Flexible Budgets and Overhead Analysis - · Web viewA company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis

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.


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.


6. The overhead spending variance is not affected by excessive usage or waste of overhead materials.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy

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.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 11-5


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.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5; 6 Level: Medium

9. The higher the denominator activity level used to compute the predetermined overhead rate, the higher the predetermined overhead rate.

Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy

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.

Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Hard

11. When fixed manufacturing overhead cost is applied to work in process, it is treated as if it were a variable cost.

Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium

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.

Ans: True AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium

13. There can be a volume variance for either variable manufacturing overhead or fixed manufacturing overhead.


11-6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


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.

Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium

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.

Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Hard

Multiple Choice Questions

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.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CPA; adapted

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.

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CPA; adapted



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.

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

19. A budget that is based on the actual activity of a period is known as a:A) continuous budget.B) flexible budget.C) static budget.D) master budget.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

20. The fixed manufacturing overhead budget variance equals:A) Actual fixed manufacturing overhead cost--Applied fixed manufacturing

overhead cost.B) Actual fixed manufacturing overhead cost--Budgeted fixed manufacturing

overhead cost.C) Budgeted fixed manufacturing overhead cost--Applied fixed manufacturing

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.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Easy



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?

Indirect Materials Factory RentA) $7,800 $14,400B) $7,800 $18,000C) $6,240 $14,400D) $6,240 $18,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

Solution:

Budgeted number of machine hours: 15,000

Cost Formula (per machine-hour)

Activity (in machine-hours):

12,000Variable costs:

Indirect materials.......... $0.52* $6,240Fixed costs:

Factory rent................... $18,000

*$7,800 ÷ 15,000 MHs = $0.52 per MH



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:

Activity level.................................. 90 guests

Variable overhead costs:Supplies....................................... $ 234Laundry....................................... 315

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

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy



Solution:

Budgeted number of guests: 90

Cost Formula (per guest)

Activity (in guests):

99Overhead CostsVariable overhead costs:

Supplies ($234 ÷ 90 guests).................... $2.60 $ 257.40Laundry ($315 ÷ 90 guests).................... 3.50 346.50

Total variable overhead cost...................... $6.10 603.90 Fixed overhead costs:

Utilities.................................................... 220.00Salaries and wages.................................. 4,290.00Depreciation............................................ 2,680.00

Total fixed overhead cost........................... 7,190.00 Total budgeted overhead cost.................... $7,793.90



29. Kerekes Manufacturing Corporation has prepared the following overhead budget for next month.

Activity level.................................. 2,500 machine-hours

Variable overhead costs:Supplies....................................... $12,250Indirect labor............................... 22,000

Fixed overhead costs:Supervision................................. 15,500Utilities........................................ 5,500Depreciation................................ 6,500

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

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy



Solution:

Budgeted variable overhead costs

Machine-hours

Per machine-

hourSupplies.......................................... $12,250 2,500 $4.90Indirect labor.................................. $22,000 2,500 $8.80

Budgeted number of machine-hours: 2,500

Cost Formula (per MH)

Activity (in MHs):

2,400Overhead CostsVariable overhead costs:

Supplies................................................... $ 4.90 $11,760Indirect labor........................................... 8.80 21,120

Total variable overhead cost...................... $13.70 13,880 Fixed overhead costs:

Supervision............................................. 15,500Utilities.................................................... 5,500Depreciation............................................ 6,500

Total fixed overhead cost........................... 27,500 Total overhead cost.................................... $60,380



30. Sharifi Hospital bases its budgets on patient-visits. The hospital's static budget for October appears below:

Budgeted number of patient-visits............. 8,500Budgeted variable overhead costs:

Supplies (@$4.70 per patient-visit)........ $ 39,950Laundry (@$7.80 per patient-visit)........ 66,300

Total variable overhead cost...................... 106,250 Budgeted fixed overhead costs:

Wages and salaries.................................. 50,150Occupancy costs..................................... 84,150

Total fixed overhead cost........................... 134,300 Total budgeted overhead cost.................... $240,550

The total overhead cost at an activity level of 9,200 patient-visits per month should be:A) $260,360B) $250,070C) $249,300D) $240,550


Solution:

Budgeted number of patient-visits: 8,500

Cost Formula (per patient-

visit)

Activity (in patient

visits): 9,200

Overhead CostsVariable overhead costs:

Supplies................................................... $ 4.70 $ 43,240Laundry................................................... 7.80 71,760






31. Ostler Hotel bases its budgets on guest-days. The hotel's static budget for April appears below:

Budgeted number of guest-days................. 8,700Budgeted variable overhead costs:

Supplies (@$7.00 per guest-day)............ $ 60,900Laundry (@$3.80 per guest-day)............ 33,060




The total overhead cost at an activity level of 9,700 guest-days per month should be:A) $213,150B) $237,650C) $223,950D) $224,920


Solution:

Budgeted number of guest-days: 8,700

Cost Formula (per guest-

day)

Activity (in guest-

days): 9,700








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


Solution:

Variable overhead spending variance = AH × (AR − SR) = 90 F8,700 × (AR − 0.45) = -90(8,700 × AR) − 3,915 = -90(8,700 × AR) = 3,825AR = 3,825 ÷ 8,700 = $0.4396Actual indirect labor costs = 8,700 × $0.4396 = $3,825



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


Solution:

Budgeted number of patient-visits: 1,560Actual number of patient-visits: 1,530

Cost Formula

(per patient-visit)

Actual Costs

Incurred for 1,530 patient-visits

Budget Based on

1,530 patient-visits Variance

Variable overhead costs....... $1.10 $1,400 $1,683 $ 283 FFixed overhead costs........... $21,720 $19,900 1,820 U

$1,537 U



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


Solution:

Budgeted number of square feet: 1,720Actual number of square feet: 1,630

Cost Formula

(per square foot)

Actual Costs

Incurred for 1,720

square feet

Budget Based on

1,720 square feet Variance

Variable overhead costs (Supply costs).............................$3.40 $6,750 $5,848 $902 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


Solution:

Budgeted number of skeins: 15,900Actual number of skeins: 16,100

Cost Formula

(per skein)

Actual Costs

Incurred for

16,100 skeins

Budget Based on 16,100 skeins Variance

Variable overhead costs (Dye costs).................................. $0.87 $14,800 $14,007 $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

Actual costs − Budgeted costs = Supplies varianceX − $42,749 = $4,531X = $47,280

Per unit cost = Total actual costs ÷ Number of units producedPer unit cost = $47,280 ÷ 19,700 = $2.40



