Test Bank - Chapter11 Flexible Budgets

Chapter 11 Flexible Budgets and Overhead Analysis True/False 1. F Easy

A flexible budget is "flexible" in the sense that a budget can be prepared for any level of activity, but once a budget is set the budget figures are not changed if actual activity later proves to be different than budgeted activity.

2. F Easy

In a performance report, actual costs should be compared to budgeted costs at the original budgeted activity level.

3. T Easy

The overhead spending variance and the overhead efficiency variance are useful only if variable overhead really should be proportional to the activity measure that is being used in the flexible budget.

4. F Medium

The variable overhead efficiency variance reflects how efficiently variable overhead resources were used.

5. T Easy

A reason for keeping a constant denominator activity level is to maintain stability in the amount of overhead cost that is applied to each unit of product manufactured over the period.

6. T Medium

The fixed portion of the predetermined overhead rate is used for product costing purposes and has no significance in terms of cost control.

7. F Easy

When choosing an activity measure for a flexible budget, it is best to choose an activity that is measured in dollars.

8. T Medium

In a standard costing system, under- or overapplied fixed overhead is equal to the sum of the fixed overhead budget variance and the fixed overhead volume variance.

9. F Medium

If the standard hours allowed for the actual output of the period is greater than the denominator level of activity (in hours), then the overhead budget variance will be unfavorable.

10. F Medium

The fixed overhead budget variance is not controllable by managers since fixed costs are not controllable.

Managerial Accounting, 9/e

141

11. F Medium

One cause of an unfavorable overhead volume variance would be increases in cost for fixed overhead items.

12. F Hard

If the denominator activity (in hours) used to compute the predetermined overhead rate is equal to the actual activity (in hours) for the period, then there is no volume variance.

13. T Medium

Since managers want stable unit cost figures, the accountant creates an artificial stability so far as fixed costs are concerned by applying fixed costs to products as if the fixed costs were really variable.

14. T Easy

A static budget is geared toward a single level of activity.

15. F Medium

15. The static budget is a good tool for assessing whether variable costs are under control.

Multiple Choice 16. B Easy

Which one of the following variances is MOST controllable by a production supervisor? a. Material price variance. b. Material usage variance. c. Fixed overhead volume variance. d. Variable overhead spending variance.

17. D Easy

A major weakness of flexible budgets is that: a. they are geared only to a single level of activity. b. they give subordinates too much flexibility. c. they force the manager to compare actual costs at one level activity to budgeted costs at a different level of activity. d. none of these.

18. D Easy

Which of the following variances would be useful in calling attention to possible problems in the control of spending on overhead item?

a. b. c. d. 19. C Easy

of

Variable overhead spending variance No No Yes Yes

Fixed overhead budget variance No Yes No Yes

Which of the following variances would be useful in calling attention to possible problems in the control of spending on overhead items?

a. b. c. d.

Variable overhead spending variance No No Yes Yes

142Managerial Accounting, 9/e

Fixed overhead volume variance No Yes No Yes

20. B Hard

The higher the denominator level of activity: a. the higher the unit product cost. b. the lower the unit product cost. c. the less likely is the occurrence of a volume variance. d. the more profitable operations likely will be.

21. B Medium

A decrease in denominator level of activity will: a. decrease the fixed portion of the predetermined overhead b. increase the fixed portion of the predetermined overhead c. decrease the variable portion of the predetermined overhead d. increase the variable portion of the predetermined overhead rate.

22. B Hard

The economic impact of the inability to reach a target denominator level of activity would best be measured by: a. the amount of the volume variance. b. the contribution margin lost by failing to meet the target denominator level of activity. c. the amount of the fixed overhead budget variance. d. the amount of the variable overhead efficiency variance.

23. C Medium

Which of the following is not correct? a. If the denominator level of activity and the standard hours allowed for the output of the period are the same, then there volume variance. b. If the denominator level of activity is greater than the standard hours allowed for the output of the period, then the volume variance is unfavorable. c. If the denominator level of activity is greater than the standard hours allowed for the output of the period, then the volume variance is favorable. d. The volume variance is the most appropriate measure of the utilization of plant facilities.

24. C Easy

The fixed overhead volume variance is due to: a. inefficient or efficient use of whatever the denominator activity is. b. inefficient or efficient use of overhead resources. c. a difference between the denominator activity and the standard hours allowed for the actual output of the period. d. a shift in the amount of hours required to produce the actual output.

25. D Easy

Which of the following variances is caused by a difference between the denominator activity in the predetermined overhead rate and the standard hours allowed for the actual production of the period? a. variable overhead spending variance. b. variable overhead efficiency variance. c. fixed overhead budget variance. d. fixed overhead volume variance.

26. B Easy CPA adapted

Lanta Restaurant compares monthly operating results with a static budget prepared at the beginning of the year. When actual sales are less than budget, would the restaurant usually report favorable variances on variable food costs and fixed supervisory salaries? a. b. c. d.

Food Costs Yes Yes No No

Managerial Accounting, 9/e

rate. rate. rate.

is no

Supervisory Salaries Yes No Yes No

143

27. A Medium CPA adapted

Overhead cost is applied to units based on direct labor hours. For April, total overhead cost was budgeted at $80,000 based on a denominator activity level of 20,000 direct labor hours for the month. The standard cost card indicates that each unit of finished product requires 2 direct labor-hours. The following data are available for April's activity: Number of units produced ............... 9,500 Direct labor hours worked .............. 19,500 Actual total overhead cost incurred .... $79,500 What amount of total overhead cost would have been applied to production for the month of April? a. $76,000. b. $78,000. c. $79,500. d. $80,000.

144Managerial Accounting, 9/e

28. C Easy

Hart Company's labor standards call for 500 direct labor hours to produce 250 units of product. During October the company worked 625 direct labor hours and produced 300 units. The standard hours allowed for October would be: a. 625 hours. b. 500 hours. c. 600 hours. d. 250 hours.

29. B Hard

At Jacobson Company, indirect labor is a variable cost that varies with direct labor hours. Last month's performance report showed that actual indirect labor cost totaled $5,780 for the month and that the associated spending variance was $245 F. If 24,100 direct labor hours were actually worked last month, then the flexible budget cost formula for indirect labor must be (per direct labor hour): a. $0.20. b. $0.25. c. $0.30. d. $0.35.

