for variable manufacturing overhead cost. . . $5.70 per MHBudgeted fixed manufacturing overhead cost................... $50,000Actual total variable manufacturing overhead................... $51,600Actual total fixed manufacturing overhead....................... $54,000
What was the fixed overhead budget variance for the month?A) $4,000 unfavorableB) $4,000 favorableC) $570 favorableD) $570 unfavorable
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost= $54,000 − $50,000 = $4,000 U
40. Alapai Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company has provided the following data for the most recent month:
Budgeted level of activity................................................. 7,000 MHsActual level of activity..................................................... 7,200 MHsCost formula for variable manufacturing overhead cost. . $9.40 per MHBudgeted fixed manufacturing overhead cost.................. $40,000Actual total variable manufacturing overhead................. $66,960Actual total fixed manufacturing overhead...................... $37,000
What was the total of the variable overhead spending and fixed overhead budget variances for the month?A) $3,720 favorableB) $2,280 unfavorableC) $1,840 favorableD) $1,880 unfavorable
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Actual rate = Actual total variable manufacturing overhead ÷ Actual machine-hours =$66,960 ÷ 7,200 = $9.30Variable overhead spending variance = AH × (AR − SR)= 7,200 × ($9.30 − $9.40)= 7,200 × (−$0.10) = $720 F
Fixed overhead budget variance = Actual fixed overhead costs − Budgeted fixed overhead cost= $37,000 − $40,000 = $3,000 F
Total overhead variance = $720 F + $3,000 F = $3,720 F
41. Bartoletti Fabrication Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company's cost formula for variable manufacturing overhead is $4.60 per MH. The company had budgeted its fixed manufacturing overhead cost at $65,000 for the month. During the month, the actual total variable manufacturing overhead was $22,080 and the actual total fixed manufacturing overhead was $63,000. The actual level of activity for the period was 4,600 MHs. What was the total of the variable overhead spending and fixed overhead budget variances for the month?A) $1,080 unfavorableB) $1,080 favorableC) $920 unfavorableD) $920 favorable
42. Amirault Manufacturing Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company's cost formula for variable manufacturing overhead is $4.00 per MH. During the month, the actual total variable manufacturing overhead was $18,040 and the actual level of activity for the period was 4,100 MHs. What was the variable overhead spending variance for the month?A) $410 favorableB) $1,640 unfavorableC) $1,640 favorableD) $410 unfavorable
Actual rate = Actual variable manufacturing overhead ÷ Actual machine-hours= $18,040 ÷ 4,100 = $4.40Variable overhead spending variance = AH × (AR − SR) = 4,100 × ($4.40 − $4.00) = 4,100 × $0.40 = $1,640 U
43. Goolden Electronics Corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine-hours (MHs). The company had budgeted its fixed manufacturing overhead cost at $58,000 for the month and its level of activity at 2,500 MHs. The actual total fixed manufacturing overhead was $61,200 for the month and the actual level of activity was 2,600 MHs. What was the fixed overhead budget variance for the month to the nearest dollar?A) $880 unfavorableB) $880 favorableC) $3,200 favorableD) $3,200 unfavorable
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Fixed overhead budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost= $61,200 − $58,000 = $3,200 U
44. Wadding Corporation applies manufacturing overhead to products on the basis of standard machine-hours. For the most recent month, the company based its budget on 3,600 machine-hours. Budgeted and actual overhead costs for the month appear below:
Total overhead cost........................ $69,940 $72,120
The company actually worked 3,900 machine-hours during the month. The standard hours allowed for the actual output were 3,890 machine-hours for the month. What was the overall variable overhead efficiency variance for the month?A) $760 favorableB) $104 unfavorableC) $180 favorableD) $656 favorable
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Hard
45. Mongar Corporation applies manufacturing overhead to products on the basis of standard machine-hours. Budgeted and actual overhead costs for the most recent month appear below:
Original Budget Actual CostsVariable overhead costs:
Total variable overhead cost.......... $37,800 $37,840
The original budget was based on 4,200 machine-hours. The company actually worked 4,350 machine-hours during the month and the standard hours allowed for the actual output were 4,190 machine-hours. What was the overall variable overhead efficiency variance for the month?A) $130 unfavorableB) $950 favorableC) $1,310 favorableD) $1,440 unfavorable
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium
46. Pleiss Corporation applies manufacturing overhead to products on the basis of standard machine-hours. The company's cost formula for variable overhead cost is $2.40 per machine-hour. The actual variable overhead cost for the month was $5,240. The original budget for the month was based on 2,100 machine-hours. The company actually worked 2,270 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 2,280 machine-hours. What was the variable overhead efficiency variance for the month?A) $24 favorableB) $232 favorableC) $208 favorableD) $432 unfavorable
47. Pyrdum Corporation produces metal telephone poles. In the most recent month, the company budgeted production of 3,500 poles. Actual production was 3,800 poles. According to standards, each pole requires 4.6 machine-hours. The actual machine-hours for the month were 17,800 machine-hours. The budgeted indirect labor is $5.40 per machine-hour. The actual indirect labor cost for the month was $96,712. The variable overhead efficiency variance for indirect labor is:A) $2,320 UB) $1,728 FC) $2,320 FD) $1,728 U