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


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


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

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy

Solution:

Actual rate = Actual variable manufacturing overhead ÷ Actual machine-hours= $22,080 ÷ 4,600 = $4.80Variable overhead spending variance = AH × (AR − SR) = 4,600 × ($4.80 − $4.60)= 4,600 × $0.20 = $920 U

Fixed overhead budget variance= Actual fixed overhead costs − Budgeted fixed overhead cost= $63,000 − $65,000 = $2,000 F

Total overhead variance = $920 U + $2,000 F = $1,080 F



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


Solution:

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


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:

Original Budget Based

on 3,600 Machine-Hours

Actual Costs

Variable overhead costs:Supplies....................................... $11,160 $11,830Indirect labor............................... 26,280 27,970

Fixed overhead costs:Supervision................................. 19,700 19,340Utilities........................................ 5,900 5,770Factory depreciation................... 6,900 7,210

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



Solution:

Variable overhead costs

Machine-hours

Per machine-hour

Supplies.................................... $11,160 3,600 $3.10Indirect labor............................ $26,280 3,600 $7.30

Budgeted machine-hours: 3,600Actual machine-hours: 3,900Standard machine-hours allowed: 3,890

Cost Formula

(per MH)

(1)Budget

Based on 3,900 MHs

(AH × SR)

(2)Budget

Based on 3,890 MHs (SH × SR)

(1) − (2)Efficiency Variance


Supplies..................... $ 3.10 $12,090 * $12,059 $ 31 UIndirect labor............. 7.30 28,470 ** $28,397 73 U

$10.40 $40,560 $104 U

*3,900 machine-hours × $3.10 per machine-hour = $12,090**3,900 machine-hours × $7.30 per machine-hour = $28,470



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:

Supplies....................................... $ 7,980 $ 8,230Indirect labor............................... 29,820 29,610

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




Solution:Variable

overhead costsMachine-

hoursPer machine-

hourSupplies.................. $7,980 4,200 $1.90Indirect labor.......... $29,820 4,200 $7.10



(1)Budget Based

on 4,350 MHs

(AH × SR)

(2)Budget



Variable overhead costs:Supplies..................... $1.90 $8,265 * $7,961 $ 304 UIndirect labor............. $7.10 $30,885 ** $29,749 1,136 U

$1,440 U

*4,350 machine-hours × $1.90 per machine-hour = $8,265**4,350 machine-hours × $7.10 per machine-hour = $30,885



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


Solution:



(1)Budget

Based on 2,270 MHs (AH × SR)

(2)Budget



Variable overhead costs $2.40 $5,448 $5,472 $24 F



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


Solution:

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


Solution:

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



49. The following data have been provided by Moretta Corporation, a company that produces forklift trucks:

Budgeted production.................................. 3,400 trucksStandard machine-hours per truck............. 2.9 machine-hoursBudgeted supplies cost............................... $1.50 per machine-hourActual production....................................... 3,800 trucksActual machine-hours................................ 10,930 machine-hoursActual supplies cost (total)......................... $17,496

The variable overhead efficiency variance for supplies cost is:A) $135 UB) $135 FC) $966 UD) $966 F


Solution:

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


Solution:

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


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


Solution:Variable element = Total variable overhead cost ÷ Actual machine-hours= $24,640 ÷ 2,800 machine-hours = $8.80 per machine-hour



55. Recht Corporation's summary flexible budget for two levels of activity appears below:


hour)Activity



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


Solution:

Fixed element = Total fixed overhead ÷ Actual machine-hours= $17,940 ÷ 1,200 machine-hours = $14.95 per machine-hour



56. Billa Corporation's abbreviated flexible budget for two levels of activity appears below:


hour)Activity



If the denominator level of activity is 4,700 machine-hours, the predetermined overhead rate would be:A) $11.70B) $72.68C) $84.38D) $1,170.00


Solution:

Predetermined overhead rate = Total overhead cost ÷ Actual machine-hours= $396,586 ÷ 4,700 machine-hours = $84.38 per machine-hour



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

Solution:

Fixed overhead budget variance= Actual fixed overhead cost − Budgeted fixed overhead cost = Actual fixed overhead cost − $600,000 = $8,000 UActual fixed overhead = $8,000 + $600,000 = $608,000



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:


Supplies....................................... $ 9,760 $10,200Indirect labor............................... 42,090 43,720



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


Solution:

Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost= ($14,350 + $4,740 + $7,510) − ($14,500 + $5,200 + $7,400)= $26,600 − $27,100 = $500 F



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:

Original Budget Actual CostsFixed overhead costs:

Supervision..................... $14,100 $13,650Utilities............................ 5,300 5,060Factory depreciation....... 7,200 7,470

Total overhead cost............ $26,600 $26,180

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


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


Solution:

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:


Supplies....................................... $11,220 $10,670Indirect labor............................... 8,670 8,030



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




Solution:

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:

Original Budget Actual CostsFixed overhead costs:

Supervision................................. $ 9,880 $ 9,970Utilities........................................ 4,160 4,440Factory depreciation................... 21,320 21,190

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


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


Solution:

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


Solution:

Volume variance = $1.20 per MH × (6,600 MHs − 6,480 MHs) = $1.20 per MH × 120 MHs = $144 U



Use the following to answer questions 65-67:

Capelli Hospital bases its budgets on patient-visits. The hospital's static budget for August appears below:


Supplies (@$5.00 per patient-visit)........ $ 41,500Laundry (@$7.30 per patient-visit)........ 60,590




65. The total variable overhead cost at an activity level of 9,300 patient-visits per month should be:A) $114,390B) $149,730C) $102,090D) $133,630


Solution:

Budgeted number of patient-visits: 8,300


visit)

Activity (in patient-

visits): 9,300

Variable overhead costs:Supplies................................................... $ 5.00 $ 46,500Laundry................................................... 7.30 67,890

Total variable overhead cost...................... $12.30 $114,390



66. The total fixed overhead cost at an activity level of 9,600 patient-visits per month should be:A) $133,630B) $154,560C) $235,720D) $272,640


Solution:

Budgeted number of patient-visits: 9,600Activity

(in patient-visits): 9,300

Fixed overhead costs:Wages and salaries.................................. $ 60,590Occupancy costs..................................... 73,040

Total fixed overhead cost........................... $133,630



67. The total overhead cost at an activity level of 9,400 patient-visits per month should be:A) $235,720B) $249,250C) $266,960D) $250,640


Solution:

Budgeted number of patient-visits: 8,300Cost Formula (per patient-

visit)