30. A Hard

At Overland Company, maintenance cost is exclusively a variable cost that varies directly with machine-hours. The performance report for July showed that actual maintenance costs totaled $9,800 and that the associated spending variance was $200 unfavorable. If 8,000 machinehours were actually worked during July, the budgeted maintenance cost per machine-hour was: a. $1.20. b. $1.25. c. $1.275. d. $1.225.

31. C Hard CPA adapted

Tyro Company has a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labor hours (DLHs). The following information is available: Actual total overhead costs ............. $15,000 Actual fixed overhead costs ............ $ 7,200 Budgeted fixed overhead costs ........... $ 7,000 Actual hours worked ..................... 3,500 DLHs Standard hours allowed for the output ... 3,800 DLHs Variable overhead rate .................. $2.50 per DLH Based on these data, what is the variable overhead spending variance? a. $1,700 favorable. b. $750 unfavorable. c. $950 favorable. d. $1,500 unfavorable.

32. B Hard

Web Company uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of machine hours. During February, the company used a denominator activity of 80,000 machine hours in computing its predetermined overhead rate. However, only 75,000 standard machine hours were allowed for the month's actual production. If the fixed overhead volume variance for February was $6,400 unfavorable, then the total budgeted fixed overhead cost for the month was: a. $96,000. b. $102,400. c. $100,000. d. $98,600.

Managerial Accounting, 9/e

145

33. D Medium

The Adlake Company makes and sells a single product and uses a standard cost system. During October, the company budgeted $300,000 in manufacturing overhead cost at a denominator activity of 20,000 machinehours. At standard, each unit of finished product requires 5 machinehours. The following cost and activity were recorded during October: Total actual manufacturing overhead cost incurred ..... $294,000 Units of product completed ............................ 3,800 Actual machine-hours worked ........................... 19,422 The amount of overhead cost that the company applied to work in process for October was: a. $279,300. b. $291,330. c. $294,000. d. $285,000.

34. B Medium

The predetermined overhead rate (variable and fixed) is $7.50 per machine hour and the denominator activity level is 135,000 machine hours. If the variable portion of the predetermined overhead rate is $3.00 per machine hours, then the budgeted fixed factory overhead for the year is: a. $30,000. b. $607,500. c. $405,000. d. $1,012,500.

146Managerial Accounting, 9/e

35. A Medium

Mauve Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labor hours (DLHs). The following data pertain to last month: Actual hours worked ............... 2,400 DLHs Budgeted fixed overhead costs ..... $10,000 Actual fixed overhead costs ....... $10,400 Standard hours allowed ............ 2,500 DLHs Predetermined overhead rate ....... $5 per DLH The fixed overhead budget variance is: a. $400 U. b. $500 F. c. $300 F. d. $300 U.

36. A Medium

Jaune Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labor hours (DLHs). The following data pertain to last month's operations: Budgeted fixed overhead costs ....... Actual fixed overhead costs ......... Standard hours allowed for output ... Predetermined overhead rate ($2 variable + $3 fixed) ....

$5,000 $5,500 2,400 DLHs $5 per DLH

The fixed overhead budget variance is: a. $500 U. b. $500 F. c. $2,200 U. d. $1,700 U. 37. C Hard

Henley Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labor hours. For the month of January, the fixed manufacturing overhead volume variance was $2,220 favorable. The company uses a fixed manufacturing overhead rate of $1.85 per direct labor hour. During January, the standard direct labor hours allowed for the month's output: a. exceeded denominator hours by 1,000. b. fell short of denominator hours by 1,000. c. exceeded denominator hours by 1,200. d. fell short of denominator hour by 1,200.

38. C Medium CPA adapted

Patridge Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labor hours. The information below is taken from the company's flexible budget for manufacturing overhead: Percent of capacity ......... 70% 80% 90% Direct labor hours .......... 21,000 24,000 27,000 Variable overhead ........... $ 42,000 $ 48,000 $ 54,000 Fixed overhead .............. 108,000 108,000 108,000 Total overhead ............ $150,000 $156,000 $162,000 During the year, the company operated at exactly 80% of capacity, but applied manufacturing overhead to products based on the 90% level. The company's fixed overhead volume variance for the year was: a. $6,000 unfavorable. b. $6,000 favorable. c. $12,000 unfavorable. d. $12,000 favorable.

Managerial Accounting, 9/e

147

39. A Medium CPA adapted

Union Company uses a standard cost accounting system. The following overhead costs and production data are available for August: Standard fixed overhead rate ....... Standard variable overhead rate .... Denominator activity ............... Actual hours ....................... Standard hours allowed for output .. Overapplied overhead ...............

$1.00 $4.00 40,000 39,500 39,000 $2,000

per hour per hour hours hours hours

The total amount of overhead applied to work in process for August would be: a. $195,000. b. $197,000. c. $197,500. d. $199,500. Reference: 11-1 The Murray Company makes and sells a single product. The company recorded the following activity and cost data for May: Number of units completed ............................... Standard direct labor-hours allowed per unit of product . Budgeted direct labor-hours (denominator activity) ...... Actual fixed overhead costs incurred .................... Volume variance .........................................

45,000 units 1.5 DLHS 72,000 DLHS $66,000 $4,275 U

The fixed portion of the predetermined overhead rate is $0.95 per direct labor-hour. 40. C Hard Refer To: 11-1

The amount of fixed overhead contained in the company's overhead flexible budget for May was: a. $64,125. b. $67,500. c. $68,400. d. $70,275.

41. D Hard Refer To: 11-1

The amount of fixed manufacturing overhead cost applied to work in process during May was: a. $61,725. b. $62,700. c. $42,750. d. $64,125.

42. B Hard Refer To: 11-1

The fixed a. $2,400 b. $2,400 c. $6,000 d. $6,000

overhead budget variance for May was: U. F. U. F.