Standard hours = Actual production in units × Standard machine-hours per unit= 3,800 × 4.6 = 17,480Variable overhead efficiency variance = SR × (AH − SH)= $5.40 × (17,800 − 17,480) = $5.40 × 320 = $1,728 U
48. Hermansen Corporation produces large commercial doors for warehouses and other facilities. In the most recent month, the company budgeted production of 5,100 doors. Actual production was 5,400 doors. According to standards, each door requires 3.8 machine-hours. The actual machine-hours for the month were 20,880 machine-hours. The budgeted supplies cost is $7.90 per machine-hour. The actual supplies cost for the month was $152,063. The variable overhead efficiency variance for supplies cost is:A) $10,045 FB) $10,045 UC) $2,844 FD) $2,844 U
Standard hours = Actual production in units × Standard machine-hours per unit= 5,400 × 3.8 = 20,520Variable overhead efficiency variance = SR × (AH − SH)= $7.90 × (20,880 − 20,520) = $7.90 × 360 = $2,844 U
Standard hours = Actual production in units × Standard machine-hours per unit= 3,800 × 2.9 = 11,020Variable overhead efficiency variance = SR × (AH − SH)= $1.50 × (10,930 − 11,020) = $1.50 × (-$90) = $135 F
50. Ronda Manufacturing Company uses a standard cost system with machine-hours as the activity base for overhead. Last year, Ronda incurred $840,000 of fixed manufacturing overhead and generated a $42,000 favorable fixed overhead budget variance. The following data relate to last year's operations:
Denominator activity level in machine-hours................. 21,000Standard machine-hours allowed for actual output........ 20,000Actual number of machine-hours incurred..................... 22,050
What amount of total fixed manufacturing overhead cost did Ronda apply to production last year?A) $837,900B) $840,000C) $926,100D) $972,405
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5; 6 Level: Hard
Solution:
Predetermined overhead rate = $882,000 ÷ 21,000 denominator machine-hours = $42 per machine-hourFixed overhead applied to production =20,000 standard hours × $42 per machine-hour = $840,000
51. Blue Company's standards call for 2,500 direct labor-hours to produce 1,000 units. During May only 900 units were produced and the company worked 2,400 direct labor-hours. The standard hours allowed for May production would be:A) 2,500 hoursB) 2,400 hoursC) 2,250 hoursD) 1,800 hours
Standard direct labor-hours per unit = 2,500 direct labor-hours ÷ 1,000 units = 2.5 direct labor-hours per unitStandard hours allowed = 2.5 direct labor hours per unit × 900 units = 2,250 hours
52. Diehl Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of standard direct labor-hours. The company's total applied factory overhead was $315,000 last year when the company used 32,000 direct labor-hours as the denominator activity. If the variable factory overhead rate was $8 per direct labor-hour, and if 30,000 standard labor-hours were allowed for the output of the year, then the total budgeted fixed factory overhead for the year must have been:A) $60,000B) $80,000C) $90,000D) $100,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Hard
Solution:
Predetermined overhead rate = $315,000 ÷ 30,000 DLHs = $10.50 per DLHFixed portion of predetermined overhead rate= Total predetermined overhead rate − Variable overhead rate= $10.50 per DLH − $8.00 per DLH = $2.50 per DLHBudgeted fixed overhead = 32,000 DLHs × $2.50 per DLH = $80,000
53. The Marlow Company uses a standard cost system and applies manufacturing overhead to products on the basis of standard direct labor-hours. The denominator activity is set at 40,000 direct labor-hours per year. Budgeted fixed manufacturing overhead cost is $40,000 per year, and 0.5 direct labor-hours are required to manufacture one unit. The standard cost card would indicate fixed manufacturing overhead cost per unit to be:A) $1.00B) $2.00C) $1.50D) $0.50
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium
Solution:Actual units produced = Total direct labor-hours ÷ Standard direct labor-hours per unit = 40,000 ÷ 0.5 = 80,000 unitsFixed manufacturing overhead cost per unit = $40,000 ÷ 80,000 units = $0.50 per unit
54. Bakos Corporation's abbreviated flexible budget for two levels of activity appears below:
Cost Formula (per machine-
hour)Activity
(in machine-hours)2,800 2,900
Total variable overhead cost....... $8.80 $ 24,640 $ 25,520Total fixed overhead cost............ 100,688 100,688 Total overhead cost..................... $125,328 $126,208
If the denominator level of activity is 2,800 machine-hours, the variable element in the predetermined overhead rate would be:A) $44.76B) $35.96C) $43.52D) $8.80
55. Recht Corporation's summary flexible budget for two levels of activity appears below:
Cost Formula (per machine-
hour)Activity
(in machine-hours)1,200 1,300
Total variable overhead cost....... $9.30 $ 11,160 $ 12,090Total fixed overhead cost............ 17,940 17,940 Total overhead cost..................... $29,100 $30,030
If the denominator level of activity is 1,200 machine-hours, the fixed element in the predetermined overhead rate would be:A) $14.95B) $930.00C) $24.25D) $9.30
57. At the beginning of last year, Monze Corporation budgeted $600,000 of fixed manufacturing overhead and chose a denominator level of activity of 100,000 direct labor-hours. At the end of the year, Monze's fixed overhead budget variance was $8,000 unfavorable. Its fixed overhead volume variance was $21,000 favorable. Actual direct labor-hours for the year were 96,000. What was Monze's actual fixed overhead for last year?A) $563,000B) $579,000C) $608,000D) $592,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Hard
58. Mclellan Corporation applies manufacturing overhead to products on the basis of standard machine-hours. Budgeted and actual overhead costs for the month appear below:
Original Budget Actual CostsVariable overhead costs:
Total overhead cost........................ $78,950 $80,520