Activity (in patient

visits): 9,400Overhead CostsVariable overhead costs:






Mandalay Hotel bases its budgets on guest-days. The hotel's static budget for August appears below:

Budgeted number of guest-days................. 4,300Budgeted variable overhead costs:

Supplies (@$9.60 per guest-day)............ $ 41,280Laundry (@$9.40 per guest-day)............ 40,420






68. The total variable overhead cost at an activity level of 5,000 guest-days per month should be:A) $127,000B) $109,220C) $95,000D) $81,700


Solution:

Budgeted number of guest-days: 4,300Cost Formula

(per guest-days)

Activity (in guest-days):

5,000Variable overhead costs:

Supplies................................................... $ 9.60 $48,000Laundry................................................... 9.40 47,000

Total variable overhead cost...................... $19.00 $95,000

69. The total fixed overhead cost at an activity level of 5,500 guest-days per month should be:A) $139,700B) $190,920C) $244,200D) $109,220


Solution:

Budgeted number of guest-days: 4,300Activity (in guest-days):

5,500Fixed overhead costs:

Wages and salaries.................................. $ 57,190Occupancy costs..................................... 52,030

Total fixed overhead cost........................... $109,220



70. The total overhead cost at an activity level of 5,200 guest-days per month should be:A) $208,020B) $230,880C) $209,940D) $190,920


Solution:

Budgeted number of guest-days: 4,300Cost Formula

(per guest-days)

Activity (in guest-days):

5,200Overhead CostsVariable overhead costs:








Isadore Hospital bases its budgets on patient-visits. The hospital's static budget for July appears below:


Supplies (@ $4.60 per patient-visit)....... $ 35,420Laundry (@ $7.20 per patient-visit)....... 55,440


Salaries.................................................... 46,200Occupancy costs..................................... 67,760


Actual results for the month were:Actual number of patient-visits............... 7,800Supplies................................................... $38,250Laundry................................................... $61,240Salaries.................................................... $46,190Occupancy costs..................................... $65,650



71. The variance for supplies costs in the flexible budget performance report for the month is:A) $2,370 UB) $2,370 FC) $2,830 FD) $2,830 U


Solution:


Cost Formula

(per patient-visit)

Actual Costs

Incurred for 7,800 patient-visits

Budget Based on


Variable overhead costs (Supplies)....... $4.60 $38,250 $35,880 $2,370 U



72. The variance for laundry costs in the flexible budget performance report for the month is:A) $5,080 FB) $5,080 UC) $5,800 UD) $5,800 F


Solution:


Cost Formula

(per patient-visit)

Actual Costs Incurred for

7,800 patient-visits

Budget Based on


Variable overhead costs (Laundry)... $7.20 $61,240 $56,160 $5,080 U

73. The variance for occupancy costs in the flexible budget performance report for the month is:A) $2,110 UB) $2,990 UC) $2,990 FD) $2,110 F


Solution:



7,800 patient-visits

Budget Based on


Fixed overhead costs (Occupancy costs) $65,650 $67,760 $2,110 F




Moncrief Corporation bases its budgets on machine-hours. The company's static budget for July appears below:

Budgeted number of machine-hours.......... 1,000Budgeted variable overhead costs:

Supplies (@ $8.60 per machine-hour).... $ 8,600Power (@ $8.80 per machine-hour)........ 8,800


Salaries.................................................... 11,300Equipment depreciation.......................... 9,900


Actual results for the month were:Actual number of machine-hours........... 1,200Supplies................................................... $10,290Power...................................................... $10,860Salaries.................................................... $11,690Equipment depreciation.......................... $9,990



74. The variance for supplies costs in the flexible budget performance report for the month should be:A) $30 FB) $1,690 FC) $1,690 UD) $30 U


Solution:


Cost Formula

(per machine-

hour)


1,200 machine-

hours

Budget Based on

1,200 machine-

hours VarianceVariable

overhead costs (Supplies)....................................$8.60 $10,290 $10,320 $30 F



75. The variance for power costs in the flexible budget performance report for the month should be:A) $2,060 FB) $2,060 UC) $300 FD) $300 U


Solution:


Cost Formula

(per machine-

hour)


1,200 machine-

hours

Budget Based on

1,200 machine-

hours VarianceVariable

overhead costs (Power).......................................$8.80 $10,860 $10,560 $300 U



76. The variance for equipment depreciation in the flexible budget performance report for the month should be:A) $1,890 UB) $90 FC) $90 UD) $1,890 F


Solution:



1,200 machine-

hours

Budget Based on

1,200 machine-

hours VarianceFixed overhead costs

(Equipment depreciation)...... $9,990 $9,900 $90 U




Medlar Corporation's static budget for June appears below. The company bases its budgets on machine-hours.






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




Solution:


Cost Formula

(per machine-

hour)

Actual Costs

Incurred for 9,300

machine-hours

Budget Based on

9,300 machine-

hours VarianceVariable overhead

costs (Supplies).... $2.20 $19,760 $20,460 $700 F

78. The variance for power cost in the flexible budget performance report for the month should be:A) $1,900 FB) $1,900 UC) $380 UD) $380 F


Solution:


Cost Formula

(per machine-

hour)


9,300 machine-

hours

Budget Based on

9,300 machine-

hours VarianceVariable overhead costs

(Power)....................................... $3.80 $35,720 $35,340 $380 U



79. The variance for equipment depreciation in the flexible budget performance report for the month should be:A) $1,490 FB) $1,490 UC) $270 UD) $270 F


Solution:



9,300 machine-

hours

Budget Based on

9,300 machine-

hours VarianceFixed overhead costs (Equipment

depreciation)............................ $39,430 $39,160 $270 U


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:

Variable overhead cost........................................ $3,800Fixed overhead cost............................................ $14,250

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



80. What is the predetermined overhead rate to the nearest cent?A) $14.03B) $16.83C) $15.04D) $18.05


Solution:

Predetermined overhead rate = Total overhead ÷ Denominator level of activity= ($3,800 + $14,250) ÷ 1,000 DLHs= $18,050 ÷ 1,000 DLHs = $18.05 per DLH

81. How much overhead was applied to products during the period to the nearest dollar?A) $18,050B) $16,830C) $15,974D) $21,660


Solution:

Predetermined overhead rate = Total overhead ÷ Denominator level of activity= ($3,800 + $14,250) ÷ 1,000 DLHs= $18,050 ÷ 1,000 DLHs = $18.05 per DLHApplied overhead = 885 DLHs × $18.05 per DLH = $15,974