Reference: 11-2 Pollitt Potato Packers has a flexible budget for manufacturing overhead that is based on direct labor hours. The following overhead costs appear on the flexible budget at the 200,000 hour level of activity: Variable overhead costs (total): Packing supplies .......... $120,000 Indirect labor ............ $180,000 Fixed overhead costs (total): Utilities ................. $100,000 Insurance ................. $ 40,000 Rent ...................... $ 20,000

148Managerial Accounting, 9/e

43. D Easy Refer To: 11-2

At an activity level of 180,000 direct labor hours, the flexible budget would show indirect labor cost of: a. $180,000. b. $108,000. c. $144,000. d. $162,000.

44. C Easy Refer To: 11-2

The flexible budget would show total variable overhead cost in dollars per direct labor hour as: a. $0.60. b. $0.90. c. $1.50. d. $1.80.

Managerial Accounting, 9/e

149

45. D Easy Refer To: 11-2

At an activity level of 180,000 direct labor hours, the flexible budget would show total budgeted fixed costs to be: a. $100,000. b. $144,000. c. $150,000. d. $160,000.

46. B Easy Refer To: 11-2

At an activity level of 160,000 direct labor hours, the flexible budget would show the budgeted amount for utilities to be: a. $80,000. b. $100,000. c. $120,000. d. $160,000.

Reference: 11-3 A manufacturing company has a standard costing system based on 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 ................. 6,100 MHs Overhead costs at the denominator activity level: Variable overhead cost ...................... $35,075 Fixed overhead cost ......................... $77,775 The following data pertain to operations for the most recent period: Actual hours .................................. Standard hours allowed for the actual output .. Actual total variable overhead cost ........... Actual total fixed overhead cost ..............

6,300 MHs 5,994 MHs $36,540 $76,875

47. D Medium Refer To: 11-3

What is the predetermined overhead rate to the nearest cent? a. $17.91 b. $18.59 c. $18.00 d. $18.50

48. D Medium Refer To: 11-3

How much overhead was applied to products during the period to the nearest dollar? a. $112,850 b. $113,415 c. $116,550 d. $110,889

49. A Medium Refer To: 11-3

What was the variable overhead spending variance for the period to the nearest dollar? a. $315 U b. $1,465 F c. $1,465 U d. $315 F

50. C Medium Refer To: 11-3

What was the variable overhead efficiency variance for the period to the nearest dollar? a. $300 F b. $1,465 U c. $1,760 U d. $1,775 U

150Managerial Accounting, 9/e

51. A Medium Refer To: 11-3

What was the fixed overhead budget variance for the period to the nearest dollar? a. $900 F b. $452 F c. $3,734 F d. $3,450 U

52. D Medium Refer To: 11-3

What was the fixed overhead volume variance for the period to the nearest dollar? a. $1,359 U b. $2,550 F c. $3,902 U d. $1,352 U

Reference: 11-4 The Dillon Company makes and sells a single product and uses a flexible budget for overhead to plan and control overhead costs. Overhead costs are applied on the basis of direct labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit. The Dillon Company had the following budgeted and actual data for March: Actual Units produced ............... 33,900 Direct labor-hours ........... 161,800 Variable overhead costs ...... $140,500 Fixed overhead costs ......... $80,000

Budgeted 30,800 154,000 $123,200 $77,000

53. B Medium Refer To: 11-4

The variable overhead spending variance for March is: a. $4,900 U. b. $11,060 U. c. $14,700 U. d. $17,300 U.

54. D Medium Refer To: 11-4

The variable overhead efficiency variance for March is: a. $12,400 F. b. $6,160 U. c. $12,400 U. d. $6,160 F.

55. C Medium Refer To: 11-4

The fixed overhead budget variance for March is: a. $900 F. b. $3,900 F. c. $3,000 U. d. $7,750 F.

56. A Medium Refer To: 11-4

The fixed a. $7,750 b. $7,750 c. $1,550 d. $3,900

overhead volume variance for March is: F. U. F U.

Reference: 11-5 The Ferris Company applies manufacturing overhead costs to products on the basis of direct labor hours. The standard cost card shows that 3 direct labor hours are required per unit of product. For August, the company budgeted to work 90,000 direct labor hours and to incur the following total manufacturing overhead costs: Total variable overhead costs ..... Total fixed overhead costs ........

Managerial Accounting, 9/e

$ 99,000 $118,800

151

During August, the company completed 28,000 units of product, worked 86,000 direct labor hours, and incurred the following total manufacturing overhead costs: Total variable overhead costs ....... $ 98,900 Total fixed overhead costs .......... $115,300 The denominator activity in the predetermined overhead rate is 90,000 direct labor hours. 57. B Medium Refer To: 11-5

For August, the variable overhead spending variance is: a. $4,300 F. b. $4,300 U. c. $6,500 F. d. $6,500 U.

58. C Medium Refer To: 11-5

For August, the variable overhead efficiency variance is: a. $1,800 F. b. $0. c. $2,200 U. d. $2,200 F.

59. A Medium Refer To: 11-5

For August, the fixed overhead budget variance is: a. $3,500 F. b. $3,500 U. c. $3,200 F. d. $3,200 U.

60. B Medium Refer To: 11-5

For August, the fixed overhead volume variance is: a. $4,300 U. b. $7,920 U. c. $4,980 F. d. $4,980 U.

152Managerial Accounting, 9/e

Reference: 11-6 King Company estimated that it would operate its manufacturing facilities at 800,000 direct labor hours for the year and this served as the denominator activity in the predetermined overhead rate. The total budgeted manufacturing overhead for the year was $2,000,000, of which $1,600,000 was variable and $400,000 was fixed. The standard variable overhead rate was $2 per direct labor hour. The standard direct labor time was 3 direct labor hours per unit. The actual results for the year are presented below: Actual Actual Actual Actual

finished units .................... direct labor hours ................ variable overhead ................. fixed overhead ....................

250,000 764,000 $1,610,000 $ 392,000

61. C Medium CPA adapted Refer To: 11-6

The variable overhead spending variance for the year is: a. $2,000 F. b. $10,000 U. c. $82,000 U. d. $110,000 U.