The company based its original budget on 6,100 machine-hours. The company actually worked 6,480 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 6,370 machine-hours. What was the overall fixed overhead budget variance for the month?A) $500 favorableB) $500 unfavorableC) $1,570 favorableD) $1,570 unfavorable
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
59. Songster Corporation applies manufacturing overhead to products on the basis of standard machine-hours. Budgeted and actual overhead costs for the most recent month appear below:
The company based its original budget on 3,500 machine-hours. The company actually worked 3,700 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 3,820 machine-hours. What was the overall fixed overhead budget variance for the month?A) $2,432 favorableB) $2,432 unfavorableC) $420 favorableD) $420 unfavorable
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost = $26,180 − $26,600 = $420 F
60. Maertz Corporation applies manufacturing overhead to products on the basis of standard machine-hours. The budgeted fixed overhead cost for the most recent month was $10,890 and the actual fixed overhead cost for the month was $10,540. The company based its original budget on 3,300 machine-hours. The standard hours allowed for the actual output of the month totaled 3,240 machine-hours. What was the overall fixed overhead budget variance for the month?A) $198 unfavorableB) $350 unfavorableC) $198 favorableD) $350 favorable
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost= $10,540 − $10,890 = $350 F
61. Lossing Corporation applies manufacturing overhead to products on the basis of standard machine-hours. Budgeted and actual overhead costs for the most recent month appear below:
Original Budget Actual CostsVariable overhead costs:
Total overhead cost........................ $73,440 $72,580
The company based its original budget on 5,100 machine-hours. The company actually worked 4,800 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 4,980 machine-hours. What was the overall fixed overhead volume variance for the month?A) $3,150 unfavorableB) $3,150 favorableC) $1,260 unfavorableD) $1,260 favorable
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Hard
Fixed portion of predetermined overhead rate = Total budgeted fixed overhead ÷ Budgeted machine-hours= ($5,610 + $8,160 + $39,780) ÷ 5,100 MHs= $53,550 ÷ 5,100 MHs = $10.50 per MHVolume variance = $10.50 per MH × (5,100 MHs − 4,980 MHs)= $10.50 per MH × 120 MHs = $1,260 U
62. Hoag Corporation applies manufacturing overhead to products on the basis of standard machine-hours. Budgeted and actual fixed overhead costs for the most recent month appear below:
Total fixed overhead cost............... $35,360 $35,600
The company based its original budget on 2,600 machine-hours. The company actually worked 2,280 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 2,080 machine-hours. What was the overall fixed overhead volume variance for the month?A) $4,352 favorableB) $4,352 unfavorableC) $7,072 unfavorableD) $7,072 favorable
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Predetermined overhead rate = Total overhead ÷ Budgeted hours= $35,360 ÷ 2,600 MHs = $13.60 per MHVolume variance = $13.60 per MH × (2,600 MHs − 2,080 MHs)= $13.60 per MH × 520 MHs = $7,072 U
63. Merone Corporation applies manufacturing overhead to products on the basis of standard machine-hours. The company bases its predetermined overhead rate on 2,300 machine-hours. The company's total budgeted fixed manufacturing overhead is $5,060. In the most recent month, the total actual fixed manufacturing overhead was $4,660. The company actually worked 2,200 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 2,320 machine-hours. What was the overall fixed overhead volume variance for the month?A) $220 unfavorableB) $400 favorableC) $44 favorableD) $220 favorable
Predetermined overhead rate = Total overhead ÷ Budgeted hours= $5,060 ÷ 2,300 MHs = $2.20 per MHVolume variance = $2.20 per MH × (2,300 MHs − 2,320 MHs)= $2.20 per MH × 20 MHs = $44 F
64. Rodarta Corporation applies manufacturing overhead to products on the basis of standard machine-hours. The company's predetermined overhead rate for fixed manufacturing overhead is $1.20 per machine-hour and the denominator level of activity is 6,600 machine-hours. In the most recent month, the total actual fixed manufacturing overhead was $8,340 and the company actually worked 6,400 machine-hours during the month. The standard hours allowed for the actual output of the month totaled 6,480 machine-hours. What was the overall fixed overhead volume variance for the month?A) $240 favorableB) $144 unfavorableC) $240 unfavorableD) $96 favorable
Total fixed overhead cost........................... 113,960 Total budgeted overhead cost.................... $204,820
Actual results for the month were:Actual number of patient-visits............... 7,800Supplies................................................... $38,250Laundry................................................... $61,240Salaries.................................................... $46,190Occupancy costs..................................... $65,650
Total fixed overhead cost........................... 21,200 Total budgeted overhead cost.................... $38,600
Actual results for the month were:Actual number of machine-hours........... 1,200Supplies................................................... $10,290Power...................................................... $10,860Salaries.................................................... $11,690Equipment depreciation.......................... $9,990
Total fixed overhead cost........................... 65,860 Total budgeted overhead cost.................... $119,260
In June, the actual number of machine-hours was 9,300, the actual supplies cost was $19,760, the actual power cost was $35,720, the actual salaries cost was $27,130, and the actual equipment depreciation was $39,430.