82. What was the variable overhead spending variance for the period to the nearest dollar?A) $180 UB) $180 FC) $580 UD) $580 F


Solution:

Budgeted direct-labor hours: 1,100Actual direct-labor hours: 1,200Standard direct-labor hours allowed: 800

Cost Formula

(per DLH)

Actual Costs

Incurred 1,200 DLHs

Budget Based on

1,200 DLHs

Spending Variance

Variable overhead costs....................... $3.80 * $4,380 $4,560 $180 F

* $3,800 ÷ 1,000 DLHs = $3.80 per DLH



83. What was the variable overhead efficiency variance for the period to the nearest dollar?A) $133 UB) $580 UC) $1,150 UD) $1,197 U


Solution:

Budgeted direct-labor hours: 1,000Actual direct-labor hours: 1,200Standard direct-labor hours allowed: 885

Cost Formula

(per DLH)

Budget Based on

1,200 DLHs

Budget Based on 885 DLHs

Efficiency Variance

Variable overhead costs....................... $3.80 * $4,560 $3,363 $1,197 U

*$3,800 ÷ 1,000 = $3.80

84. What was the fixed overhead budget variance for the period to the nearest dollar?A) $1,800 FB) $3,268 FC) $161 UD) $4,650 U


Solution:

Fixed overhead budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost = $12,450 − $14,250 = $1,800 F



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


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


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


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



89. Given these data, the variable overhead spending variance for the year would be:A) $1,000 UB) $6,000 UC) $1,000 FD) $16,000 U

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3; 4 Level: Medium

Solution:

Budgeted direct-labor hours: 30,000Actual direct-labor hours: 33,000Standard direct-labor hours allowed: 32,000

Cost Formula

(per DLH)

Actual Costs

Incurred 33,000 DLHs

Budget Based on 33,000 DLHs

Spending Variance

Variable overhead costs.................$5.00 $166,000 $165,000 $1,000 U

90. The variable overhead efficiency variance would be:A) $10,000 UB) $5,000 FC) $15,000 UD) $5,000 U

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3; 4 Level: Easy

Solution:

Budgeted direct-labor hours: 30,000Actual direct-labor hours: 33,000Standard direct-labor hours allowed: 32,000

Cost Formula

(per DLH)



Efficiency Variance

Variable overhead costs................. $5.00 $165,000 $160,000 $5,000 U




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*


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:



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


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:

Direct labor-hours.............. 56,000 70,000 84,000Detectors produced............ 40,000 50,000 60,000Variable overhead cost....... $252,000 $315,000 $378,000Fixed overhead cost........... $672,000 $672,000 $672,000

Crispy was expecting to produce 40,000 detectors last year. The actual results for the year were as follows:

Number of detectors produced....... 43,200Direct labor-hours incurred............ 62,640Variable overhead cost................... $278,748Fixed overhead cost....................... $714,000



93. What was Crispy's variable overhead spending variance?A) $3,132 favorableB) $9,720 unfavorableC) $13,608 unfavorableD) $115,884 favorable


Solution:

Cost Formula

(per DLH)

Actual Costs

Incurred 62,640 DLHs


Spending Variance

Variable overhead costs.. $4.50 * $278,748 $281,880 $3,132 F

*$252,000 ÷ 56,000 DLHs = $4.50 per DLH

94. What was Crispy's fixed overhead budget variance?A) $11,760 favorableB) $37,680 favorableC) $42,000 unfavorableD) $53,760 favorable


Solution:

Fixed overhead budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost= $714,000 − $672,000 = $42,000 U



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


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


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



96. The variable overhead spending variance for indirect labor is:A) $4,356 UB) $2,718 FC) $4,356 FD) $1,638 U


Solution:



Actual Costs

Incurred 24,740 MHs

Budget Based on 24,740 MHs

Spending Variance

Variable overhead costs (Indirect labor)......................... $6.30 $151,506 $155,862 $4,356 F

97. The variable overhead spending variance for power is:A) $2,844 UB) $2,844 FC) $572 UD) $2,272 U


Solution:



Actual Costs

Incurred 24,740 MHs


Spending Variance

Variable overhead costs (Power) $2.20 $56,700 $54,428 $2,272 U




The following data have been provided by Furr Corporation:

Budgeted production.................................. 7,000 motorsStandard machine-hours per motor............ 8.6 machine-hoursStandard indirect labor............................... $7.10 per machine-hourStandard power.......................................... $1.40 per machine-hour

Actual production....................................... 7,300 motorsActual machine-hours (total)..................... 62,140 machine-hoursActual indirect labor (total)........................ $408,340Actual power (total)................................... $94,989

98. The variable overhead spending variance for indirect labor is:A) $32,854 FB) $32,854 UC) $37,398 FD) $4,544 F


Solution:

Actual machine-hours: 62,140Standard machine-hours: 60,200


Actual Costs

Incurred 62,140 MHs


Spending Variance

Variable overhead costs (Indirect labor)........................ $7.10 $408,340 $441,194 $32,854 F



99. The variable overhead spending variance for power is:A) $7,097 UB) $7,097 FC) $896 FD) $7,993 U


Solution:

Actual machine-hours: 62,140


Actual Costs

Incurred 62,140 MHs


Spending Variance

Variable overhead costs (Power) $1.40 $94,989 $86,996 $7,993 U


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



100. The variable overhead spending variance for lubricants is:A) $202 FB) $358 UC) $202 UD) $560 U


Solution:



Actual Costs

Incurred 8,030 MHs

Budget Based on


Variable overhead costs (Lubricants).............. $2.00 $15,858 $16,060 $202 F

101. The variable overhead spending variance for supplies is:A) $486 FB) $242 FC) $242 UD) $728 U


Solution:



Actual Costs

Incurred 8,030 MHs

Budget Based on


Variable overhead costs (Supplies) $2.60 $20,392 $20,878 $486 F




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 production........................... 7,600 unitsActual machine-hours (total)......... 49,840 machine-hoursActual lubricants (total)................. $179,821Actual supplies (total).................... $98,933

102. The variable overhead spending variance for lubricants is:A) $1,120 FB) $5,381 FC) $4,261 UD) $5,381 U


Solution:



Actual Costs

Incurred 49,840 MHs


Spending Variance

Variable overhead costs (Lubricants).............. $3.50 $179,821 $174,440 $5,381 U



103. The variable overhead spending variance for supplies is:A) $640 FB) $1,387 FC) $1,387 UD) $747 F


Solution:



Actual Costs

Incurred 49,840 MHs


Spending Variance



Byers Corporation, which produces cellular transmission towers, has provided the following data:

Budgeted production.................................. 2,500 towersActual production....................................... 2,800 towersStandard machine-hours per tower............ 6.8 machine-hoursBudgeted machine-hours (6.8 × 2,500)...... 17,000 machine-hoursStandard machine-hours allowed for the


Budgeted variable overhead cost per machine-hour:Indirect labor.......... $7.40 per machine-hourPower..................... $1.40 per machine-hour

Actual total variable overhead costs:Indirect labor.......... $139,660Power..................... $26,212



104. The variable overhead efficiency variance for indirect labor is:A) $4,884 UB) $4,884 FC) $1,236 FD) $1,236 U


Solution:





Efficiency Variance


105. The variable overhead efficiency variance for power is:A) $444 FB) $444 UC) $480 UD) $924 F


Solution:





Efficiency Variance

Variable overhead costs (Power) $1.40 $25,732 $26,656 $924 F




Czlapinski Corporation, which produces highway lighting poles, has provided the following data:

Budgeted production.................................. 1,000 polesStandard machine-hours per pole............... 6.4 machine-hoursBudgeted indirect labor.............................. $2.90 per machine-hourBudgeted supplies...................................... $1.50 per machine-hour

Actual production....................................... 1,300 polesActual machine-hours................................ 7,920 machine-hoursActual indirect labor (total)........................ $23,210Actual supplies (total)................................ $13,297

106. The variable overhead efficiency variance for indirect labor is:A) $918 FB) $1,160 FC) $918 UD) $1,160 U


Solution:



Budget Based on

7,920 MHs

Budget Based on



*1,300 poles × 6.4 machine-hours per pole = 8,320 machine-hours



107. The variable overhead efficiency variance for supplies is:A) $817 FB) $1,417 UC) $600 FD) $817 U


Solution:



Budget Based on

7,920 MHs

Budget Based on



*1,300 poles × 6.4 machine-hours per pole = 8,320 standard machine-hours


Quickle Corporation, which produces commercial windows, has provided the following data:

Budgeted production.................................. 1,000 windowsActual production....................................... 1,200 windowsStandard machine-hours per window......... 7.0 machine-hoursBudgeted machine-hours (7.0 × 1,000)...... 7,000 machine-hoursStandard machine-hours allowed for the


Budgeted variable overhead cost per machine-hour:Supplies...................... $8.40 per machine-hour

Actual total variable overhead costs:Supplies...................... $68,595



108. The variable overhead spending variance for supplies is:A) $3,495 FB) $1,965 UC) $3,495 UD) $1,965 F


Solution:



Actual Costs

Incurred 7,750 MHs

Budget Based on


Variable overhead costs (Supplies) $8.40 $68,595 $65,100 $3,495 U

109. The variable overhead efficiency variance for supplies is:A) $5,460 UB) $1,965 FC) $5,460 FD) $1,965 U


Solution:



Budget Based on

7,750 MHs

Budget Based on


Variable overhead costs (Supplies) $8.40 $65,100 $70,560 $5,460 F




Geschke Corporation, which produces commercial safes, has provided the following data:

Budgeted production...................... 8,500 safesStandard machine-hours per safe... 9.1 machine-hoursStandard supplies cost.................... $1.70 per machine-hourActual production........................... 8,700 safesActual machine-hours.................... 79,100 machine-hoursActual supplies cost....................... $123,642

110. The variable overhead spending variance for supplies is:A) $10,828 FB) $10,947 UC) $10,828 UD) $10,947 F


Solution:



Actual Costs

Incurred 79,100 MHs


Spending Variance

Variable overhead costs (Supplies) $1.70 $123,642 $134,470 $10,828 F

*8,700 safes × 9.1 machine-hours = 79,170 standard machine-hours



111. The variable overhead efficiency variance for supplies is:A) $10,947 FB) $119 UC) $10,947 UD) $119 F


Solution:





Efficiency Variance


*8,700 safes × 9.1 machine-hours = 79,170 standard machine-hours


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


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


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 hours




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:

Variable overhead cost................................................. $19,550Fixed overhead cost..................................................... $93,075


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



Solution:

Predetermined overhead rate = ($19,550 + $93,075) ÷ 8,500 DLHs= $112,625 ÷ 8,500 DLHs = $13.25 per DLH





Solution:

Predetermined overhead rate = ($19,550 + $93,075) ÷ 8,500 DLHs= $112,625 ÷ 8,500 DLHs = $13.25 per DLHApplied overhead = Standard hours allowed for actual output × Predetermined overhead rate = 8,575 DLHs × $13.25 per DLH = $113,619

116. What was the fixed overhead budget variance for the period to the nearest dollar?A) $265 FB) $1,850 FC) $2,671 UD) $2,945 U


Solution:

Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost= $91,225 − $93,075 = $1,850 F



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


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


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


Actual hours........................................................... 8,500 MHsStandard hours allowed for the actual output........ 8,556 MHsActual total fixed overhead cost............................ $71,470



118. What is the predetermined fixed overhead rate to the nearest cent?A) $8.41B) $8.12C) $8.15D) $8.44


Solution:

Predetermined fixed overhead rate = $71,720 ÷ 8,800 MHs = $8.15 per MH

119. How much fixed overhead was applied to products during the period to the nearest dollar?A) $71,470B) $69,275C) $71,720D) $69,731


Solution:

Predetermined fixed overhead rate = $71,720 ÷ 8,800 MHs = $8.15 per MHApplied fixed overhead = 8,556 MHs × $8.15 per MH = $69,731

120. What was the fixed overhead budget variance for the period to the nearest dollar?A) $1,739 FB) $471 UC) $250 FD) $2,195 F


Solution:

Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost = $71,470 − $71,720 = $250 F



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


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


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


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


Solution:

Predetermined overhead rate = ($108,000 + $378,000) ÷ 15,000 MHs= $486,000 ÷ 15,000 MHs = $32.40 per MHApplied overhead = 20,000 MHs × $32.40 per MH = $648,000Actual overhead = $135,000 + $394,200 = $529,200$648,000 − $529,200 = $118,800 overapplied


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:

Variable overhead cost................................................. $12,760Fixed overhead cost..................................................... $29,810


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





Solution:

Predetermined overhead rate = ($12,760 + $29,810) ÷ 2,200 DLHs = $19.35 per DLH



Solution:

Predetermined overhead rate = ($12,760 + $29,810) ÷ 2,200 DLHs = $19.35 per DLHApplied overhead = Standard hours for actual output × Predetermined overhead rate = 2,108 DLHs × $19.35 per DLH = $40,790