62. A Medium CPA adapted Refer To: 11-6

The variable overhead efficiency variance for the year is: a. $28,000 U. b. $100,000 U. c. $100,000 F. d. $28,000 F.

63. A Medium CPA adapted Refer To: 11-6

$8,000 F. b. $10,000 U. c. $17,000 U. d. $74,000 F.

64. B Medium CPA adapted Refer To: 11-6

The fixed overhead volume variance for the year is: a. $7,000 U. b. $25,000 U. c. $41,667 U. d. $18,000 F.

Managerial Accounting, 9/e

153

Reference: 11-7 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 ...... Standard variable overhead rate ........

8.1 machine-hours $14.30 per machine-hour

The following data pertain to operations for the last month: Actual hours ........................... Actual total variable overhead cost .... Actual output ..........................

1,700 machine-hours $24,905 200 units

65. C Medium Refer To: 11-7

What is the variable overhead spending variance for the month? a. $1,739 U b. $595 F c. $595 U d. $1,739 F

66. D Medium Refer To: 11-7

What is the variable overhead efficiency variance for the month? a. $1,172 F b. $567 F c. $1,172 U d. $1,144 U

Reference: 11-8 A manufacturing company that has only one product has established the following standards for its variable manufacturing overhead. The company uses direct labor-hours (DLHs) as its measure of activity. Standard hours per unit of output ...... Standard variable overhead rate ........

7.2 DLHs $14.20 per DLH

The following data pertain to operations for the last month: Actual direct labor-hours .............. Actual total variable overhead cost .... Actual output .......................... 67. D Medium Refer To: 11-8

5,100 DLHs $72,165 600 units

What is the variable overhead spending variance for the month? a. $10,821 U b. $255 U c. $10,821 F d. $255 F

154Managerial Accounting, 9/e

68. A Medium Refer To: 11-8

What is the variable overhead efficiency variance for the month? a. $11,076 U b. $11,037 F c. $11,037 U d. $216 U

Reference: 11-9 Raff Co. has a standard cost system in which manufacturing overhead is applied to units of product on the basis of direct labor hours (DLHs). The following standards are based on 100,000 direct labor hours: Variable overhead .......... Fixed overhead .............

2 DLHs @ $3 per DLH = $6 per unit 2 DLHs @ $4 per DLH = $8 per unit

The following information pertains operations during March: Units actually produced ............... Actual direct labor hours worked ......

38,000 80,000

Actual manufacturing overhead incurred: Variable overhead ................... Fixed overhead ......................

$250,000 $384,000

69. B Medium CPA adapted Refer To: 11-9

For March, the variable overhead spending variance was: a. $6,000 F. b. $10,000 U. c. $12,000 U. d. $22,000 F.

70. A Medium CPA adapted Refer To: 11-9

For March, a. $96,000 b. $96,000 c. $80,000 d. $80,000

the fixed overhead volume variance was: U. F. U. F.

Managerial Accounting, 9/e

155

Reference: 11-10 A furniture manufacturer has a standard costing system based on 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 ................. 3,300 MHs Overhead costs at the denominator activity level: Variable overhead cost ...................... $31,845 Fixed overhead cost ......................... $40,425 The following data pertain to operations for the most recent period: Actual hours .................................. Standard hours allowed for the actual output .. Actual total variable overhead cost ........... Actual total fixed overhead cost ..............

3,400 MHs 3,078 MHs $32,980 $38,975

71. A Medium Refer To: 11-10

What is the predetermined overhead rate to the nearest cent? a. $21.90 b. $21.80 c. $21.16 d. $21.26

72. C Medium Refer To: 11-10

How much overhead was applied to products during the period to the nearest dollar? a. $74,460 b. $72,270 c. $67,408 d. $71,955

73. B Medium Refer To: 11-10

What was the fixed overhead budget variance for the period to the nearest dollar? a. $2,675 U b. $1,450 F c. $3,691 F d. $1,270 F

74. A Medium Refer To: 11-10

What was the fixed overhead volume variance for the period to the nearest dollar? a. $2,720 U b. $1,225 F c. $2,811 U d. $3,945 U

156Managerial Accounting, 9/e

Reference: 11-11 A manufacturer of playground equipment has a standard costing system based on machinehours (MHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below: Denominator level of activity ................. Fixed overhead cost ...........................

3,000 MHs $40,650

The following data pertain to operations for the most recent period: Actual hours .................................. Standard hours allowed for the actual output .. Actual total fixed overhead cost ..............

3,400 MHs 3,172 MHs $41,600

75. B Medium Refer To: 11-11

What is the predetermined fixed overhead rate to the nearest cent? a. $12.24 b. $13.55 c. $13.87 d. $11.96

76. B Medium Refer To: 11-11

How much fixed overhead was applied to products during the period to the nearest dollar? a. $40,650 b. $42,981 c. $41,600 d. $46,070

77. B Medium Refer To: 11-11

What was the fixed overhead budget variance for the period to the nearest dollar? a. $4,470 U b. $950 U c. $2,790 F d. $1,381 U

78. B Medium Refer To: 11-11

What was the fixed overhead volume variance for the period to the nearest dollar? a. $2,256 F b. $2,331 F c. $3,089 U d. $5,420 F

Managerial Accounting, 9/e

157

Reference: 11-12 The Claus Company makes and sells a single product and uses standard costing. During January, the company actually used 8,700 direct labor-hours (DLHs) and produced 3,000 units of product. The standard cost card for one unit of product includes the following: Variable factory overhead: 3.0 DLHs @ $4.00 per DLH. Fixed factory overhead: 3.0 DLHs. @ $3.50 per DLH. For January, the company incurred $22,000 of actual fixed overhead costs and recorded a $875 favorable volume variance. 79. B Hard Refer To: 11-12

The budgeted fixed factory overhead cost for January is: a. $31,500. b. $30,625. c. $32,375. d. $33,250.

80. C Hard Refer To: 11-12

The denominator level of activity in direct labor-hours (DLHs) used by Claus in setting the predetermined overhead rate for January is: a. 9,500 DLHs. b. 9,250 DLHs. c. 8,750 DLHs. d. 10,500 DLHs.

