Chapter11.Flexible Budgeting and the Management of Overhead and Support Activity Costs

MULTIPLE CHOICE QUESTIONS

1. A stat static ic budg budget et:: A. is based based tota totally lly on on prior prior year' year'ss costs. costs. B. is based based on one one antic anticipa ipated ted acti activi vity ty level level.. C. is based based on on a range range of acti activit vity y. D. is preferred preferred over over a flexible flexible budget budget in the evaluati evaluation on of performa performance. nce. E. presents presents a clear clear measure measure of performa performance nce hen hen planned planned activity activity diffe differs rs from actual actual activity. Anser: B !": 1 #ype: $C %. &lexible &lexible budgets budgets reflect reflect a company's company's anticipat anticipated ed costs based based on variations variations in: in: A. acti activi vity ty leve levels ls.. B. infl inflat atio ion n rate rates. s. C. managers. D. antici anticipat pated ed capita capitall acuisi acuisitio tions. ns. E. standards. Anser: A !": 1 #ype: $C (. A flex flexib ible le bud budge get: t: A. parallels parallels a static static budge budgett ith respec respectt to format format and advan advantages tages of of use. B. is preferre preferred d over a static static budget budget in the evaluat evaluation ion of of performan performance. ce. C. gives gives management management flexibili flexibility ty in terms terms of of meeting meeting budget budget goals goals.. D. can be used used to compare compare actual actual and budgeted budgeted costs costs at various various levels levels of activi activity ty.. E. is chara characte cteri) ri)ed ed by cho choice icess *B* and and *D* *D* above. above. Anser: E !": 1 #ype: $C +. ,nterstate -erchandising -erchandising anticipated selling %/000 units units of a maor product and and paying sales commissions of 23 per unit. Actual sales and sales commissions commissions totaled (1/400 units and 215%/600/ respectively. respectively. ,f the company used a static budget for performance evaluations/ evaluations/ ,nterstate ould report a cost variance of: A. 23/(007. B. 23/(00&. C. 25/6007. D. 25/60 /600&. E. som somee othe otherr amoun amountt not not list listed ed abov above. e. Anser: C !": 1 #ype: A

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4. -ain 8treet -erchandising anticipated selling %+/000 units units of a maor product and and paying paying sales commissions of 24 per unit. Actual sales and sales commissions totaled totaled %(/300 units and 21%0/(30/ respectively. respectively. ,f the company used a flexible budget for performance evaluations/ evaluations/ -ain 8treet ould report a cost variance of: A. 2(307. B. 2(30&. C. 2%/(307. D. 2%/(3 /(30&. E. som somee othe otherr amoun amountt not not list listed ed abov above. e. Anser: C !": 1 #ype: A

6. Badger Bakeries Bakeries anticipated making 17,000 17,000 fancy fancy cakes cakes during during a recent period, requiring 14,000 hours of process time. Each hour of process time was expected to cost cost the rm !11. "ctua# acti$ity acti$ity for the period was higher than anticipated% 1&,000 cakes and 1',(00 hours. )f each hour of process time actua##y cost Badger !1(, what process*time $ariance wou#d +e disc#osed on a performance report that incorporated static +udgets and exi+#e +udgets8tatic &lexible A. 214/%007 214/%007 B. 214/%007 2%5/+007 C. 2%5/+007 214/%007 D. 2%5/+007 2%5/+007 E. 9one of the above Anser: C !": 1 #ype: A 6. !antern !antern Corporation Corporation recently recently prepared prepared a manufacturi manufacturing ng cost budget budget for an output of 40/000 units/ as follos: Direct materials Direct labor ariable overhead &ixed overhead

2100/000 40/000 64/000 100/000

Actual units produced amounted amounted to 30/000. Actual costs incurred ere: direct materials/ materials/ 2110/000; 2110/000; direct labor/ 230/000; variable variable overhead/ 2100/000; and fixed overhead/ overhead/ 26/000. ,f !antern evaluated performance by the use of a flexible budget/ a performance report ould reveal a total variance of: A. 2(/0 2(/000 00 fav favor orab able le.. B. 2%(/ 2%(/00 000 0 favo favora rabl ble. e. C. 2%6/ 2%6/00 000 0 unfa unfavo vora rabl ble. e. D. 2+%/ 2+%/00 000 0 unf unfav avor orab able le.. E. none none of the the aabo bove ve amou amount nts. s. Anser: A !": 1/ % #ype: A

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Hilton, Managerial Accounting, Seventh Edition

4. -ain 8treet -erchandising anticipated selling %+/000 units units of a maor product and and paying paying sales commissions of 24 per unit. Actual sales and sales commissions totaled totaled %(/300 units and 21%0/(30/ respectively. respectively. ,f the company used a flexible budget for performance evaluations/ evaluations/ -ain 8treet ould report a cost variance of: A. 2(307. B. 2(30&. C. 2%/(307. D. 2%/(3 /(30&. E. som somee othe otherr amoun amountt not not list listed ed abov above. e. Anser: C !": 1 #ype: A

6. Badger Bakeries Bakeries anticipated making 17,000 17,000 fancy fancy cakes cakes during during a recent period, requiring 14,000 hours of process time. Each hour of process time was expected to cost cost the rm !11. "ctua# acti$ity acti$ity for the period was higher than anticipated% 1&,000 cakes and 1',(00 hours. )f each hour of process time actua##y cost Badger !1(, what process*time $ariance wou#d +e disc#osed on a performance report that incorporated static +udgets and exi+#e +udgets8tatic &lexible A. 214/%007 214/%007 B. 214/%007 2%5/+007 C. 2%5/+007 214/%007 D. 2%5/+007 2%5/+007 E. 9one of the above Anser: C !": 1 #ype: A 6. !antern !antern Corporation Corporation recently recently prepared prepared a manufacturi manufacturing ng cost budget budget for an output of 40/000 units/ as follos: Direct materials Direct labor ariable overhead &ixed overhead

2100/000 40/000 64/000 100/000

Actual units produced amounted amounted to 30/000. Actual costs incurred ere: direct materials/ materials/ 2110/000; 2110/000; direct labor/ 230/000; variable variable overhead/ 2100/000; and fixed overhead/ overhead/ 26/000. ,f !antern evaluated performance by the use of a flexible budget/ a performance report ould reveal a total variance of: A. 2(/0 2(/000 00 fav favor orab able le.. B. 2%(/ 2%(/00 000 0 favo favora rabl ble. e. C. 2%6/ 2%6/00 000 0 unfa unfavo vora rabl ble. e. D. 2+%/ 2+%/00 000 0 unf unfav avor orab able le.. E. none none of the the aabo bove ve amou amount nts. s. Anser: A !": 1/ % #ype: A