Muscato Corporation's flexible budget for two levels of activity appears below:

Cost Formula

(per machine-

hour)Activity (in machine-

hours)7,500 7,600

Variable overhead costs:Supplies................................. $ 9.70 $ 72,750 $ 73,720Indirect labor......................... 9.30 69,750 70,680

Total variable overhead cost.... $19.00 142,500 144,400 Fixed overhead costs:

Salaries.................................. 672,600 672,600Occupancy costs................... 769,500 769,500

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


Solution:

Variable element = $142,500 ÷ 7,500 MHs = $19.00 per MH



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


Solution:

Fixed element = $1,442,100 ÷ 7,500 MHs = $192.28 per MH

128. If the denominator level of activity is 7,600 machine-hours, the predetermined overhead rate would be:A) $1,900.00B) $19.00C) $189.75D) $208.75


Solution:

Predetermined overhead rate = $1,586,500 ÷ 7,600 MHs = $208.75 per MH




Keeran Corporation's flexible budget for two levels of activity appears below:

Cost Formula

(per machine-

hour)Activity


Variable overhead costs:Lubricants............................. $3.70 $ 22,570 $ 22,940Power.................................... 1.50 9,150 9,300


Depreciation.......................... 173,972 173,972Taxes..................................... 68,076 68,076

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


Solution:

Variable element = $31,720 ÷ 6,100 MHs = $5.20 per MH



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


Solution:

Fixed element = $242,048 ÷ 6,100 MHs = $39.68 per MH

131. If the denominator level of activity is 6,200 machine-hours, the predetermined overhead rate would be:A) $520.00B) $5.20C) $44.24D) $39.04


Solution:

Predetermined overhead rate = $274,288 ÷ 6,200 MHs = $44.24 per MH


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



132. The fixed overhead budget variance would be:A) $100 FB) $300 FC) $300 UD) $200 F


Solution:

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


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


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



134. The budget variance for February is:A) $6,460 FB) $6,920 UC) $6,460 UD) $6,920 F


Solution:

Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost= $259,960 − $266,420 = $6,460 F

135. The volume variance for February is:A) $17,300 UB) $17,300 FC) $6,920 FD) $6,920 U


Solution:

Volume variance = Fixed portion of predetermined overhead rate × (Denominator hours − Standard hours allowed) = $34.60 per MH × (7,700 MHs − 8,200 MHs) = $34.60 per MH × 500 MHs = $17,300 F


The following data for May has been provided by Mccawley Corporation.

Denominator level of activity........ 2,600 machine-hoursBudgeted fixed overhead costs...... $53,820Actual level of activity................... 2,700 machine-hoursStandard machine-hours allowed

for the actual output.................... 2,800 machine-hoursActual fixed overhead costs........... $56,290



136. The budget variance for May is:A) $2,070 UB) $2,470 FC) $2,070 FD) $2,470 U


Solution:

Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost = $56,290 − $53,820 = $2,470 U

137. The volume variance for May is:A) $2,070 UB) $4,140 UC) $4,140 FD) $2,070 F


Solution:

Volume variance = Fixed portion of predetermined overhead rate × (Denominator hours − Standard hours allowed)= ($53,820 ÷ 2,600 MHs) × (2,600 MHs − 2,800 MHs) = = $20.70 per MH × 200 MHs = $4,140 F



138. The following overhead data are for a department in a large company.

Actual Static budgetActivity level (in units)...... 290 280

Variable costs:Indirect materials............ $3,625 $3,780Power.............................. $2,648 $2,576

Fixed costs:Supervision..................... $9,670 $9,700Depreciation.................... $4,210 $4,200

Required:

Prepare a report that would be useful in assessing how well costs were controlled in this department.

Ans:

Cost formula per unit

Actual costs

incurred

Flexible budget

based on actual

activity Variance

Variable costs:Indirect materials.... $13.50 $3,625 $3,915 $290 FPower...................... 9.20 2,648 2,668 20 F

Total variable cost...... $22.70 6,273 6,583 310 FFixed costs:

Supervision............. 9,670 9,700 30 FDepreciation............ 4,210 4,200 10 U

Total fixed cost.......... 13,880 13,900 20 FTotal cost.................... $20,153 $20,483 $330 F

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement; Reporting LO: 1; 2 Level: Easy



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.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement; Reporting LO: 1 Level: Easy



140. Elvin Hospital bases its budgets on patient-visits. The hospital's static budget for May appears below:


Supplies (@ $2.70 per patient-visit)....... $13,770Laundry (@ $3.00 per patient-visit)....... 15,300




Required:

Prepare a flexible budget for an activity level of 5,300 patient-visits per month.

Ans:


visit)

Flexible Budget Based

on 5,300 Patient-Visits

Variable overhead costs:Supplies.................................... $2.70 $14,310Laundry.................................... 3.00 15,900

Total variable overhead cost....... $5.70 30,210Fixed overhead costs:

Wages and salaries................... 16,830Occupancy costs...................... 16,830

Total fixed overhead cost............ 33,660Total overhead cost..................... $63,870




141. Wytch Corporation bases its budgets on machine-hours. The company's static budget for February appears below:






Required:

Prepare a flexible budget in good form for an activity level of 6,400 machine-hours per month.

Ans:Cost Formula

(per machine-hour)Flexible Budget Based

on 6,400 Machine-HoursVariable overhead costs:

Supplies.................................. $6.90 $44,160Power..................................... 3.70 23,680

Total variable overhead cost..... $10.60 67,840Fixed overhead costs:

Salaries................................... 51,600Equipment depreciation......... 26,400

Total fixed overhead cost.......... 78,000Total overhead cost................... $145,840




142. Lobato Hospital bases its budgets on patient-visits. The hospital's static budget for September appears below:


Supplies (@ $2.20 per patient-visit)....... $21,780Laundry (@ $1.10 per patient-visit)....... 10,890




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.