Reference: 11-13 A manufacturer of industrial equipment has a standard costing system based on machinehours (MHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below: Denominator level of activity ................. 3,900 MHs Overhead costs at the denominator activity level: Variable overhead cost ...................... $33,345 Fixed overhead cost ......................... $61,425 The following data pertain to operations for the most recent period: Actual hours .................................. Standard hours allowed for the actual output .. Actual total variable overhead cost ........... Actual total fixed overhead cost ..............

3,900 MHs 3,952 MHs $32,565 $60,675

81. B Medium Refer To: 11-13

What is the predetermined overhead rate to the nearest cent? a. $23.91 b. $24.30 c. $24.30 d. $23.91

82. C Medium Refer To: 11-13

How much overhead was applied to products during the period to the nearest dollar? a. $93,240 b. $94,770 c. $96,034 d. $94,770

Reference: 11-14 A manufacturer of industrial equipment has a standard costing system based on direct labor-hours (DLHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:

158Managerial Accounting, 9/e

Denominator level of activity ................. 8,000 DLHs Overhead costs at the denominator activity level: Variable overhead cost ...................... $56,400 Fixed overhead cost ......................... $100,800 The following data pertain to operations for the most recent period: Actual hours .................................. Standard hours allowed for the actual output .. Actual total variable overhead cost ........... Actual total fixed overhead cost ..............

7,800 DLHs 7,735 DLHs $54,210 $100,200

83. B Medium Refer To: 11-14

What is the predetermined overhead rate to the nearest cent? a. $19.30 b. $19.65 c. $19.80 d. $20.15

84. A Medium Refer To: 11-14

How much overhead was applied to products during the period to the nearest dollar? a. $151,993 b. $154,410 c. $157,200 d. $153,270

Reference: 11-15 Dori Castings is a job order shop that uses a standard cost system to account for its production costs. Manufacturing overhead costs are applied to production on the basis of direct labor hours. 85. C Medium CMA adapted Refer To: 11-15

Dori's choice of a production volume as a denominator for calculating its predetermined overhead rate: a. has no effect on the fixed portion of this rate which is used for applying costs to production. b. has an effect on the variable portion of this rate which is used for applying costs to production. c. has no effect on the fixed overhead budget variance. d. has no effect on the fixed overhead volume variance.

86. D Hard CMA adapted Refer To: 11-15

A volume variance will exist for Dori in a month where: a. production volume differs from sales volume. b. actual direct labor hours differ from standard hours allowed. c. there is a budget variance in fixed overhead costs. d. the fixed overhead applied to units of product on the basis of standard hours allowed differs from the budgeted fixed overhead.

87. B Medium CMA adapted Refer To: 11-15

The amount of fixed overhead that Dori would apply to finished production would be: a. the actual direct labor hours times the standard fixed overhead rate per direct labor hour. b. the standard hours allowed for the actual units of finished output times the standard fixed overhead rate per direct labor hour. c. the standard units of output for the actual direct labor hours worked times the standard fixed overhead rate per unit of output. d. the actual fixed overhead cost per direct labor hour times the standard hours allowed.

Reference: 11-16 Jessep Corporation has a standard cost system in which manufacturing overhead is applied to units of product on the basis of direct labor hours. The company has

Managerial Accounting, 9/e

159

provided the following data concerning its fixed manufacturing overhead costs in March: Denominator hours ...................... 15,000 hours Actual hours worked .................... 14,000 hours Standard hours allowed for the output .. 12,000 hours Flexible budget fixed overhead cost .... $45,000 Actual fixed overhead costs ............ $48,000 88. B Easy Refer To: 11-16

The fixed a. $1,000 b. $3,000 c. $2,000 d. $2,000

overhead budget variance is: U. U. U. F.

89. C Medium Refer To: 11-16

The fixed a. $3,000 b. $3,000 c. $9,000 d. $6,000

overhead volume variance is: U. F. U. U.

160Managerial Accounting, 9/e

Reference: 11-17 An outdoor barbecue grill manufacturer has a standard costing system based on 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 ................. Fixed overhead cost ...........................

3,300 DLHs $26,895

The following data pertain to operations for the most recent period: Actual hours .................................. Standard hours allowed for the actual output .. Actual total fixed overhead cost ..............

3,400 DLHs 3,420 DLHs $28,295

90. D Medium Refer To: 11-17

What was the fixed overhead budget variance for the period to the nearest dollar? a. $166 U b. $422 F c. $585 F d. $1,400 U

91. A Medium Refer To: 11-17

What was the fixed overhead volume variance for the period to the nearest dollar? a. $978 F b. $993 F c. $163 F d. $815 F

Reference: 11-18 An outdoor barbecue grill manufacturer has a standard costing system based on machinehours (MHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below: Denominator level of activity ................. Fixed overhead cost ...........................

4,600 MHs $50,140

The following data pertain to operations for the most recent period: Actual hours .................................. Standard hours allowed for the actual output .. Actual total fixed overhead cost ..............

5,000 MHs 4,743 MHs $48,690

92. C Medium Refer To: 11-18

What was the fixed overhead budget variance for the period to the nearest dollar? a. $5,810 U b. $2,503 F c. $1,450 F d. $3,009 U

93. B Medium Refer To: 11-18

What was the fixed overhead volume variance for the period to the nearest dollar? a. $2,801 U b. $1,559 F c. $1,468 F d. $4,360 F

Reference: 11-19 The Tate Company uses a standard costing system in which manufacturing overhead is applied to units of product on the basis of direct labor hours (DLHs). The company recorded the following costs and activity for September:

Managerial Accounting, 9/e

161

Cost: Actual fixed overhead costs incurred .. Volume variance ....................... Fixed portion of the predetermined overhead rate ....................... Activity: Number of units completed ............. Standard direct labor hours allowed per unit of product ................. Denominator activity...................

$61,400 $2,850 Unfavorable $0.95 per DLH 22,800 2.5 DLHs 60,000 DLHs

94. C Medium Refer To: 11-19

The amount of fixed manufacturing overhead cost applied to work in process during September was: a. $61,400. b. $57,000. c. $54,150. d. $59,850.

95.

The amount of fixed overhead cost contained in the company’s flexible budget for manufacturing overhead for September was: a. $61,400. b. $57,000. c. $60,000. d. $58,550.

B Hard Refer To: 11-19

162Managerial Accounting, 9/e

Essay 96. Hard

The Moore Company produces and sells a single product. A standard cost card for the product follows: Standard Cost Card--per unit of product: Direct materials, 4 yards at $4.00 ........ $16.00 Direct labor, 1.5 hours at $10.00 ......... 15.00 Variable overhead, 1.5 hours at $3.00 ..... 4.50 Fixed overhead, 1.5 hours at $7.00 ........ 10.50 Standard cost per unit .................... $46.00 The company manufactured and sold 18,000 units of product during the year. A total of 70,200 yards of material was purchased during the year at cost of $4.20 per yard. All of this material was used to manufacture the 18,000 units. The company records showed no beginning or ending inventories for the year. The company worked 29,250 direct labor-hours during the year at a cost of $9.75 per hour. Overhead cost is applied to products on the basis of direct labor-hours. The denominator activity level (direct laborhours) was 22,500 hours. Budgeted fixed overhead costs as shown on the flexible budget were $157,500, while actual fixed overhead costs were $156,000. Actual variable overhead costs were $90,000. Required: a. Compute the the year. b. Compute the year. c. Compute the for the year. d. Compute the year.

direct materials price and quantity variances

for

direct labor rate and efficiency variances for

the

variable overhead spending and efficiency

variances

fixed overhead budget and volume variances for

the

Answer: a. Direct materials price and quantity variances: AQ (AP - SP) = Direct Materials Price Variance 70,200 yds. ($4.20 - $4.00) = $14,040 U. SP (AQ - SQ) = Direct Materials Quantity Variance $4.00 (70,200 yds. - 72,000 yds.*) = $7,200 F *18,000 units X 4 yards per unit = 72,000 yards. b. Direct labor rate and efficiency variances: AH (AR - SR) = Direct Labor Rate Variance 29,250 hrs. ($9.75 - $10.00) = $7,312.50 F SR (AH - SH) - Direct Labor Efficiency Variance $10.00 (29,250 - 27,000*)= $22,500 U *18,000 units X 1.5 hrs. per unit = 27,000 hours c. Variable overhead spending and efficiency variances: Actual Variable Overhead Cost.................... $90,000 Actual Hours X Standard Rate: 29,250 hrs. X $3.00 = ......................... 87,750 Spending Variance................................ $ 2,250 U Actual Hours X Standard Rate:

Managerial Accounting, 9/e

163

29,250 hrs. X $3.00 = ......................... Standard Hours X Standard Rate: 27,000 hrs. X $3.00 = .. ...................... Efficiency Variance..............................

$87,750 81,000 $ 6,750 U

d. Fixed overhead budget and volume variances: Actual Fixed Overhead Cost....................... $156,000 Flexible Budget Fixed Overhead Cost.............. 157,500 Budget Variance.................................. $ 1,500 F Flexible Budget Fixed Overhead Cost.............. $157,500 Fixed Cost Applied to Work in Process: 18,000 X 1.5 hrs. X $7.00 = ............... 189,000 Volume Variance.................................. $ 31,500 F 97. Medium

Flick Company uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of direct laborhours. 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? Answer: a. Total overhead at the denominator level of activity (a)....................... $50,000 Predetermined overhead rate (b)............... $2.50/DLH Denominator level of activity (a)  (b)....... 20,000 DLHs b.

Actual output ........... 11,500 units Standard DLH per unit ... x 2 DLH per unit Standard DLHs allowed ... 23,000 DLHs

c.

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

d.

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

e.

Computation of the fixed overhead budget variance: Budget variance = Actual fixed overhead – Flexible budget fixed overhead = $31,000 - $30,000

164Managerial Accounting, 9/e

= $1,000 U f.

98. Hard

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

You have just been hired as the controller of the Eastern Division of Global Manufacturing. Performance records for last year are incomplete, with only the following data available: Variable overhead rate .......... Budgeted fixed overhead ......... Total actual overhead cost ...... Fixed overhead budget variance .. Variable overhead efficiency variance ........... Actual direct labor-hours worked Denominator activity level ...... Standard hours per unit .........

$3.00 per direct labor-hour $84,800 $262,500 $7,200 unfavorable $15,000 unfavorable 55,000 direct labor-hours 53,000 direct labor-hours 2 direct labor-hours

Required: Prepare a complete analysis of manufacturing overhead for the past year. Indicate actual, standard, and denominator activity levels; variable overhead spending and efficiency variances; and fixed overhead budget and volume variances. Answer: Budgeted fixed ovhd rate = Fixed overhead/Denominator quantity = $84,800/53,000 direct labor-hours = $1.60/direct labor-hour Actual fixed overhead

Actual variable ovhd

= Budgeted fixed overhead + Budget variance = $84,800 + $7,200 = $92,000 = Total actual overhead – Actual fixed overhead = $262,500 - $92,000 = $170,500

Actual variable ovhd rate = Actual variable ovhd/Actual hours = $170,500/55,000 = $3.10 Spending variance = AH (AR - SR) = 55,000 ($3.10 - $3.00) = $5,500 U SH X SR = AH X SR - overhead efficiency variance = 55,000 X $3.00 - $15,000 = $15,000 Standard hours allowed = (SH X SR)/SR = $150,000/$3.00 = 50,000 hours

Managerial Accounting, 9/e

165

Actual units produced = Standard hours allowed/hours per unit = 50,000 hours/2 hours per unit = 25,000 units Volume variance = = = =

Budgeted fixed - (SH X SR) $84,800 - (50,000 X $1.60) $84,800 - $80,000 $4,800 U

Summary: Actual hours ...............

5,000 hours

Standard hours allowed .....

50,000 hours

Denominator hours ..........

53,000 hours

Spending variance .......... $ 5,500 U Efficiency variance ........ $15,000 U Budget variance ............ $ 7,200 U Volume variance ............ $ 4,800 U 99. Medium

Sucher Company uses a standard cost system in which manufacturing overhead costs are applied to units of product on the basis of machine hours. The company's condensed flexible budget for manufacturing overhead is given below: Per Machine Hour Variable overhead costs Fixed overhead costs Total overhead costs

$3

20,000 $ 60,000 300,000 $360,000

Machine Hours o 25,000 30,000 $ 75,000 300,000 $375,000

$ 90,000 300,000 $390,000

The denominator level of activity is 30,000 machine hours. Standards call for 2.5 machine hours per unit of output. Actual activity and manufacturing overhead costs for the year are given below: Units produced ............ 12,800 units Machine-hours used ........ 31,600 machine hours Overhead costs incurred: Variable costs ......... $ 96,000 Fixed costs ............ $297,000

166Managerial Accounting, 9/e

Required: a. b. c. d. e.

What What What What What

are was was was was

the the the the the

standard hours allowed for the output? variable overhead spending variance? variable overhead efficiency variance? fixed overhead budget variance? fixed overhead volume variance?

Answer: a. 12,800 units x 2.5 machine hours per unit = 32,000 machine hours b. Computation of variable overhead spending variance: Spending variance = (AH x AR) - (AH x SR) = ($96,000) - (31,600 MHs x $3) = $1,200 U c. Computation of variable overhead efficiency variance: Spending variance = (AH x SR) - (SH x SR) = (31,600 MHs x $3) - (32,000 MHs x $3) = $1,200 F d. Computation of the fixed overhead budget variance: Budget variance = Actual fixed overhead - Flexible budget fixed overhead = $297,000 - $300,000 = $3,000 F e.

100. Easy

Computation of the fixed overhead volume variance: Volume variance = Fixed portion of predetermined overhead rate x (Denominator hours – Standard hours allowed) = $10* (30,000 MH - 32,000 MH) = $20,000 F *$300,000 ÷ 30,000 MH = $10

The following overhead data are for a department in a large company. Actual costs incurred Activity level (in units) 250 Variable costs: Indirect materials ...... Power ................... Fixed costs: Supervision ............. Rent ....................

Managerial Accounting, 9/e

Static budget 220

$8,745 $2,065

$7,634 $1,738

$1,560 $7,210

$1,600 $7,300

167

Required: Prepare a report that would be useful in assessing how well costs were controlled in this department. Answer: Cost formula per unit of activity

Actual costs incurred

Budget based on actual activity

Variance

$ 8,745 2,065 10,810

$ 8,675 1,975 10,650

$ 70 U 90 U 160 U

Fixed costs: Supervision ......... Rent ................ Total fixed cost ..

1,560 7,210 8,770

1,600 7,300 8,900

40 F 90 F 130 F

Total cost ............

$19,580

$19,550

$ 30 U

Variable costs: Indirect materials .. Power ............... Total variable cost

101. Easy

$34.70 7.90 $42.60

The following overhead data are for a department in a large company. Actual costs incurred Activity level (in units) 480 Variable costs: Supplies ................ $16,734 Electricity ............. $1,026 Fixed costs: Supervision ............. $8,570 Depreciation ............ $5,780

Static budget 480 $16,944 $1,056 $8,600 $5,800

Required: Prepare a report that would be useful in assessing how well costs were controlled in this department. Answer: Cost formula per unit of activity

Actual costs incurred

Budget based on actual activity

Variance

$16,734 1,026 17,760

$16,944 1,056 18,000

$210 F 30 F 240 F

Fixed costs: Supervision ......... Depreciation ........ Total fixed cost ..

8,570 5,780 14,350

8,600 5,800 14,400

30 F 20 F 50 F

Total cost ............

$32,110

$32,400

$290 F

Variable costs: Supplies ............ Electricity ......... Total variable cost

102. Hard

$35.30 2.20 $37.50

Nova Corporation produces a single product and uses a standard cost system to help control costs. Overhead is applied to production on the basis of machine-hours. According to the company's flexible budget, the following overhead costs should be incurred at an activity level of 18,000 machine-hours (the denominator activity level chosen for the current year):

168Managerial Accounting, 9/e

Variable overhead costs ....................... $ 45,000 Fixed overhead costs .......................... 108,000 Total overhead costs .......................... $153,000 During the current year, the following operating results were recorded: Actual machine-hours worked ................... 15,000 Standard machine-hours allowed ................ 16,000 Actual variable overhead cost incurred ........ $ 38,000 Actual fixed overhead cost incurred ........... $107,100 At the end of the year, the company's Manufacturing Overhead account showed total debits for actual overhead costs of $145,100 and total credits for overhead actually applied of $136,000. The difference ($9,100) represents under-applied overhead, the cause of which management would like to know. Required: a. Compute the predetermined overhead rate that would have been used during the year, showing separately the variable and fixed components of the rate. b. Show how the $136,000 of "Applied Costs" was computed. c. Analyze the $9,100 under-applied overhead figure in terms of the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances. Answer: a. The predetermined overhead rate, with variable and fixed elements identified: $45,000/18,000 = $2.50 $108,000/18,000 = 6.00 $8.50 b. Applied overhead for the period: Standard hours allowed X Total overhead rate = 16,000 hrs X $8.50 = $136,000 c. Variable overhead variances: Spending variance: Actual variable overhead cost ................... Actual hours X Standard rate: 15,000 hours X $2.50 = ..................... Spending variance ............................... Efficiency variance: Actual hours X Standard rate: 15,000 hours X $2.50 = ..................... Standard hours allowed X Standard rate: 16,000 hours X $2.50 = ..................... Efficiency variance .............................

$38,000 37,500 500 U

$

$37,500 40,000 $ 2,500 F

Fixed overhead variances: Budget variance: Actual fixed overhead cost ......................

Managerial Accounting, 9/e

$107,100

169

Flexible budget fixed overhead cost ............. Budget variance ................................. Volume variance: Flexible budget fixed overhead cost.............. Fixed overhead applied to work in process: 16,000 X $6.00 = ........................... Volume variance. ................................ Proof of variances: Variable overhead spending variance.................. Variable overhead efficiency variance................ Fixed overhead budget variance....................... Fixed overhead volume variance....................... Underapplied overhead................................ 103. Hard

108,000 900 F

$

$108,000 96,000 $ 12,000 U $

500 2,500 900 12,000 $ 9,100

U F F U U

Warner Manufacturing has established the following master flexible budget for the current year: 80,000 Sales................... $1,200,000 Less variable expenses: Raw materials........... 152,000 Direct labor............ 160,000 Manufacturing overhead.. 120,000 Total variable expenses 432,000 Contribution margin..... 768,000 Less fixed expenses: Manufacturing overhead.. 300,000 Selling and administrative........ 192,000 Total fixed expenses.... 492,000 Net income.............. $ 276,000

Sales in Units o 120,000 160,000 $1,800,000 $2,400,000 304,000 320,000 240,000 864,000 1,536,000

300,000

300,000

192,000 492,000 660,000

192,000 492,000 $1,044,000

$

228,000 240,000 180,000 648,000 1,152,000

Manufacturing overhead is applied on the basis of machine-hours. At standard, each unit of product requires one machine-hour to complete. Required: a. The denominator activity level is 120,000 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 ....... $159,500 Actual fixed manufacturing overhead cost .......... $305,000 Actual machine-hours incurred ..................... 110,000 Units produced and sold ........................... 105,000 Compute the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances for the year.

170Managerial Accounting, 9/e

Answer: a. Predetermined variable ovhd rate = $270,000  120,000 machine-hours = $1.50 per machine-hour Predetermined fixed overhead rate = $300,000  120,000 machine-hours = $2.50 per machine-hour b. Variable overhead variances: Spending variance

= AH (AR - SR) = 110,000 ($1.45 - $1.50) = $5,500 F

AR = $159,500  110,000 actual hours = $1.45 per hour Efficiency variance

= SR (AH - SH) = $1.50 (110,000 - 105,000) = $7,500 U

SR = 105,000 units X 1 hour per unit = 105,000 hours. Fixed overhead variances: Budget variance

Volume variance

= Actual fixed overhead Budgeted fixed overhead = $305,000 - $300,000 = $5,000 U = Fixed rate (Denominator hrs. - Standard hrs.) = $2.50 (120,000 - 105,000) = $37,500 U

Standard hours = 105,000 units X 1 hour per unit. 104. Hard

Wattis Manufacturing has established the following master flexible budget: 100,000 Sales..................... $1,500,000 Less variable expenses: Raw materials............. 220,000 Direct labor.............. 240,000 Manufacturing overhead.... 180,000 Selling and administrative 100,000 Total variable expenses .. 740,000 Contribution margin....... 760,000 Less fixed expenses: Manufacturing overhead.... 337,500 Selling and administrative 250,000 Total fixed expenses...... 587,500 Net income................ $ 172,500

Sales in Units o 150,000 200,000 $2,250,000 $3,000,000 440,000 480,000 360,000 200,000 1,480,000 1,520,000

337,500 250,000 587,500 552,500

337,500 250,000 587,500 932,500

$

330,000 360,000 270,000 150,000 1,110,000 1,140,000

$

Manufacturing overhead is applied on the basis of 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?

Managerial Accounting, 9/e

171

b. Actual data for the year were as follows: Actual variable manufacturing overhead cost ....... $211,680 Actual fixed manufacturing overhead cost .......... $343,000 Actual machine-hours incurred ..................... 126,000 Units produced and sold ........................... 120,000 Compute the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances for the year. Answer: a. Predetermined variable ovhd 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

SR = 120,000 units X 1 hour per unit = 120,000 hours. Fixed overhead variances: Budget variance

Volume variance

= Actual fixed overhead Budgeted fixed overhead = $343,000 - $337,500 = $5,500 U = Fixed rate (Denominator hrs. - Standard hrs.) = $2.25 (150,000 - 120,000) = $67,500 U

Standard hours = 120,000 units X 1 hr. per unit. 105. Hard

Tracton Corporation uses a standard costing system in which manufacturing overhead costs are applied to products on the basis of machine time. Required: a. Several numbers and labels have been omitted from the analysis fixed overhead below. Supply the missing numbers and labels. Fixed Overhead Cost Applied to _______?_________ Flexible Budget Work in Process _______?_________ Fixed Overhead Cost 302,100 MH x $1.08 _______?_________ __________?_________ __________?_________ | | | | | | | Budget variance, | ? | | $1,880 U | ? | | | |

172Managerial Accounting, 9/e

of

______________________________________________ | Total variance, $388 F | ______________________________________________ b. Suppose that 6 minutes of machine time is standard per unit of production. How many units were actually produced in the situation above? c. Again suppose that 6 minutes of machine time is standard per unit of production. How many units of production were assumed when the predetermined application rate for fixed overhead was established? Answer: a. Fixed Overhead Cost Applied to Actual Fixed Flexible Budget Work in Process Overhead Cost Fixed Overhead Cost 302,100 MH x $1.08 $325,880 $324,000 $326,268 ________________ ___________________ ___________________ | | | | | | | Budget variance, | Volume variance, | | $1,880 U | $2,268 F | | | | ______________________________________________ | Total variance, $388 F | ______________________________________________ Computations -- in this order: (Note: When used in the below algebraic formulas, favorable variances are negative and favorable variances are positive.) Volume variance = Total variance - Budget variance = $388 F - $1,880 U = -$388 - $1,880 = -$2,268 = $2,268 F Fixed overhead applied = 302,100 MH X $1.08 = $326,268 Flexible budget fixed overhead = Fixed overhead applied - Volume variance = $326,268 - $2,268 F = $326,268 + $2,268 = $324,000 Actual fixed overhead = Fixed overhead applied + Total variance = $326,268 + $388 F = $326,268 - $388 = $325,880 b. Standard MH allowed for production, ............. Standard hours allowed per unit ................. Units produced ...........................

302,100 ÷ 0.1 3,021,000

c. Fixed overhead in flexible budget, (a) above .... $ 324,000 Standard cost per machine hour .................. ÷ $1.08 MH assumed in flexible budget ............ 300,000

Managerial Accounting, 9/e

173

Standard hours allowed per unit ................. Units assumed in flexible budget .........

174Managerial Accounting, 9/e

÷ 0.1 3,000,000