77. The variance for supplies cost in the flexible budget performance report for the month should be:A) $180 UB) $700 UC) $700 FD) $180 F
Budgeted number of machine-hours: 8,900Actual number of machine-hours: 9,300
Actual Costs Incurred for
9,300 machine-
hours
Budget Based on
9,300 machine-
hours VarianceFixed overhead costs (Equipment
depreciation)............................ $39,430 $39,160 $270 U
Use the following to answer questions 80-85:
A manufacturing company has a standard costing system based on standard direct labor-hours (DLHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:
Denominator level of activity................................ 1,000 DLHsOverhead costs at the denominator activity level:
The following data pertain to operations for the most recent period:
Actual hours........................................................... 1,200 DLHsStandard hours allowed for the actual output........ 885 DLHsActual total variable overhead cost........................ $4,380Actual total fixed overhead cost............................ $12,450
85. What was the fixed overhead volume variance for the period to the nearest dollar?A) $4,489 UB) $1,618 UC) $2,850 FD) $1,639 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Fixed portion of predetermined overhead rate= $14,250 ÷ 1,000 DLHs = $14.25 per DLHVolume variance = Fixed portion of predetermined overhead rate × (Denominator hours − Standard hours allowed)= $14.25 per DLH × (1,000 DLHs − 885 DLHs)= $14.25 per DLH × 115 DLHs = $1,639 U
Use the following to answer questions 86-88:
Azzurra Company manufactures computer chips used in aircraft and automobiles. Manufacturing overhead at Azzurra is applied to production on the basis of standard machine-hours.
86. Which overhead variance(s) at Azzurra would be affected in a favorable manner if more computer chips are produced during the year than originally budgeted?A) variable overhead spending varianceB) variable overhead efficiency varianceC) fixed overhead budget varianceD) fixed overhead volume varianceE) none of the above would be affected favorably
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3; 4; 6 Level: Medium
87. Which overhead variance(s) at Azzurra would be affected in an unfavorable manner if some indirect materials were “inadvertently” taken home by a few of the indirect laborers?A) variable overhead spending varianceB) variable overhead efficiency varianceC) fixed overhead budget varianceD) fixed overhead volume varianceE) none of the above would be affected unfavorably
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3; 4; 6 Level: Medium
88. Which overhead variance(s) at Azzurra would be affected in an unfavorable manner if fire and theft insurance rates increase by 25% unexpectedly during the period?A) variable overhead spending varianceB) variable overhead efficiency varianceC) fixed overhead budget varianceD) fixed overhead volume varianceE) both C and D above
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3; 4; 6 Level: Medium
Use the following to answer questions 89-90:
Single Company has a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard direct labor-hours. The company has provided the following data concerning its manufacturing overhead costs for last year:
Standard direct labor-hours allowed for the output........ 32,000 hoursActual direct labor-hours worked................................... 33,000 hoursDenominator activity...................................................... 30,000 hoursActual variable factory overhead cost............................. $166,000Variable overhead rate.................................................... $5 per hour
A manufacturing company that has only one product has established the following standards for its variable manufacturing overhead. The company uses machine-hours as its measure of activity.
Standard hours per unit of output............... 2.7 machine-hoursStandard variable overhead rate................. $19.40 per machine-hour
The following data pertain to operations for the last month:
Actual hours............................................... 4,500 machine-hoursActual total variable overhead cost............ $88,425Actual output.............................................. 1,500 units
91. What is the variable overhead spending variance for the month?A) $9,855 UB) $1,125 FC) $1,125 UD) $9,855 F
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3; 4 Level: Medium
Solution:
Actual machine-hours: 4,500Standard machine-hours: 4,050*
Cost Formula (per MH)
Actual Costs
Incurred 4,500 MHs
Budget Based on
4,500 MHsSpending Variance
Variable overhead costs $19.40 $88,425 $87,300 $1,125 U
*1,500 units × 2.7 machine-hours per unit = 4,050 machine-hours
92. What is the variable overhead efficiency variance for the month?A) $8,842 UB) $1,013 FC) $8,843 FD) $8,730 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3; 4 Level: Medium
Solution:
Actual machine-hours: 4,500Standard machine-hours: 4,050*
Cost Formula (per MH)
Budget Based on
4,500 MHs
Budget Based on
4,050 MHsEfficiency Variance
Variable overhead costs $19.40 $87,300 $78,570 $8,730 U
*1,500 units × 2.7 machine-hours per unit = 4,050 machine-hours
Use the following to answer questions 93-95:
Crispy Company manufactures smoke detectors and has developed the following flexible budget for its overhead costs. Manufacturing overhead at Crispy is applied to production on the basis of standard direct labor-hours:
95. What total amount of manufacturing overhead cost (variable and fixed) did Crispy apply to the 43,200 detectors produced?A) $712,800B) $924,000C) $997,920D) $1,033,560
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Hard
Solution:
Predetermined overhead rate = Total overhead ÷ Per detector= ($252,000 + $672,000) ÷ 40,000 detectors= $924,000 ÷ 40,000 detectors = $23.10 per detectorApplied overhead = 43,200 detectors × $23.10 per detector = $997,920
Use the following to answer questions 96-97:
Dagle Corporation has provided the following data for a recent month:.
Budgeted production................................... 4,700 motorsActual production........................................ 4,800 motorsStandard machine-hours per motor............. 5.1 machine-hoursBudgeted machine-hours (5.1 × 4,700)....... 23,970 machine-hoursStandard machine-hours allowed for the
actual output (5.1 × 4,800)....................... 24,480 machine-hoursActual machine-hours.................................. 24,740 machine-hours
Budgeted variable overhead cost per machine-hour:Indirect labor............................................ $6.30 per machine-hourPower........................................................ $2.20 per machine-hour
Actual total variable overhead costs:Indirect labor............................................ $151,506Power........................................................ $56,700
Variable overhead costs (Power) $1.40 $94,989 $86,996 $7,993 U
Use the following to answer questions 100-101:
Macchi Corporation has provided the following data for a recent period:
Budgeted production.................................. 2,200 unitsActual production....................................... 2,500 unitsStandard machine-hours per unit............... 3.1 machine-hoursBudgeted machine-hours (3.1 × 2,200)...... 6,820 machine-hoursStandard machine-hours allowed for the
actual output (3.1 × 2,500)..................... 7,750 machine-hoursActual machine-hours................................ 8,030 machine-hours
Budgeted variable overhead cost per machine-hour:Lubricants.............. $2.00 per machine-hourSupplies......................................................$2.60 per machine-hour
Actual total variable overhead costs:Lubricants..................................................$15,858Supplies......................................................$20,392
The following data have been provided by Liggett Corporation:
Budgeted production...................... 7,400 unitsStandard machine-hours per unit. . . 6.6 machine-hoursStandard lubricants......................... $3.50 per machine-hourStandard supplies........................... $2.00 per machine-hour
Actual machine-hours: 79,100Standard machine-hours: 79,170*
Cost Formula (per MH)
Budget Based on 79,100 MHs
Budget Based on 79,170 MHs
Efficiency Variance
Variable overhead costs (Supplies) $1.70 $134,470 $134,589 $119 F
*8,700 safes × 9.1 machine-hours = 79,170 standard machine-hours
Use the following to answer questions 112-113:
Bagley Company has a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard machine-hours. The company has provided the following data concerning its manufacturing overhead costs for last year:
Actual total overhead cost.......................... $260,000Budgeted fixed overhead cost.................... $180,000Variable overhead rate............................... $2 per hourFixed overhead rate.................................... $6 per hourStandard hours allowed for the output....... 32,000 hours
112. The volume variance for the year was:A) $12,000 FB) $4,000 FC) $4,000 UD) $16,000 U
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Fixed overhead rate = Budgeted fixed overhead cost ÷ Denominator activity level= $6 per hour = $180,000 ÷ Denominator activity levelDenominator activity level × $6 per hour = $180,000Denominator activity level = $180,000 ÷ $6 per hour = 30,000 hoursVolume variance = Fixed portion of predetermined overhead rate × (Denominator hours − Standard hours allowed)= $6 per hour × (30,000 hours − 32,000 hours)= $6 per hours × 2,000 hours = $12,000 F
113. The denominator activity level used to compute predetermined overhead rates was:A) 32,000 hoursB) 22,500 hoursC) 30,000 hoursD) it is impossible to determine from the data given
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium
A furniture manufacturer has a standard costing system based on standard direct labor-hours (DLHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:
Denominator level of activity......................................... 8,500 DLHsOverhead costs at the denominator activity level:
The following data pertain to operations for the most recent period:
Actual hours.................................................................... 8,600 DLHsStandard hours allowed for the actual output................. 8,575 DLHsActual total variable overhead cost................................. $18,490Actual total fixed overhead cost..................................... $91,225
114. What is the predetermined overhead rate to the nearest cent?A) $12.91B) $13.10C) $12.76D) $13.25
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium
117. What was the fixed overhead volume variance for the period to the nearest dollar?A) $274 UB) $1,095 FC) $798 FD) $821 F
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Fixed portion of predetermined overhead rate = Budgeted fixed overhead cost ÷ Denominator activity level$93,075 ÷ 8,500 DLHs = $10.95 per DLHVolume variance = Fixed portion of predetermined overhead rate × (Denominator hours − Standard hours allowed) = $10.95 per DLH × (8,500 DLHs − 8,575 DLHs) = $10.95 per DLH × 75 DLHs = $821 F
Use the following to answer questions 118-121:
A manufacturer of playground equipment has a standard costing system based on standard machine-hours (MHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:
Denominator level of activity................................ 8,800 MHsFixed overhead cost............................................... $71,720
The following data pertain to operations for the most recent period:
Actual hours........................................................... 8,500 MHsStandard hours allowed for the actual output........ 8,556 MHsActual total fixed overhead cost............................ $71,470
121. What was the fixed overhead volume variance for the period to the nearest dollar?A) $2,038 UB) $456 FC) $2,445 UD) $1,989 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Volume variance = Fixed portion of predetermined overhead rate × (Denominator hours − Standard hours allowed) = ($71,720 ÷ 8,800 MHs) × (8,800 MHs − 8,556 MHs) = $8.15 per MH × 244 MHs = $1,989 U
Use the following to answer questions 122-123:
Rodriquez Manufacturing Company uses a standard cost system with machine-hours as the activity base for overhead. Rodriquez used a denominator activity level of 15,000 machine-hours last year. At this level, budgeted variable manufacturing overhead totaled $108,000 and budgeted fixed manufacturing overhead totaled $378,000. During the year, 18,000 machine-hours were actually incurred. The standard machine-hours allowed for actual output were 20,000. Total actual manufacturing overhead was $135,000 for variable overhead and $394,200 for fixed overhead.
122. What was Rodriquez's fixed overhead budget variance?A) $16,200 unfavorableB) $59,400 favorableC) $109,800 favorableD) $126,000 unfavorable
Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost= $394,200 − $378,000 = $16,200 U
123. What is Rodriquez's total under- or overapplied overhead cost?A) $21,600 underappliedB) $43,200 underappliedC) $54,000 overappliedD) $118,800 overapplied
Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Hard
A manufacturer of industrial equipment has a standard costing system based on standard direct labor-hours (DLHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:
Denominator level of activity......................................... 2,200 DLHsOverhead costs at the denominator activity level:
The following data pertain to operations for the most recent period:
Actual hours.................................................................... 2,100 DLHsStandard hours allowed for the actual output................. 2,108 DLHsActual total variable overhead cost................................. $12,390Actual total fixed overhead cost..................................... $29,360
Total fixed overhead cost......... 1,442,100 1,442,100 Total overhead cost.................. $1,584,600 $1,586,500
126. If the denominator level of activity is 7,500 machine-hours, the variable element in the predetermined overhead rate would be:A) $208.75B) $192.28C) $211.28D) $19.00
127. If the denominator level of activity is 7,500 machine-hours, the fixed element in the predetermined overhead rate would be:A) $192.28B) $211.28C) $19.00D) $1,900.00
Total fixed overhead cost......... 242,048 242,048 Total overhead cost.................. $273,768 $274,288
129. If the denominator level of activity is 6,100 machine-hours, the variable element in the predetermined overhead rate would be:A) $5.20B) $44.24C) $39.68D) $44.88
130. If the denominator level of activity is 6,100 machine-hours, the fixed element in the predetermined overhead rate would be:A) $520.00B) $39.68C) $5.20D) $44.88
Kasteron Corporation has a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard machine-hours. The company has provided the following data concerning its manufacturing overhead costs for last year:
Actual machine-hours.................................................... 640 hoursStandard machine-hours allowed for the actual output. 650 hoursDenominator activity..................................................... 700 hoursActual fixed overhead costs........................................... $2,000Budgeted fixed overhead costs...................................... $2,100Predetermined overhead rate ($1 variable + $3 fixed). . $4 per hour
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost= $2,000 − $2,100 = $100 F
133. The volume variance would be:A) $180 FB) $240 FC) $150 UD) $200 U
Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Volume variance = Fixed portion of predetermined overhead rate × (Denominator hours − Standard hours allowed) = $3 per hour × (700 hours − 650 hours) = $3 per hours × 50 hours = $150 U
Use the following to answer questions 134-135:
Asper Corporation has provided the following data for February.
Denominator level of activity.................... 7,700 machine-hoursBudgeted fixed overhead costs.................. $266,420Fixed portion of the predetermined
overhead rate.......................................... $34.60 per machine-hourActual level of activity............................... 7,900 machine-hoursStandard machine-hours allowed for the
actual output........................................... 8,200 machine-hoursActual fixed overhead costs....................... $259,960
139. You have been recently hired by Ritter Enterprises as an assistant manager. As your first task, you have been asked to set up a flexible budgeting system for manufacturing overhead. The major purpose of this system will be to prepare performance reports.
Required:
What three criteria should be used when selecting an activity base for constructing a flexible budget? Why are these criteria important?
Ans: The three criteria and the reasons for their importance are:
1. There should be a causal relationship between the activity base and the overhead costs in the flexible budget. If variations in the activity base do not cause variations in the costs, then the performance report will have little value.
2. The activity base should not be expressed in dollars or other currency. Activity bases stated in dollars are subject to price-level changes that may have little to do with overhead costs. For example, an increase in the wage rate of direct labor would cause a direct labor cost activity base to change even though a proportionate change may not take place in the overhead costs themselves.
3. The activity base should be simple and easy to understand. If the activity base is complex or difficult to understand, it will probably cause confusion and misunderstanding rather than serve as a means of positive cost control.
Total fixed overhead cost........................... 39,600 Total budgeted overhead cost.................... $72,270
Actual results for the month were:
Actual number of patient-visits.................. 10,000Supplies...................................................... $22,040Laundry...................................................... $10,640Salaries....................................................... $28,480Occupancy costs......................................... $11,360
Required:
Prepare a flexible budget performance report in good form.
Total fixed overhead cost........................... 114,600 Total budgeted overhead cost.................... $201,600
Actual results for the month were:
Actual number of machine-hours............... 6,400Power......................................................... $59,870Supplies...................................................... $34,960Salaries....................................................... $65,100Equipment depreciation............................. $44,610
Required:
Prepare a flexible budget performance report in good form.
144. Cashaw Corporation, which produces only a single product, bases its budgets on units produced. The company's static budget for September appears below:
Budgeted number of units produced.......... 4,200Budgeted variable overhead costs:
Power (@ $6.50 per unit)........................ $27,300Supplies (@ $1.10 per unit).................... 4,620
Total variable overhead cost...................... 31,920 Budgeted fixed overhead costs:
Total fixed overhead cost........................... 38,640 Total budgeted overhead cost.................... $70,560
Actual results for the month were:
Actual number of units produced............... 4,500Power......................................................... $31,840Supplies...................................................... $4,730Salaries....................................................... $32,480Occupancy costs......................................... $4,800
Required:
Prepare a flexible budget performance report in good form.
145. Flick Company uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard direct labor-hours. The company's total budgeted variable and fixed manufacturing overhead costs at the denominator level of activity are $20,000 for variable overhead and $30,000 for fixed overhead. The predetermined overhead rate, including both fixed and variable components, is $2.50 per direct labor-hour. The standards call for two direct labor-hours per unit of output produced. Last year, the company produced 11,500 units of product and worked 22,000 direct labor-hours. Actual costs were $22,500 for variable overhead and $31,000 for fixed overhead.
Required:
a. What is the denominator level of activity?b. What were the standard hours allowed for the output last year?c. What was the variable overhead spending variance?d. What was the variable overhead efficiency variance?e. What was the fixed overhead budget variance?f. What was the fixed overhead volume variance?
a. Total overhead at the denominator level of activity........ $50,000÷ Predetermined overhead rate........................................ $2.50/DLH= Denominator level of activity....................................... 20,000 DLHs
b. Actual output............................... 11,500 units× Standard DLH per unit............. 2 DLH per unit= Standard DLHs allowed........... 23,000 DLHs
147. Sorrick Corporation, which makes sophisticated industrial valves, has provided the following data from its standard costing system and for its actual operations in March:
Budgeted production..................................... 5,300 valvesActual production.......................................... 5,400 valvesStandard machine-hours per valve................ 7.5 machine-hoursBudgeted machine-hours (7.5 × 5,300)......... 39,750 machine-hoursStandard machine-hours allowed for the
actual output (7.5 × 5,400)........................ 40,500 machine-hoursActual machine-hours................................... 41,160 machine-hours
Budgeted variable overhead cost per machine-hour:Indirect labor............. $9.30 per machine-hourPower........................ $2.40 per machine-hour
Actual total variable overhead costs:Indirect labor............. $363,400Power........................ $94,821
Required:
Compute the variable overhead spending variances for indirect labor and for power for March. Indicate whether each of the variances is favorable (F) or unfavorable (U). Show your work!
Compute the variable overhead spending variances for indirect labor and for power for November. Indicate whether each of the variances is favorable (F) or unfavorable (U). Show your work!
149. Hammond Corporation has provided the following data for October:
Budgeted production.................................. 2,100 unitsActual production....................................... 2,400 unitsStandard machine-hours per unit............... 6.0 machine-hoursBudgeted machine-hours (6.0 × 2,100)...... 12,600 machine-hoursStandard machine-hours allowed for the
actual output (6.0 × 2,400)..................... 14,400 machine-hoursActual machine-hours................................ 14,220 machine-hours
Budgeted variable overhead cost per machine-hour:Lubricants........... $1.00 per machine-hourSupplies............... $1.60 per machine-hour
Actual total variable overhead costs:Lubricants........... $13,974Supplies............... $23,558
Required:
Compute the variable overhead spending variances for lubricants and for supplies for October. Indicate whether each of the variances is favorable (F) or unfavorable (U). Show your work!
Compute the variable overhead spending variances for lubricants and for supplies. Indicate whether each of the variances is favorable (F) or unfavorable (U). Show your work!
Indirect labor............................. $2,223 U $1,663 U $560 UPower........................................ 5,212 F 6,612 F 1,400 UTotal.......................................... $2,989 F $4,949 F $1,960 U
Indirect labor.................... $22,984 U $19,798 U $3,186 UPower............................... 342 U 198 F 540 UTotal................................. $23,326 U $19,600 U $3,726 U
Determine the total variance, the spending variance, and the efficiency variance for the variable overhead item supplies cost that would appear on the company's variable overhead performance report. Show your work!
Ans:
Budgeted machine-hours (9.3 × 7,900)................................................ 73,470Actual machine-hours........................................................................... 76,930Standard machine-hours allowed for the actual output (9.3 × 8,300). . 77,190
154. Bondi Corporation makes automotive engines. For the most recent month, budgeted production was 1,500 engines. The budgeted power cost is $3.10 per machine-hour. The company's standards indicate that each engine requires 9.3 machine-hours. Actual production was 1,800 engines. Actual machine-hours were 15,860 machine-hours. Actual power cost totaled $51,593.
Required:
Determine the total variance, the spending variance, and the efficiency variance for the variable overhead item power cost that would appear on the company's variable overhead performance report. Show your work!
Ans:
Budgeted machine-hours (9.3 × 1,500)......................................................... 13,950Actual machine-hours.............................................................................. 15,860Standard machine-hours allowed for the actual output (9.3 × 1,800)............ 16,740
Variable overhead costs:
Cost Formula
(per machine-
hour)
(1) Actual Costs
Incurred 15,860
Machine-Hours
(2) Flexible Budget
Based on 15,860
Machine-Hours
(3) Flexible Budget
Based on 16,740
Machine-Hours
Power cost........................ $3.10 $51,593 $49,166 $51,894
Variable overhead costs:
Total Variance (1) − (3)
Spending Variance (1) − (2)
Efficiency Variance (2) − (3)
Power cost........................ $301 F $2,427 U $2,728 F
157. Coppin Corporation has provided the following data for August.
Denominator level of activity................... 5,600 machine-hoursBudgeted fixed overhead costs................. $196,560Fixed portion of the predetermined
overhead rate......................................... $35.10 per machine-hourActual level of activity............................. 5,800 machine-hoursStandard machine-hours allowed for the
actual output.......................................... 6,000 machine-hoursActual fixed overhead costs...................... $193,710
Required:
a. Compute the budget variance for August. Show your work!b. Compute the volume variance for August. Show your work!
Ans:
a. Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost= $193,710 − $196,560 = $2,850 F
b. Volume variance = Fixed portion of the predetermined overhead rate × (Denominator hours − Standard hours allowed)= $35.10 × (5,600 − 6,000) = $14,040 F
158. Holl Corporation has provided the following data for November.
Denominator level of activity............................. 4,800 machine-hoursBudgeted fixed overhead costs........................... $56,640Standard machine-hours allowed for the actual
b. Fixed portion of the predetermined overhead rate= $56,640/4,800 machine-hours = $11.80 per machine-hourVolume variance = Fixed portion of the predetermined overhead rate × (Denominator hours − Standard hours allowed)= $11.80 × (4,800 − 5,100) = $3,540 F
159. Wangerin Corporation applies overhead to products based on machine-hours. The denominator level of activity is 6,900 machine-hours. The budgeted fixed overhead costs are $240,810. In April, the actual fixed overhead costs were $245,640 and the standard machine-hours allowed for the actual output were 7,200 machine-hours.
Required:
a. Compute the budget variance for April. Show your work!b. Compute the volume variance for April. Show your work!
b. Fixed portion of the predetermined overhead rate= $240,810/6,900 machine-hours = $34.90 per machine-hourVolume variance = Fixed portion of the predetermined overhead rate × (Denominator hours − Standard hours allowed)= $34.90 × (6,900 − 7,200) = $10,470 F