Ans:

Cost Formula

(per patient-visit)

Actual Costs

Incurred for 10,000

Patient-Visits

Flexible Budget

Based on 10,000 Patient-Visits Variances

Variable overhead costs:Supplies............................... $2.20 $22,040 $22,000 $40 ULaundry............................... 1.10 10,640 11,000 360 F

Total variable overhead cost. . $3.30 32,680 33,000 320 FFixed overhead costs:

Salaries................................ 28,480 28,710 230 FOccupancy costs................. 11,360 10,890 470 U

Total fixed overhead cost....... 39,840 39,600 240 UTotal overhead cost................ $72,520 $72,600 $80 F




143. Weakly Corporation bases its budgets on machine-hours. The company's static budget for September appears below:


Power (@ $9.30 per machine-hour)........ $ 55,800Supplies (@ $5.20 per machine-hour).... 31,200





Actual number of machine-hours............... 6,400Power......................................................... $59,870Supplies...................................................... $34,960Salaries....................................................... $65,100Equipment depreciation............................. $44,610

Required:




Ans:

Cost Formula

(per machine-hour)

Actual Costs

Incurred for 6,400 Machine-

Hours

Flexible Budget

Based on 6,400

Machine-Hours Variances

Variable overhead costs:Power.................................. $9.30 $59,870 $59,520 $350 USupplies............................... 5.20 34,960 33,280 1,680 U

Total variable overhead cost. . $14.50 94,830 92,800 2,030 UFixed overhead costs:

Salaries................................ 65,100 68,400 3,300 FEquipment depreciation...... 44,610 46,200 1,590 F

Total fixed overhead cost....... 109,710 114,600 4,890 FTotal overhead cost................ $204,540 $207,400 $2,860 F




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





Actual number of units produced............... 4,500Power......................................................... $31,840Supplies...................................................... $4,730Salaries....................................................... $32,480Occupancy costs......................................... $4,800

Required:


Ans:

Cost Formula

(per unit)

Actual Costs

Incurred for 4,500

Units

Flexible Budget

Based on 4,500 Units Variances

Variable overhead costs:Power.................................. $6.50 $31,840 $29,250 $2,590 USupplies............................... 1.10 4,730 4,950 220 F

Total variable overhead cost. . $7.60 36,570 34,200 2,370 UFixed overhead costs:

Salaries................................ 32,480 34,020 1,540 FOccupancy costs................. 4,800 4,620 180 U

Total fixed overhead cost....... 37,280 38,640 1,360 FTotal overhead cost................ $73,850 $72,840 $1,010 U




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?



Ans:

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

c. Computation of variable overhead spending variance:Spending variance = (AH × AR) − (AH × SR)= ($22,500) − (22,000 × $1.00*) = $500 U*$20,000 ÷ 20,000 DLHs = $1.00

d. Computation of variable overhead efficiency variance:Spending variance = (AH × SR) − (SH × SR)= (22,000 × $1.00) − (23,000* × $1.00) = $1,000 F* 2 DLHs per unit × 11,500 units = 23,000 DLHs

e. Computation of the fixed overhead budget variance:Budget variance = Actual fixed overhead − Budgeted Fixed overhead= $31,000 − $30,000 = $1,000 U

f. Computation of the fixed overhead volume variance:Volume variance = Fixed portion of predetermined overhead rate ×(Denominator hours − Standard hours allowed)= $1.50* (20,000 − 23,000) = $4,500 F*$30,000 ÷ 20,000 DLH = $1.50 per DLH

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3; 4; 5; 6 Level: Medium



146. Wattis Manufacturing has established the following master flexible budget:

Sales in units..................................... 100,000 150,000 200,000Sales.................................................. $1,500,000 $2,250,000 $3,000,000Variable expenses:

Raw materials................................ 220,000 330,000 440,000Direct labor.................................... 240,000 360,000 480,000Variable manufacturing overhead.. 180,000 270,000 360,000Variable selling and administrative 100,000 150,000 200,000

Total variable expenses..................... 740,000 1,110,000 1,480,000 Contribution margin.......................... 760,000 1,140,000 1,520,000 Fixed expenses:

Fixed manufacturing overhead...... 337,500 337,500 337,500Fixed selling and administrative.... 250,000 250,000 250,000

Total fixed expenses......................... 587,500 587,500 587,500 Net operating income........................ $ 172,500 $ 552,500 $ 932,500

Manufacturing overhead is applied on the basis of standard machine-hours. At standard, each unit of product requires one machine-hour to complete.

Required:

a. The denominator activity level is 150,000 units. What are the predetermined variable and fixed manufacturing overhead rates?

b. Actual data for the year were as follows:

Actual variable manufacturing overhead cost................. $211,680Actual fixed manufacturing overhead cost..................... $343,000Actual machine-hours incurred....................................... 126,000Units produced and sold.................................................. 120,000

Compute the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances for the year.



Ans:

a. Predetermined variable overhead rate = $270,000 ÷ 150,000 machine-hours= $1.80 per machine-hour

Predetermined fixed overhead rate = $337,500 ÷ 150,000 machine-hours= $2.25 per machine-hour

b. Variable overhead variances:Spending variance = AH (AR − SR) = 126,000 ($1.68* − $1.80) = $15,120 F*AR = $211,680 ÷ 126,000 actual machine-hours = $1.68

Efficiency variance = SR (AH − SH) = $1.80 (126,000 − 120,000*) = $10,800 U*SH = 120,000 units × 1 hour per unit = 120,000 hours

Fixed overhead variances:Budget variance = Actual fixed overhead − Budgeted fixed overhead= $343,000 − $337,500 = $5,500 U

Volume variance = Fixed rate (Denominator hours − Standard hours)= $2.25 (150,000 − 120,000*) = $67,500 U*Standard hours = 120,000 units × 1 hour per unit = 120,000 hours

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3; 4; 5; 6 Level: Hard



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!

Ans:

Cost Formula (per

machine-hour)

Actual Costs Incurred 41,160

Machine-Hours

Flexible Budget Based

on 41,160 Machine-

HoursSpending Variance

Indirect labor.. $9.30 $363,400 $382,788 $19,388 FPower............. $2.40 $94,821 $98,784 $3,963 F

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy



148. The following data for November have been provided by Hunn Corporation, a producer of precision drills for oil exploration:

Budgeted production...................... 3,700 drillsStandard machine-hours per drill... 9.0 machine-hoursStandard indirect labor................... $8.80 per machine-hourStandard power.............................. $2.40 per machine-hour

Actual production........................... 3,900 drillsActual machine-hours.................... 35,350 machine-hoursActual indirect labor...................... $313,923Actual power.................................. $83,310

Required:

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!

Ans:


hour)

Actual Costs

Incurred 35,350

Machine-Hours

Flexible Budget

Based on 35,350

Machine-Hours

Spending Variance

Indirect labor.. $8.80 $313,923 $311,080 $2,843 UPower............. $2.40 $83,310 $84,840 $1,530 F




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


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!