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5. oung Corporation Corporation has a high probability probability of operating at +0/000 activity activity hours during the the upcoming period/ and loer probabilities probabilities of operating at (0/000 hours and 40/000 hours. #he company's flexible budget revealed the folloing:

ariable costs &ixed costs

(0/000 ?ours 21(4/000 6%0/000

+0/000 ?ours 2150/000 6%0/000

40/000 ?ours 2%%4/000 6%0/000

>oung's flexible@budget formula/ here > is defined as total cost and A? represents activity hours/ is: A. >  2+.4 2+.40A 0A? ?  2%+A 2%+A?. ?. B. >  2+. 2+.40 40A? A?  26% 26%0/ 0/00 000. 0. C. >  2%% 2%%.40A .40A? ?. D. >  215 2150/ 0/00 000 0  215A 215A?. ?. E. >  2 2+4/000. Anser: B !": % #ype: A 10. ourmet ourmet $estauran $estaurants ts has the the folloing folloing flexibl flexible@bud e@budget get formula: formula: >  21(?  2+40/000 here ? is defined as process hours hich of the folloing statements is FareG trueH A. ourme ourmett has has 2+40/0 2+40/000 00 of of fixed fixed cost costs. s. B. Each additio additional nal hour hour of process process time time is expected expected to to cost ourme ourmett 21(. C. > ould ould eual eual the amount amount shon shon as *total *total cost* in the the firm's flexib flexible le budget. budget. D. Choi Choice cess *A* *A* and and *B* *B* are are true true.. E. Choice Choicess *A/* *A/* *B/* and *C* are true. true. Anser: E !": % #ype: 9

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11. Delicious #reats FD#G anticipated that 5+/000 process hours ould be or=ed during an upcoming accounting period hen/ in fact/ %/000 hours ere actually or=ed. "ne of the companyIs cost functions is expressed as follos: >  213?  23+0/000 here ? is defined as process hours hat budgeted dollar amount ould appear in D#Is static budget and flexible budget for the preceding cost functionH 8tatic &lexible A. 21/5+/000 21/5+/000 B. 21/5+/000 2%/11%/000 C. 2%/11%/000 21/5+/000 D. 2%/11%/000 2%/11%/000 E. 9one of the above. Anser: B !": % #ype: A/ 9 1%. hich of the folloing mathematical expressions is found in a typical flexible@budget formula for overheadH A. #otal activity units  budgeted fixed overhead cost per unit. B. Budgeted variable overhead cost per unit  budgeted fixed overhead cost. C. FBudgeted variable overhead cost per unit x total activity unitsG  budgeted fixed overhead costs. D. FBudgeted fixed overhead cost per unit x total activity unitsG  Fbudgeted variable overhead cost per unit x total activity unitsG. E. 9one of the above. Anser: C !": % #ype: $C 1(. A flexible budget for 14/000 hours revealed variable manufacturing overhead of 20/000 and fixed manufacturing overhead of 21%0/000. #he budget for %4/000 hours ould reveal total overhead costs of: A. 2%10/000. B. 2%60/000. C. 2%0/000. D. 2(40/000. E. some other amount. Anser: B !": % #ype: A

14. " exi+#e +udget is appropriate for an/% Direct !abor -ar=eting Administrative Budget Budget Expense Budget A. 9o 9o 9o B. 9o >es >es C. >es 9o >es D. >es >es >es E. 9o 9o >es

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Anser: D !": % #ype: 9

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14. A flexible budget is appropriate for a:

A. B. C. D. E.

8ales Commission Budget >es >es 9o 9o 9o

Direct -aterial Budget 9o >es >es 9o >es

ariable "verhead Budget >es >es 9o 9o >es

Anser: B !": % #ype: 9 13. #he manufacturing overhead applied to or=@in@rocess ,nventory by a company that uses standard costing ould be computed as: A. actual hours x a predetermined FstandardG overhead rate. B. standard hours x a predetermined FstandardG overhead rate. C. actual hours x an actual overhead rate. D. standard hours x an actual overhead rate. E. 20/ as these firms do not apply overhead to or= in process. Anser: B !": ( #ype: $C 16. ith respect to overhead/ hat is the difference beteen normal costing and standard costingH A. 7se of a predetermined overhead rate. B. 7se of standard hours versus actual hours. C. 7se of a standard rate versus an actual rate. D. #he choice of an activity measure. E. #here is no difference. Anser: B !": ( #ype: $C 15. #he activity measure selected for use in a variable@ and fixed@overhead flexible budget: A. should be stated in sales dollars. B. should be approved by the company's president. C. should vary in a similar behavior pattern to the ay that variable overhead varies. D. should remain fixed. E. should produce the most attractive results for the individual ho ill use the budget in managerial applications. Anser: C !": + #ype: $C 1. hich of the folloing should have the strongest cause and effect relationship ith overhead costsH A. Cost folloers. B. 9on@value@added costs. C. Cost drivers. D. alue@added costs. E. 7nits of output.

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Anser: C !": + #ype: $C

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%0. hich of the folloing is not an overhead varianceH A. ariable@overhead spending variance. B. ariable@overhead volume variance. C. ariable@overhead efficiency variance. D. &ixed@overhead budget variance. E. &ixed@overhead volume variance. Anser: B !": 4 #ype: $C %1. hich of the folloing is not an overhead varianceH A. ariable@overhead spending variance. B. ariable@overhead efficiency variance. C. &ixed@overhead efficiency variance. D. &ixed@overhead budget variance. E. &ixed@overhead volume variance. Anser: C !": 4 #ype: $C

((. hich of the fo##owing is used in the computation of the $aria+#e*o$erhead spending $arianceActual ariable Budgeted ariable "verhead 8tandard ariable "verhead Cost Based on Actual ?ours "verhead Applied A. 9o >es 9o B. 9o 9o 9o C. >es 9o >es D. >es >es 9o E. >es >es >es Anser: D !": 4 #ype: $C %(. hich of the folloing elements are needed in a straightforard calculation of the variable@ overhead spending varianceH A. ariable overhead incurred during the period. B. Budgeted variable overhead based on actual hours or=ed. C. 8tandard variable overhead applied to production. D. Elements *A* and *B* above. E. Elements *A* and *C* above. Anser: D !": 4 #ype: $C

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%+. Assume that machine hours is the cost driver for overhead. #he difference beteen the actual variable overhead incurred and the applied variable overhead is the: A. volume variance. B. net overhead variance. C. efficiency variance. D. sum of the spending and efficiency variances. E. spending variance. Anser: D !": 4 #ype: $C %4. hat ill cause the variable@overhead efficiency varianceH A. Efficient or inefficient use of a specific component of variable overhead Fe.g./ electricityG. B. &ull or partial utili)ation of maor euipment resources. C. roduction of units in excess of the number of units sold. D. Efficient or inefficient use of the cost driver Fe.g./ machine hoursG for variable overhead. E. Changes in the salary cost of production supervisors. Anser: D !": 4 #ype: 9 %3. 8mithville uses labor hours to apply variable overhead to production. ,f the company's or=ers ere very inefficient during the period/ hich of the folloing statements ould be true about the variable@overhead efficiency varianceH A. #he variance ould be favorable. B. #he variance ould be unfavorable. C. #he nature of the variance Ffavorable or unfavorableG ould be un=non based on the facts presented. D. #he variance ould be the same amount as the labor efficiency variance. E. 9one of the above. Anser: B !": 4 #ype: 9 %6. #he difference beteen the total actual factory overhead and the total factory overhead applied to production is the: A. sum of the spending/ efficiency/ budget/ and volume variances. B. controllable variance. C. efficiency variance. D. spending variance. E. volume variance. Anser: A !": 4 #ype: $C

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(&. hich of the fo##owing $ariances wou#d +e usefu# to he#p contro# o$erhead spendingariable@"verhead &ixed@"verhead &ixed@"verhead 8pending ariance Budget ariance olume ariance A. >es >es >es B. >es >es 9o C. >es 9o 9o D. >es 9o >es E. 9o >es 9o Anser: B !": 4 #ype: 9 %. #he budget variance arises from a comparison of: A. budgeted fixed overhead expenditures ith budgeted fixed overhead costs. B. actual fixed overhead costs ith budgeted fixed overhead costs. C. actual variable overhead expenditures ith budgeted variable overhead costs. D. variable overhead costs ith budgeted fixed overhead costs. E. static@budget amounts ith flexible@budget amounts. Anser: B !": 4 #ype: $C

0. hich of the fo##owing is used in the computation of the xed o$erhead +udget $arianceActual &ixed Budgeted &ixed &ixed "verhead Applied to "verhead "verhead roduction A. >es >es >es B. >es >es 9o C. >es 9o >es D. >es 9o 9o E. 9o >es >es Anser: B !": 4 #ype: $C (1. #he difference beteen budgeted fixed manufacturing overhead and the fixed overhead applied to production is the: A. sum of the spending and efficiency variances. B. controllable variance. C. efficiency variance. D. spending variance. E. volume variance. Anser: E !": 4 #ype: $C (%. A fixed@overhead volume variance ould normally arise hen: A. actual hours of activity coincide ith actual units of production. B. budgeted fixed overhead is overapplied to production. C. there is a fixed@overhead budget variance. D. actual fixed overhead exceeds budgeted fixed overhead. E. there is a variable@overhead efficiency variance.

5!


Anser: B !": 4 #ype: $C

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((. hich variance is commonly associated ith measuring the cost of under@ or over@utili)ation of plant capacityH A. #he variable@overhead spending variance. B. #he variable@overhead efficiency variance. C. #he fixed@overhead budget variance. D. #he fixed@overhead volume variance. E. #he total fixed@overhead variance. Anser: D !": 4 #ype: $C (+. $oe Corporation reported the folloing variances for the period ust ended: ariable@overhead spending variance: 240/0007 ariable@overhead efficiency variance: 2%5/0007 &ixed@overhead budget variance: 260/0007 &ixed@overhead volume variance: 2(0/0007 ,f $oe desires to analy)e variances that arose primarily from managers' expenditures in excess of anticipated amounts/ the company should focus on variances that total: A. 240/0007. B. 260/0007. C. 21%0/0007. D. 2165/0007. E. some other amount. Anser: C !": 4 #ype: A/ 9 (4. Delson Company/ hich applies overhead to production on the basis of machine hours/ reported the folloing data for the period ust ended: Actual units produced: 10/000 Actual variable overhead incurred: 23%/000 Actual machine hours or=ed: 13/000 8tandard variable overhead cost per machine hour: 2+ ,f Delson estimates 1.6 hours to manufacture a completed unit/ the company's variable@ overhead spending variance is: A. 2%/000 favorable. B. 2%/000 unfavorable. C. 23/000 favorable. D. 23/000 unfavorable. E. some other amount not listed above. Anser: A !": 4 #ype: A

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(3. -artin Company/ hich applies overhead to production on the basis of machine hours/ reported the folloing data for the period ust ended: Actual units produced: /000 Actual variable overhead incurred: 24+/+00 Actual machine hours or=ed: 13/000 8tandard variable overhead cost per machine hour: 2(.40 ,f -artin estimates to hours to manufacture a completed unit/ the company's variable@ overhead efficiency variance is: A. 21/300 favorable. B. 21/300 unfavorable. C. 26/000 favorable. D. 26/000 unfavorable. E. some other amount not listed above. Anser: C !": 4 #ype: A 7se the folloing to anser uestions (6@(5: Abbott has a standard variable overhead rate of 2+.40 per machine hour/ and each unit produced has a standard time alloed of three hours. #he company's static budget as based on +3/000 units. Actual results for the year follo. Actual units produced: +%/000 Actual machine hours or=ed: 1%0/000 Actual variable overhead incurred: 24%0/000 (6. Abbott's variable@overhead spending variance is: A. 2%0/000 favorable. B. 2%0/000 unfavorable. C. 2%6/000 favorable. D. 2%6/000 unfavorable. E. not listed above. Anser: A !": 4 #ype: A (5. Abbott's variable@overhead efficiency variance is: A. 2%0/000 favorable. B. 2%0/000 unfavorable. C. 2%6/000 favorable. D. 2%6/000 unfavorable. E. not listed above. Anser: C !": 4 #ype: A

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(. Arling Company/ hich applies overhead to production on the basis of machine hours/ reported the folloing data for the period ust ended: Actual units produced: 1%/000 Actual fixed overhead incurred: 26(0/000 Actual machine hours or=ed: 30/000 Budgeted fixed overhead: 26%0/000 lanned level of machine@hour activity: 40/000 ,f Arling estimates four hours to manufacture a completed unit/ the company's standard fixed overhead rate per machine hour ould be: A. 21%.00. B. 21+.+0. C. 21+.30. D. 214.00. E. some other amount. Anser: B !": 4 #ype: A +0. ?erman Company/ hich applies overhead to production on the basis of machine hours/ reported the folloing data for the period ust ended: Actual units produced: 1(/000 Actual fixed overhead incurred: 26+%/000 8tandard fixed overhead rate: 214 per hour Budgeted fixed overhead: 26%0/000 lanned level of machine@hour activity: +5/000 ,f ?erman estimates four hours to manufacture a completed unit/ the company's fixed@ overhead budget variance ould be: A. 2%%/000 favorable. B. 2%%/000 unfavorable. C. 230/000 favorable. D. 230/000 unfavorable. E. some other amount. Anser: B !": 4 #ype: A

!0


+1. Enberg Company/ hich applies overhead to production on the basis of machine hours/ reported the folloing data for the period ust ended: Actual units produced: 1+/500 Actual fixed overhead incurred: 261/000 8tandard fixed overhead rate: 21( per hour Budgeted fixed overhead: 2650/000 lanned level of machine@hour activity: 30/000 ,f Enberg estimates four hours to manufacture a completed unit/ the company's fixed@overhead volume variance ould be: A. 210/+00 favorable. B. 210/+00 unfavorable. C. 211/000 favorable. D. 211/000 unfavorable. E. some other amount. Anser: B !": 4 #ype: A 7se the folloing to anser uestions +%@+(: Benson Company/ hich uses a standard cost system/ budgeted 2300/000 of fixed overhead hen +0/000 machine hours ere anticipated. "ther data for the period ere: Actual units produced: 10/000 8tandard production time per unit: (. machine hours &ixed overhead incurred: 23%0/000 Actual machine hours or=ed: +%/000 +%. Benson's fixed@overhead budget variance is: A. 210/000 favorable. B. 214/000 favorable. C. 214/000 unfavorable. D. 2%0/000 favorable. E. 2%0/000 unfavorable. Anser: E !": 4 #ype: A +(. Benson's fixed@overhead volume variance is: A. 210/000 favorable. B. 214/000 favorable. C. 214/000 unfavorable. D. 2%0/000 favorable. E. 2%0/000 unfavorable. Anser: C !": 4 #ype: A

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7se the folloing to anser uestions ++@+3: 8ussex Company uses a standard cost system and prepared the folloing budget for -ay hen %+/000 machine hours of activity ere anticipated: variable overhead/ 2+5/000; fixed overhead: 2%+0/000. Actual data for -ay ere: 8tandard machine hours alloed for output attained: %4/000 Actual machine hours or=ed: %+/000 ariable overhead incurred: 240/000 &ixed overhead incurred: 2%40/000 ++. #he standard variable overhead rate for -ay is: A. 2%.00. B. 2%.05. C. 2(.00. D. 24.00. E. 24.%1. Anser: A !": 4 #ype: A

4'. 2he $aria+#e*o$erhead spending and e3ciency $ariances are% ariable@"verhead ariable@"verhead 8pending ariance Efficiency ariance A. 20 20 B. 20 2%/000 unfavorable C. 2%/000 unfavorable 20 D. 2%/000 favorable 2%/000 unfavorable E. 2%/000 unfavorable 2%/000 favorable Anser: E !": 4 #ype: A

46. 2he xed*o$erhead +udget and $o#ume $ariances are% &ixed@"verhead &ixed@"verhead Budget ariance olume ariance A. 20 210/000 favorable B. 210/000 favorable 20 C. 210/000 favorable 210/000 unfavorable D. 210/000 unfavorable 20 E. 210/000 unfavorable 210/000 favorable Anser: E !": 4 #ype: A

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7se the folloing to anser uestions +6@41: Duncanville/ ,nc./ has the folloing overhead standards: ariable overhead: + hours at 25 per hour &ixed overhead: + hours at 210 per hour #he standards ere based on a planned activity of %0/000 machine hours hen 4/000 units ere scheduled for production. Actual data follo. ariable overhead incurred: 2136/640 &ixed overhead incurred: 2%10/000 -achine hours or=ed: 1/500 Actual units produced: 4/100 +6. Duncanville's fixed@overhead budget variance is: A. 23/000 unfavorable. B. 26/000 unfavorable. C. 210/000 unfavorable. D. 21%/000 unfavorable. E. not listed above. Anser: C !": 4 #ype: A +5. Duncanville's fixed@overhead volume variance is: A. 2+/000 favorable. B. 2+/000 unfavorable. C. 210/000 favorable. D. 210/000 unfavorable. E. not listed above. Anser: A !": 4 #ype: A +. Duncanville's variable@overhead spending variance is: A. 2440 favorable. B. 2+/440 unfavorable. C. 2+/500 favorable. D. 2/(40 unfavorable. E. not listed above. Anser: D !": 4 #ype: A 40. Duncanville's variable@overhead efficiency variance is: A. 2440 favorable. B. 2440 unfavorable. C. 2+/500 favorable. D. 2+/500 unfavorable. E. not listed above.

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Anser: C !": 4 #ype: A

!4


41. #he amount of variable overhead that Duncanville applied to production is: A. 2145/+00. B. 2130/000. C. 213(/%00. D. 2136/640. E. not listed above. Anser: C !": 4 #ype: A 4%. !u=e/ ,nc./ has a standard variable overhead rate of 24 per machine hour/ ith each completed unit expected to ta=e three machine hours to produce. A revie of the company's accounting records found the folloing: Actual production: 1/400 units ariable@overhead efficiency variance: 2/0007 ariable@overhead spending variance: 2%1/000& hat as !u=e's actual variable overhead during the periodH A. 2%3%/400. B. 2%50/400. C. 2(0+/400. D. 2(%%/400. E. 8ome other amount. Anser: B !": 4 #ype: A/ 9 4(. Bushnell/ ,nc./ has a standard variable overhead rate of 2+ per machine hour/ ith each completed unit expected to ta=e three machine hours to produce. A revie of the company's accounting records found the folloing: Actual variable overhead: 2%10/000 ariable@overhead efficiency variance: 215/0007 ariable@overhead spending variance: 2(0/000& ?o many units did Bushnell actually produce during the periodH A. 1(/400. B. 13/400. C. 15/400. D. %1/400. E. 8ome other amount. Anser: C !": 4 #ype: A/ 9

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!5

4+. Atlanta Enterprises incurred 25%5/000 of fixed overhead during the period. During that same period/ the company applied 25+4/000 of fixed overhead to production and reported an unfavorable budget variance of 2+1/000. ?o much as Atlanta's budgeted fixed overheadH A. 2656/000. B. 250+/000. C. 253/000. D. 2553/000. E. 9ot enough information to udge. Anser: A !": 4 #ype: A/ 9 7se the folloing to anser uestions 44@43: 8anBox Company is choosing ne cost drivers for its accounting system. "ne driver is labor hours; the other is a combination of machine hours for unit variable costs and number of setups for a pool of batch@level costs. Data for the past year follo.

!abor hours -achine hours 9umber of setups 7nit variable cost pool Batch@level cost pool

Budget %00/000 (30/000 (/000 21/300/000 200/000

Actual %00/000 +40/000 (/(00 2%/000/000 20/000

''. "ssume that +oth cost poo#s are com+ined into a sing#e poo#, and #a+or hours is the dri$er. 2he tota# exi+#e +udget for the actua# #e$e# of #a+or hours and the tota# $ariance for the com+ined poo# are% &lexible Budget ariance A. 21/300/000 2+00/0007 B. 2%/400/000 2+0/0007 C. 2%/40/000 2+00/0007 D. 2%/00/000 20/0007 E. 2%/0/000 20 Anser: B !": 6 #ype: A

'6. "ssume that the two separate poo#s are used. 2he exi+#e +udget amounts for the actua# #e$e# of machine hours and actua# num+er of setups are% 7nit ariable Batch@!evel Cost ool Cost ool A. 21/300/000 200/000 B. 21/300/000 20/000 C. 2%/000/000 200/000 D. 2%/000/000 20/000 E. 2%/400/000 20 Anser: D !": 6 #ype: A

!!


46. hat is the most common treatment of the fixed@overhead budget variance at the end of the accounting periodH A. $eported as a deferred charge or credit. B. Allocated among or=@in@rocess ,nventory/ &inished@oods ,nventory/ and Cost of oods 8old. C. Charged or credited to Cost of oods 8old. D. Allocated among Cost of oods -anufactured/ &inished@oods ,nventory/ and Cost of oods 8old. E. Charged or credited to ,ncome 8ummary. Anser: C !": 5 #ype: $C 45. ,n an effort to reduce record@=eeping procedure/ companies that sell perishable goods ill often enter the standard cost of direct material/ direct labor/ and manufacturing overhead directly into hat accountH A. or=@in@rocess ,nventory. B. &inished@oods ,nventory. C. Cost of oods 8old. D. Cost of oods -anufactured. E. 8ales $evenue. Anser: C !": 5 #ype: $C 4. hen actual variable cost per unit euals standard variable cost per unit/ the difference beteen actual and budgeted contribution margin is explained by a combination of hich to variancesH A. #he sales@volume variance and the fixed@overhead volume variance. B. #he sales@volume variance and the fixed@overhead budget variance. C. #he sales@price variance and the fixed@overhead volume variance. D. #he sales@price variance and sales@volume variance. E. #he sales@price variance and fixed@overhead budget variance. Anser: D !":  #ype: $C 30. #he sales@volume variance euals: A. Factual sales volume @ budgeted sales volumeG x actual sales price. B. Factual sales volume @ budgeted sales volumeG x actual contribution margin. C. Factual sales volume @ budgeted sales volumeG x budgeted sales price. D. Factual sales price @ budgeted sales priceG x budgeted sales volume. E. Factual sales price @ budgeted sales priceG x fixed@overhead volume variance. Anser: C !":  #ype: $C

Chapter 11

!7

7se the folloing to anser uestions 31@3%: -aster roducts has the folloing information for the year ust ended:

8ales in units 8ales !ess: ariable expenses Contribution margin !ess: &ixed expenses "perating income

Budget 14/000 2140/000 0/000 2 30/000 (4/000 2 %4/000

Actual 1+/000 21+6/000 5%/300 2 3+/+00 +0/000 2 %+/+00

31. #he company's sales@volume variance is: A. 2(/000 unfavorable. B. 2+/000 unfavorable. C. 2+/+00 favorable. D. 210/000 unfavorable. E. 210/000 favorable. Anser: D !":  #ype: A 3%. #he company's sales@price variance is: A. 2(/000 unfavorable. B. 26/000 unfavorable. C. 26/000 favorable. D. 26/400 unfavorable. E. 26/400 favorable. Anser: C !":  #ype: A

!8


EXERCISES Static Budget vs. Flexile Budget

3(. Bavaria's budget for variable overhead and fixed overhead revealed the folloing information for an anticipated +0/000 hours of activity: variable overhead/ 2(+5/000; fixed overhead/ 2300/000. #he company actually or=ed +(/000 hours/ and actual overhead incurred as: variable/ 2(34/400; fixed/ 2305/000. $euired: A. Compute the company's total cost variance for variable overhead and fixed overhead if the firm uses a static budget to help assess performance. B. $epeat part *A* assuming the use of a flexible budget. C. hich of the to budgets Fstatic or flexibleG is preferred for performance evaluationsH hyH !": 1/ % #ype: A/ 9

"nswer% A. Actual F2(34/400  2305/000G !ess: 8tatic budget F2(+5/000  2300/000G ariance/ unfavorable B.

Budgeted variable overhead: 2(+5/000 J +0/000 hours  25.60 per hour &lexible budget KF+(/000 hours x 25.60G  2300/000L !ess: Actual F2(34/400  2305/000G ariance/ favorable

C.

Chapter 11

26(/400 +5/000 2 %4/400

26+/100 6(/400 2 300

&lexible budgets are preferred in performance evaluations. #he use of flexible budgets eliminates volume differences beteen actual and budgeted activity/ alloing the analyst to concentrate on differences beteen actual and budgeted costs *on the same/ level playing field.* #he result is a clearer picture to study.

!9

Flexile Budgets

3+. #he ?ouston Chamber "rchestra presents a series of concerts throughout the year. Budgeted fixed costs total 2(00/000 for the concert season; variable costs are expected to average 24 per patron. #he orchestra uses flexible budgeting. $euired: A. repare a flexible budget that shos the expected costs of 5/000/ 5/400/ and /000 patrons. B. Construct the orchestra's flexible budget formula. C. Assume that 5/600 patrons attended concerts during the year ust ended/ and actual costs ere: variable/ 2+%/000; fixed/ 2(06/400. Evaluate the orchestra's financial performance by computing variances for variable costs and fixed costs. !": 1/ % #ype: A

"nswer% A. atrons ariable cost at 24 &ixed cost #otal B.

5/000 2 +0/000 (00/000 2(+0/000

5/400 2 +%/400 (00/000 2(+%/400

/000 2 +4/000 (00/000 2(+4/000

#otal budgeted cost  Fnumber of patrons x 24G  2(00/000

C. ariable cost &ixed cost #otal

BudgetM 2 +(/400 (00/000 2(+(/400

Actual 2 +%/000 (06/400 2(+/400

ariance 21/400& 6/4007 23/0007

Mariable budget: 5/600 patrons x 24 #he variances reveal that the orchestra exceeded its budget for 5/600 patrons by 23/000. #he overall performance as not that bad/ hoever/ as the variances Findividually and in totalG are small in both dollar@ and percentage@terms.

70


Budgets! Pe"#$"%a&ce Evaluati$&

34. Calgary ,nsurance uses budgets to forecast and monitor overhead throughout the organi)ation. #he folloing budget formula relates to the processing of applications for automobile policies in any given month: #otal overhead  23.30A?  21%/000 here A?  application processing hours #he typical automobile insurance policy has an estimated processing time of 1.4 hours. During Nune/ management originally anticipated that %50 applications ould be processed. Activity as loer than expected/ ith only %+0 applications completed by month@end/ and the folloing costs ere incurred: variable overhead/ 2%/650; fixed overhead/ 211/00. $euired: A. hat volume level ould have been used if Calgary had constructed a static budgetH B. Construct a flexible budget that shos the expected monthly variable and fixed overhead costs of processing %00/ %40/ and (00 applications. C. &rom a cost perspective/ did the company perform better or orse than anticipated in NuneH 8ho calculations to support your anser. !": 1/ % #ype: A/ 9

"nswer% A. #he static budget ould have been based on the original forecast of %50 applications and +%0 processing hours F%50 x 1.4G.

B.

rocessing hoursM ariable cost at 23.30 &ixed cost #otal

(00 2 1/50 1%/000 21(/50

(64 2 %/+64 1%/000 21+/+64

+40 2 %/60 1%/000 21+/60

M9umber of applications F%00/ %40/ (00G x 1.4 hours C.

#he company did orse than expected. Despite processing +0 feer applications F%50 @ %+0G than anticipated/ costs exceeded budgeted amounts by 2(0+: Actual F2%/650  211/00G &lexible budget KF%+0 x 1.4 x 23.30G  21%/000L ariance/ unfavorable

Chapter 11

21+/350 1+/(63 2 (0+

71

Budgets! Pe"#$"%a&ce Evaluati$&

33. #he -ar=eting Club at 9orthern 7niversity recently held an end@of@year dinner and sim party/ hich the treasurer noted as a financial success. *Attendance as an all@time high/ 30 members/ and the results ere much better than expected.* #he treasurer presented the folloing performance report at the executive board's Nune meeting:

$evenue &ood Beverages Disc oc=ey &acility rental #otal costs rofit

Budget 21/464 2 364 (14 140 %00 21/(+0 2 %(4

Actual 2%/%04 2 560 +50 164 %00 21/6%4 2 +50

ariance 23(0& 2147 1347 %47 @@@@ 2(547 2%+4&

#he budget as based on the assumptions that follo. &orty@five members ould attend at a fixed tic=et price of 2(4. &ood and beverage costs ere anticipated to be 214 and 26 per attendee/ respectively. A disc oc=ey as hired via a ritten contract at 240 per hour.   

$euired: A. Briefly evaluate the meaningfulness of the treasurer's performance report. B. repare a performance report by using flexible budgeting and determine hether the end@ of@year party as as successful as originally reported. C. Based on your anser in reuirement *B/* present a possible explanation for the variances in revenue/ food costs/ beverage costs/ and the disc oc=ey. !": 1/ % #ype: A/ 9 Anser: A. #he performance report is not very meaningful/ as it as prepared based on the original estimate that +4 tic=ets ould be sold. ith 30 members in attendance/ the resulting report compares anticipated revenues/ costs/ and profit at one level of activity against actual amounts at a totally different volume. ,n effect/ it's a comparison of apples vs. oranges.

72


B. #he end@of@year party as successful as the treasurer claimed/ as it netted the -ar=eting Club 2+50. ?oever/ hen actual results are compared against hat should have happened for the increased number of attendees F30G/ the overall profitability as only 240 greater than expected.

$evenueM &oodM BeveragesM Disc oc=ey &acility rental #otal costs rofit

Budget 2%/100 2 00 +%0 140 %00 21/360 2 +(0

Actual 2%/%04 2 560 +50 164 %00 21/6%4 2 +50

ariance 2104& 2 (0& 307 %47 @@@@ 2 447 2 40&

M$evenue/ food/ and beverage figures F2(4/ 214/ and 26/ respectivelyG are all based on 30 attendees. C. $evenue F2104&GO#hree members ho purchased tic=ets didn't attend F2104 J 2(4  (G; the Club received a donation from the 7niversity or the faculty advisor to help offset operating costs. &ood F2(0&GO#he actual food cost per person as less than expected; attendees ate less than expected. Beverages F2307GO#he actual beverage cost as more than expected; attendees dran= more than expected. Disc oc=ey F2%47GO#he disc oc=ey played music for (.4 hours F(.4 x 240  2164G rather than the ( hours that ere originally budgeted.

Chapter 11

7

Flexile Budgets a&d Pe"#$"%a&ce Evaluati$&

36. ?empstead Corporation plans to manufacture 5/000 units over the next month at the folloing costs: direct materials/ 2+50/000; direct labor/ 230/000; variable manufacturing overhead/ 2140/000; and fixed manufacturing overhead/ 2(00/000. #he last amount/ hich includes 2%+/000 of straight@line depreciation/ resulted in a total budget of 20/000. 8hortly after the conclusion of the month/ ?empstead reported the folloing costs: Direct materials used Direct labor ariable manufacturing overhead Depreciation "ther fixed manufacturing overhead #otal

2+0/400 3/300 1(%/000 %+/000 %6%/000 255/100

?oard Prueger and his cres turned out 6/%00 unitsOa remar=able feat given that the firm's manufacturing plant as closed for several days because of bli))ards and impassable roads. Prueger as especially pleased ith the fact that total actual costs ere less than budget. ?e as thus very surprised hen ?empstead's general manager expressed unhappiness about the plant's financial performance. $euired: A. repare a performance report that fairly compares budgeted and actual costs for the period ust endedOnamely/ the report that the general manager li=ely used hen assessing performance. B. 8hould Prueger be praised for *having met the budget* or is the general manager's unhappiness ustifiedH Explain/ citing any apparent problems for the firm. !": 1/ % #ype: A/ 9

74


"nswer%

A. Direct materials used F230.00G Direct labor F26.40G ariable manufacturing overhead F215.64G Depreciation "ther fixed manufacturing overhead #otal

Budget: 6/%00 7nits 2+(%/000 4+/000 1(4/000 %+/000 %63/000 2%1/000

Actual: 6/%00 7nits 2+0/400 3/300 1(%/000 %+/000 %6%/000 255/100

ariance 245/4007 14/3007 (/000& @@@@ +/000& 236/1007

Budget calculations: Direct materials used: 2+50/000 J 5/000 units  230.00 per unit Direct labor: 230/000 J 5/000 units  26.40 per unit ariable manufacturing overhead: 2140/000 J 5/000 units  215.64 per unit "ther fixed manufacturing overhead: 2(00/000 @ 2%+/000  2%63/000 per month B.

#he general manager's unhappiness is appropriate because of the variances that have arisen. By comparing the original budget of 20/000 vs. actual costs of 255/100/ Prueger appears to have met the budget. Bear in mind/ though/ that volume as belo the original monthly expectation of 5/000 unitsOpresumably because of the plant closure. A reduced volume ill li=ely lead to loer variable costs than anticipated Fand resulting favorable variancesG. hen the volume differential is removed/ variable cost variances turn unfavorable for direct materials and direct labor. #hese to amounts are/ respectively/ 1(.4Q and %5.Q greater than budget.

Chapter 11

75

U&de"sta&di&g a Flexile Budget' C$st Be(avi$"

35. -idestern 7niversity operates a motor pool for the convenience of its faculty and staff. #he folloing budget as prepared for an upcoming period: asoline and oil -inor repairs ,nsurance "ffice help Depreciation #otal

2 +0/000 3/000 %0/000 %+/000 (0/000 21%0/000

#he budget as based on the assumptions of %0 vehicles/ ith each vehicle being driven 5/000 miles. -idestern acuired to additional vehicles early in the period under study. Actual miles driven during the period totaled 150/000. Discussions ith the motor pool manager revealed that pool costs are variable and fixed in nature. #he manager believed that miles driven as the most appropriate cost driver for studying gasoline and oil expense. ,n contrast/ the number of vehicles in the pool as the best base to use hen studying other selected costs. $euired: A. Contrast a static budget ith a flexible budget. B. 8uppose that the university's budget officer desired to prepare a report that compared budgeted and actual costs. 8hould the report be based on a static budget or a flexible budgetH hyH C. "n the basis of the information presented/ determine the amounts for the five preceding costs that ould be used in a flexible budget. !": 1/ % #ype: A/ 9 Anser: A. A static budget is based on a single expected activity level. ,n contrast/ a flexible budget reflects data for several activity levels. B. A performance report that incorporates flexible budgets is preferred. #he report compares budgeted and actual performance at the same volume level/ eliminating any variations in activity. ,n essence/ everything is placed on a *level playing field.* C. asoline and oil: 2+0/000 J F5/000 x %0G  20.%4 per mile; 150/000 miles x 20.%4  2+4/000 -inor repairs: 23/000 J %0  2(00 per vehicle; %% vehicles x 2(00  23/300 ,nsurance: 2%0/000 J %0  21/000 per vehicle; %% vehicles x 21/000  2%%/000 "ffice help: 2%+/000 FfixedG Depreciation: 2(0/000 J %0  21/400 per vehicle; %% vehicles x 21/400  2((/000

7!


Flexile Budgets a&d )a"iale Ove"(ead )a"ia&ces

3. ?ot 8tuff operates a delivery service for local restaurants/ delivering call@in/ to@go meals for restaurant customers. ariable overhead costs are budgeted at 2( per hour/ and the typical roundtrip ta=es a driver +4 minutes to complete. Actual results for -arch follo. 9umber of roundtrips run: 1/430 ?ours of delivery time: 1/%40 ariable overhead cost incurred: 2(/+40 ?ot 8tuff uses flexible budgets and variance analysis to monitor performance. $euired: A. repare a flexible@budget performance report that shos F1G actual variable overhead/ F%G the amount of variable overhead that should have been incurred for the number of roundtrips ta=en/ and F(G the variance beteen these amounts. B. Compute the company's variable@overhead spending and efficiency variances. C. Compare the variances that you computed in reuirements *A* and *B/* and comment on your findings. !": 1/ 4/ 3 #ype: A/ 9

"nswer% A. Budgeted variable overhead F1/430 x +4R30 x 2(G !ess: Actual variable overhead ariance/ favorable B.

2(/410 (/+40 2 30

8pending variance: 2(/+40 @ F1/%40 x 2(G  2(00& Efficiency variance: F1/%40 x 2(G @ F1/430 x +4R30 x 2(G  2%+07 #he spending and efficiency variances comprise the *total* variance as shon in the flexible@budget performance report F2(00&  2%+07  230&G. #hat is/ variable overhead as 230 loer than anticipated because of variations in both spending habits and driver efficiency.

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77

St"aig(t#$"*a"d )a"ia&ce +&al,sis

60. ?unt/ ,nc./ uses a standard cost system hen accounting for its sole product. lanned production is 30/000 process hours per month/ hich gives rise to the folloing per@unit standards: ariable overhead: 1( hours at 214 per hour &ixed overhead: 1( hours at 26 per hour During 8eptember/ 4/100 units ere produced and the company incurred the folloing overhead costs: variable/ 2+%/400; fixed/ 2+%/000. Actual process hours totaled 34/000. $euired: A. Calculate the spending and efficiency variances for variable overhead. B. Calculate the budget and volume variances for fixed overhead. !": 4 #ype: A Anser: A. 8pending variance: 2+%/400 @ F34/000 x 214G  2(%/400& Efficiency variance: F34/000 x 214G @ F4/100 x 1( x 214G  21/400&

B. Budget variance: 2+%/000 @ F30/000 x 26G  2/0007 olume variance: F30/000 x 26G @ F4/100 x 1( x 26G  2++/100&M M8ome accountants choose to label a negative volume variance as *favorable/* hile others prefer to omit the unfavorableRfavorable label altogether. St"aig(t#$"*a"d )a"ia&ce +&al,sis

61. Nefferson Corporation uses a standard cost system/ applying manufacturing overhead on the basis of machine hours. #he company's overhead standards per unit are shon belo. ariable overhead: + hours at 2 per hour &ixed overhead: + hours at 23M per hour MBased on planned monthly activity of 1%0/000 machine hours Actual data for -ay ere: 9umber of units produced: %/000 9umber of machine hours or=ed: 1%4/000 ariable overhead costs incurred: 21/054/000 &ixed overhead costs incurred: 2644/000 $euired: A. Calculate the spending and efficiency variances for variable overhead. B. Calculate the budget and volume variances for fixed overhead.

78


!": 4 #ype: A Anser: A. 8pending variance: 21/054/000 @ F1%4/000 x 2G  2+0/000& Efficiency variance: F1%4/000 x 2G @ F%/000 x + x 2G  251/0007 B. Budget variance: 2644/000 @ F1%0/000 x 23G  2(4/0007 olume variance: F1%0/000 x 23G @ F%/000 x + x 23G  2%+/0007M M8ome accountants choose to label a positive volume variance as *unfavorable/* hile others prefer to omit the unfavorableRfavorable label altogether. Basic )a"ia&ce +&al,sis

6%. #he folloing information relates to Noplin Company for the period ust ended: 8tandard variable overhead rate per hour 8tandard fixed overhead rate per hour lanned monthly activity Actual production completed 8tandard machine processing time Actual variable overhead Actual total overhead Actual machine hours or=ed

21 2% +0/000 machine hours 5%/000 units #o units per hour 2(6/000 21%1/000 +0/400

All of the company's overhead is variable or fixed in nature. $euired: A. Calculate the spending and efficiency variances for variable overhead. B. Calculate the budget and volume variances for fixed overhead. !": 4 #ype: A Anser: A. 8pending variance: 2(6/000 @ F+0/400 x 21G  2(/400& Efficiency variance: F+0/400 x 21G @ F5%/000 x 0.4M x 21G  2400& M#o units per hour  0.4 hours per unit B. Budget variance: F21%1/000 @ 2(6/000G @ F+0/000 x 2%G  2+/0007 olume variance: F+0/000 x 2%G @ F5%/000 x 0.4M x 2%G  2%/000&MM M #o units per hour  0.4 hours per unit MM8ome accountants choose to label a negative volume variance as *favorable/* hile others prefer to omit the unfavorableRfavorable label altogether.

Chapter 11

79

)a"ia&ce I&te""elati$&s(i-s /$"0i&g Bac0*a"d

6(. #he folloing selected information as extracted from the accounting records of Austin/ ,nc.: lanned manufacturing activity: +0/000 machine hours 8tandard variable@overhead rate per machine hour: 213 Budgeted fixed overhead: 2100/000 ariable@overhead spending variance: 2%/0007 ariable@overhead efficiency variance: 210%/000& &ixed@overhead budget variance: 2%4/0007 #otal actual overhead: 2364/000 $euired: Determine the folloing: actual fixed overhead/ actual variable overhead/ actual machine hours or=ed/ standard machine hours alloed for actual production/ and the fixed@overhead volume variance. !": 4 #ype: A/ 9 Anser: Actual fixed overhead: 21%4/000 Actual variable overhead: 2440/000 Actual machine hours or=ed: %5/3%4 8tandard machine hours alloed: (4/000 &ixed@overhead volume variance: 21%/4007M M8ome accountants choose to label a positive volume variance as *unfavorable/* hile others prefer to omit the unfavorableRfavorable label altogether. ariable overhead analysis: %5/3%4 x 213 2+45/000

2440/000 2%/0007

(4/000 x 213 2430/000 210%/000&

&ixed overhead analysis:

21%4/000

(4/000 x 2%.40M 256/400

2100/000 2%4/0007

21%/4007

M2100/000 J +0/000 hours

80


Fixed Ove"(ead )a"ia&ces C$%-utati$& a&d +&al,sis

6+. Alexander Corporation applies fixed manufacturing overhead to production on the basis of machine hours or=ed. #he folloing data relate to the month ust ended: Actual fixed overhead incurred: 21/%+4/000 Budgeted fixed overhead: 21/%00/000 Anticipated machine hours: %+0/000 8tandard machine hours per finished unit: 5 Actual finished units completed: (1/%40 $euired: A. Compute AlexanderIs standard fixed overhead rate per machine hour. B. Determine AlexanderIs fixed overhead budget variance and fixed overhead volume variance. C. Calculate the amount of fixed overhead applied to production. D. Consider the to events that follo and determine hether the event ill affect the fixed overhead budget variance/ the fixed overhead volume variance/ both variances/ or neither variance. Assume that Alexander has not yet revised its standards to reflect these events if a revision is arranted. 1. A ra material shortage halted production for to days. %. An additional assembly line supervisor as hired at the beginning of the month. !": 4 #ype: A/ 9 Anser: A. Budgeted fixed overhead F21/%00/000G J anticipated machine hours F%+0/000G  24 B. Budget variance: 21/%+4/000 @ 21/%00/000  2+4/0007 olume variance: 21/%00/000 @ F(1/%40 x 5 x 24G  240/000&M M8ome accountants choose to label a negative variance as Sfavorable/T hile others prefer to omit the unfavorableRfavorable label altogether. C. (1/%40 x 25 x 24  21/%40/000 D. 1. #he volume variance ould be affected because of reduced output. %. #he budget variance ould be affected because actual fixed overhead ill increase.

Chapter 11

81

Ove"(ead a&d )a"ia&ces F$cus $& I&te"-"etati$&

64. ?an=s Company uses a standard cost system and applies manufacturing overhead to products on the basis of machine hours. #he folloing information is available for the year ust ended: 8tandard variable overhead rate per machine hour: 2%.40 8tandard fixed overhead rate per machine hour: 24.00 lanned activity during the period: (0/000 machine hours Actual production: 10/600 finished units roduction standard: #hree machine hours per unit Actual variable overhead: 253/%00 Actual total overhead: 2%%4/400 Actual machine hours or=ed: (4/100 $euired: A. Calculate the budgeted fixed overhead for the year. B. Did ?an=s spend more or less than anticipated for fixed overheadH ?o muchH C. as variable overhead under@ or overapplied during the yearH By ho muchH D. as ?an=s efficient in its use of machine hoursH Briefly explain. E. ould the company's efficiency or inefficiency in the use of machine hours have any effect on ?an=s' overhead variancesH ,f *yes/* hich oneFsGH !": 4 #ype: A/ 9

"nswer% A. !et U  budgeted fixed overhead U J (0/000 machine hours  24.00 per hour U  2140/000

82

B.

?an=s spent less than anticipated. Actual fixed overhead amounted to 21(/(00 F2%%4/400 @ 253/%00G hen the budget as set at 2140/000 Fpart *A*G. #he fixed@ overhead budget variance is 210/600 favorable F2140/000 @ 21(/(00G.

C.

ariable overhead is underapplied by 24/40: Actual variable overhead Applied overhead: 8tandard hours alloed x standard rate F10/600 x ( x 2%.40G 7nderapplied variable overhead

253/%00 50/%40 2 4/40

D.

9o. #he company used (4/100 machine hours hen it should have used (%/100 hours F10/600 x (G.

E.

>es. #he actual and standard machine hours are used in the calculation of the variable@overhead efficiency variance.


1ISCUSSION QUESTIONS Ove"(ead +--licati$& N$"%al C$sti&g vs. Sta&da"d C$sti&g

63. Briefly describe the procedures that are used to apply manufacturing overhead to production for companies that use F1G normal costing systems and F%G those that use standard costing systems. !": ( #ype: $C Anser: ,n a normal costing system/ overhead is applied to the or=@in@rocess ,nventory account as follos Fassuming hours as an application baseG: actual hours x predetermined overhead rate. #he actual hours represent the actual time consumed in processing the actual number of units produced Feither completed or those in productionG. A similar procedure is folloed in a standard costing system except that the predetermined rate is multiplied by the standard hours alloed Fi.e./ the actual production x the standard time per unitG. U&de"sta&di&g t(e )a"iale2Ove"(ead E##icie&c, )a"ia&ce

66. A production manager as recently given a performance report that shoed a si)able unfavorable variable@overhead efficiency variance. #he manager as pu))led as to ho the department could be inefficient in the useRincurrence of this cost. $euired: Briefly explain the nature of this variance to the manager. Does the variance really have much to do ith variable overhead efficiencies or inefficienciesH Discuss. !": 4 #ype: $C Anser: #he variable@overhead efficiency variance can be somehat misleading. ,t is computed as follos: Factual uantity x standard priceG @ Fstandard uantity x standard priceG. #he uantities consist of the actual and standard amounts of the application base that is used to apply overhead to production Fsuch as labor hours or machine hoursG. #he variance really has nothing to do ith the manager's efficiency or inefficiency in variable overhead consumption; rather/ it deals ith the efficiency or inefficiency of the application base.

Chapter 11

8

Chapter11.Flexible Budgeting and the Management of Overhead and Support Activity Costs

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