Ans:


hour)

Actual Costs Incurred 14,220

Machine-Hours

Flexible Budget Based on 14,220

Machine-HoursSpending Variance

Lubricants...... $1.00 $13,974 $14,220 $246 FSupplies.......... $1.60 $23,558 $22,752 $806 U




150. The following data have been provided by Lopus Corporation:

Budgeted production.................................. 2,600 unitsStandard machine-hours per unit............... 2.7 machine-hoursStandard lubricants..................................... $4.20 per machine-hourStandard supplies....................................... $2.90 per machine-hour

Actual production....................................... 2,900 unitsActual machine-hours................................ 8,080 machine-hoursActual lubricants (total)............................. $35,151Actual supplies (total)................................ $23,038

Required:

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!

Ans:Cost Formula (per machine-

hour)

Actual Costs Incurred 8,080 Machine-Hours

Flexible Budget Based on 8,080 Machine-Hours

Spending Variance

Lubricants...... $4.20 $35,151 $33,936 $1,215 USupplies.......... $2.90 $23,038 $23,432 $394 F




151. Osika Corporation, which makes helicopter rotors, has provided the following data for November:

Budgeted production.................................. 3,300 rotorsActual production....................................... 3,500 rotorsStandard machine-hours per rotor.............. 8.7 machine-hoursBudgeted machine-hours (8.7 × 3,300)...... 28,710 machine-hoursStandard machine-hours allowed for the


Budgeted variable overhead cost per machine-hour:Indirect labor........... $1.00 per machine-hourPower....................... $2.50 per machine-hour

Actual total variable overhead costs:Indirect labor........... $32,673Power....................... $70,913

Required:

Prepare a variable overhead performance report in good form showing the total variances, the spending variances, and the efficiency variances.



Ans:

Osika CorporationVariable Overhead Performance Report

For the Month Ended November 30

Budgeted machine-hours......................... 28,710Actual machine-hours.............................. 31,010Standard machine-hours allowed............. 30,450

Variable overhead costs:

Cost Formula

(per machine-hour)

(1) Actual Costs

Incurred 31,010

Machine-Hours

(2) Flexible Budget

Based on 31,010

Machine-Hours

(3) Flexible Budget

Based on 30,450

Machine-Hours

Indirect labor............................. $1.00 $32,673 $31,010 $30,450Power........................................ 2.50 70,913 77,525 76,125Total.......................................... $3.50 $103,586 $108,535 $106,575


Total Variance (1) − (3)

Spending Variance (1) − (2)

Efficiency Variance (2) − (3)

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




152. Koppa Corporation, which makes skylights, has provided the following data for January:

Budgeted production.................................. 6,100 skylightsActual production....................................... 6,300 skylightsStandard machine-hours per skylight......... 6.6 machine-hoursActual machine-hours................................ 42,120 machine-hours

Budgeted variable overhead cost per machine-hour:Indirect labor.......... $5.90 per machine-hourPower..................... $1.00 per machine-hour

Actual total variable overhead costs:Indirect labor.......... $268,306Power..................... $41,922

Required:

Prepare a variable overhead performance report in good form showing the total variances, the spending variances, and the efficiency variances.



Ans:

Koppa CorporationVariable Overhead Performance Report

For the Month Ended January 31

Budgeted machine-hours (6.6 × 6,100)................................................ 40,260Actual machine-hours........................................................................... 42,120Standard machine-hours allowed for the actual output (6.6 × 6,300)... 41,580


Cost Formula

(per machine-hour)

(1) Actual Costs

Incurred 42,120

Machine-Hours

(2) Flexible Budget

Based on 42,120

Machine-Hours

(3) Flexible Budget

Based on 41,580

Machine-Hours

Indirect labor.................... $5.90 $268,306 $248,508 $245,322Power............................... 1.00 41,922 42,120 41,580Total................................. $6.90 $310,228 $290,628 $286,902





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




153. Creger Corporation, which makes landing gears, has provided the following data for a recent month:

Budgeted production.................................. 7,900 gearsStandard machine-hours per gear............... 9.3 machine-hoursBudgeted supplies cost............................... $6.20 per machine-hourActual production....................................... 8,300 gearsActual machine-hours................................ 76,930 machine-hoursActual supplies cost (total)......................... $479,438

Required:

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


Cost Formula

(per machine-hour)

(1) Actual Costs

Incurred 76,930

Machine-Hours

(2) Flexible Budget

Based on 76,930

Machine-Hours

(3) Flexible Budget

Based on 77,190

Machine-Hours

Supplies cost...................... $6.20 $479,438 $476,966 $478,578





Supplies cost...................... $860 U $2,472 U $1,612 F




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


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





Power cost........................ $301 F $2,427 U $2,728 F




155. Hykes Corporation's flexible budget for two levels of activity appears below:

Cost Formula

(per machine-

hour)Activity


Variable overhead costs:Supplies................................. $4.40 $ 13,200 $ 13,640Indirect labor......................... 4.40 13,200 13,640


Salaries.................................. 55,800 55,800Depreciation.......................... 58,590 58,590

Total fixed overhead cost......... 114,390 114,390 Total overhead cost.................. $140,790 $141,670

Required:

Determine the predetermined overhead rate if the denominator level of activity is 3,100 machine-hours. Show your work!

Ans:

Predetermined overhead rate = Overhead from the flexible budget/Denominator level of activity= $141,670/3,100 machine-hours = $45.70 per machine-hour




156. Benoit Corporation has provided its flexible budget for two levels of activity:

Cost Formula

(per machine-

hour)Activity


Variable overhead costs:Supplies....................................... $ 4.60 $ 25,760 $ 26,220Wearing tools.............................. 8.60 48,160 49,020

Total variable overhead cost.......... $13.20 73,920 75,240 Fixed overhead costs:

Salaries........................................ 201,096 201,096Occupancy costs......................... 354,312 354,312

Total fixed overhead cost............... 555,408 555,408 Total overhead cost........................ $629,328 $630,648

Required:

Determine the predetermined overhead rate for the denominator level of activity of 5,700 machine-hours. Show your work!

Ans:

Predetermined overhead rate = Overhead from the flexible budget/Denominator level of activity= $630,648/5,700 machine-hours = $110.64 per machine-hour




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

output.............................................................. 5,100 machine-hoursActual fixed overhead costs................................ $55,860

Required:

a. Compute the budget variance for November. Show your work!b. Compute the volume variance for November. Show your work!



Ans:a. Budget variance = Actual fixed overhead cost − Budgeted fixed overhead

cost= $55,860 − $56,640 = $780 F

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!

Ans:a. Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost

= $245,640 − $240,810 = $4,830 U

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



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Flexible Budgets and Overhead Analysis - · Web viewA company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis