ch08 - Cost Accounting, 13e (Horngren et al.) Chapter 8 1...

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Unformatted text preview: Cost Accounting, 13e (Horngren et al.) Chapter 8 1 Flexible Budgets, Overhead Cost Variances, and Manageme nt Control 1) Overhead costs are a major part of costs for most companiesmore than 50% of all costs for some companies. Answer: TRUE Diff: 1 Terms: total-overhead variance Objective: 1 AACSB: Reflective thinking 2) At the start of the budget period, management will have made most decisions regarding the level of variable costs to be incurred. Answer: FALSE Explanation: At the start of the budget period, management will have made most decisions regarding the level of fixed costs to be incurred. Diff: 1 Terms: total-overhead variance Objective: 1 AACSB: Ethical reasoning 3) One way to manage both variable and fixed overhead costs is to eliminate nonvalue-adding activities. Answer: TRUE Diff: 1 Terms: total-overhead variance Objective: 1 AACSB: Reflective thinking 4) The planning of fixed overhead costs does not differ from the planning of variable overhead costs. Answer: FALSE Explanation: The planning of fixed overhead costs differs from the planning of variable overhead costs in one important respect, timing. The level of fixed costs to be incurred will have been mostly decided upon at the start of the budget period, but the day-to-day ongoing operations decisions will be the main determinant in the level of variable overhead costs to be incurred in the period. Diff: 1 Terms: total-overhead variance Objective: 1 AACSB: Reflective thinking 5) In a standard costing system, the variable-overhead rate per unit is generally expressed as a standard cost per output unit. Answer: TRUE Diff: 1 Terms: standard costing Objective: 2 AACSB: Reflective thinking 6) For calculating the cost of products and services, a standard costing system does not have to track actual costs. Answer: TRUE Diff: 3 Terms: standard costing Objective: 2 AACSB: Reflective thinking 7) Standard a cost system that allocates overhead costs on the basis of overhead cost rates based on actual overhead costs times the costing is standard quantities of the allocation bases allowed for the actual outputs produced. Answer: FALSE Explanation: Standard costing is a cost system that allocates overhead costs on the basis of standard overhead-cost rates times the standard quantities of the allocation bases allowed for the actual outputs produced. Diff: 3 Terms: standard costing Objective: 2 AACSB: Reflective thinking 8) The budget period for variable-overhead costs is typically less than 3 months. Answer: FALSE Explanation: The budget period for variable-overhead costs is typically 12 months. Diff: 1 Terms: total-overhead variance Objective: 3 AACSB: Reflective thinking 9) A variable overhead spending variance can be the result of paying lower prices than budgeted for variable overhead items favorable such as energy. Answer: TRUE Diff: 1 Terms: variable overhead spending variance Objective: 3 AACSB: Reflective thinking 10) The variable overhead efficiency variance is computed in a different way than the efficiency variance for direct-cost items. Answer: FALSE Explanation: The variable overhead efficiency variance is computed the same way as the efficiency variance for direct-cost items. Diff: 1 Terms: variable overhead efficiency variance Objective: 3 AACSB: Reflective thinking 11) The variable overhead flexible-budget variance measures the difference between standard variable overhead costs and flexible-budget variable overhead costs. Answer: FALSE Explanation: The variable overhead flexible-budget variance measures the difference between the actual variable overhead costs and the flexible-budget variable-overhead costs. Diff: 1 Terms: variable overhead flexible-budget variance Objective: 3 AACSB: Reflective thinking 12) The variable overhead efficiency variance measures the efficiency with which the cost-allocation base is used. Answer: TRUE Diff: 1 Terms: variable overhead efficiency variance Objective: 3 AACSB: Reflective thinking 13) The variable overhead efficiency variance can be interpreted the same way as the efficiency variance for direct-cost items. Answer: FALSE Explanation: The interpretations are different. The variable overhead efficiency variance focuses on the quantity of allocationbase used, while the efficiency variance for direct-cost items focuses on the quantity of materials and labor-hours used. Diff: 2 Terms: variable overhead efficiency variance Objective: 3 AACSB: Reflective thinking 14) An le variable overhead efficiency variance indicates that variable overhead costs were wasted and inefficiently used. unfavorab Answer: FALSE Explanation: An unfavorable variable overhead efficiency variance indicates that the company used more than planned of the costallocation base. Diff: 3 Terms: variable overhead efficiency variance Objective: 3 AACSB: Ethical reasoning 15) Causes of a favorable variable overhead efficiency variance might include using lower-skilled workers than expected. Answer: FALSE Explanation: Possible causes of a favorable variable overhead efficiency variance might include using higher-skilled workers that are more efficient than expected. Diff: 2 Terms: variable overhead efficiency variance Objective: 3 AACSB: Reflective thinking 16) If the n planners set the budgeted machine hours standards too tight, one could anticipate there would be an unfavorable variable productio overhead efficiency variance. Answer: TRUE Diff: 2 Terms: variable overhead efficiency variance Objective: 3 AACSB: Ethical reasoning 17) If the n planners set the budgeted machine hours standards too tight, one could anticipate there would be an unfavorable fixed productio overhead efficiency variance. Answer: FALSE Explanation: There is no efficiency variance for fixed costs because a given lump sum of fixed costs will be unaffected by how efficiently machine-hours are used to produce output in a given budget period. Diff: 2 Terms: total-overhead variance Objective: 3, 4 AACSB: Ethical reasoning 18) For fixed overhead costs, the flexible-budget amount is always the same as the static-budget amount. Answer: TRUE Diff: 2 Terms: fixed overhead flexible-budget variance Objective: 4, 5 AACSB: Reflective thinking 19) The fixed flexible-budget variance is the difference between actual fixed overhead costs and the fixed overhead costs in the flexible overhead budget. Answer: TRUE Diff: 1 Terms: fixed overhead flexible-budget variance Objective: 5 AACSB: Reflective thinking 20) There is never an efficiency variance for fixed costs. Answer: TRUE Diff: 2 Terms: total-overhead variance Objective: 5 AACSB: Reflective thinking 21) All unfavorable overhead variances decrease operating income compared to the budget. Answer: TRUE Diff: 2 Terms: total-overhead variance Objective: 5 AACSB: Reflective thinking 22) A fixed overhead flexible-budget variance indicates that actual fixed costs exceeded the lump-sum amount budgeted. favorable Answer: FALSE Explanation: A favorable fixed overhead flexible-budget variance indicates that actual fixed costs were less than the lump-sum amount budgeted. Diff: 1 Terms: fixed overhead flexible-budget variance Objective: 4, 5 AACSB: Reflective thinking 23) Fixed the period are by definition a lump sum of costs that remain unchanged and therefore the fixed overhead spending variance costs for is always zero. Answer: FALSE Explanation: Fixed costs for the period are by definition a lump sum of costs, but they can and do change from the amount that was originally budgeted. Diff: 2 Terms: fixed overhead spending variance Objective: 5 AACSB: Reflective thinking 24) Caution is appropriate before interpreting the production-volume variance as a measure of the economic cost of unused capacity. Answer: TRUE Diff: 1 Terms: production-volume variance Objective: 5 AACSB: Ethical reasoning 25) The n-volume variance arises whenever the actual level of the denominator differs from the level used to calculate the budgeted productio fixed overhead rate. Answer: TRUE Diff: 1 Terms: production-volume variance Objective: 5 AACSB: Reflective thinking 26) The lump sum budgeted for fixed overhead will always be the same amount for the static budget and the flexible budget. Answer: TRUE Diff: 2 Terms: fixed overhead flexible-budget variance Objective: 5 AACSB: Reflective thinking 27) A favorable production-volume variance arises when manufacturing capacity planned for is not used. Answer: FALSE Explanation: An unfavorable Diff: 1 Terms: production-volume variance Objective: 5 AACSB: Reflective thinking 28) The fixed flexible budget variance is the difference between actual fixed overhead costs and fixed overhead costs in the flexible overhead budget. Answer: TRUE Diff: 2 Terms: fixed overhead flexible-budget variance Objective: 5 AACSB: Reflective thinking 29) An le production-volume variance always infers that management made a bad planning decision regarding the plant capacity. unfavorab Answer: FALSE Explanation: An unfavorable production-volume variance does not always infer that management made a bad planning decision regarding the plant capacity. Diff: 2 Terms: production-volume variance Objective: 5 AACSB: Ethical reasoning 30) Favorable overhead variances are always recorded with credits in a standard cost system. Answer: TRUE Diff: 2 Terms: standard costing, total-overhead variance Objective: 5 AACSB: Reflective thinking 31) Under activity-based costing, the flexible-budget amount equals the static-budget amount for fixed overhead costs. Answer: TRUE Diff: 2 Terms: fixed overhead flexible-budget variance Objective: 5 AACSB: Reflective thinking 32) Managers should use unitized fixed manufacturing overhead costs for planning and control. Answer: FALSE Explanation: Managers should not use unitized fixed manufacturing overhead costs for planning and control, but only for inventory costing purposes. Diff: 3 Terms: production-volume variance Objective: 5 AACSB: Reflective thinking 33) For of allocating fixed overhead costs to products, managers may view the fixed overhead costs as if they had a variable-cost purposes behavior pattern. Answer: TRUE Diff: 3 Terms: production-volume variance Objective: 5 AACSB: Reflective thinking 34) Both financial and nonfinancial performance measures are key inputs when evaluating the performance of managers. Answer: TRUE Diff: 1 Terms: total-overhead variance Objective: 6 AACSB: Reflective thinking 35) In the journal entry that records overhead variances, the manufacturing overhead allocated accounts are closed. Answer: TRUE Diff: 1 Terms: standard costing Objective: 6 AACSB: Use of Information Technology 36) Variance analysis of fixed nonmanufacturing costs, such as distribution costs, can also be useful when planning for capacity. Answer: TRUE Diff: 1 Terms: total-overhead variance Objective: 6 AACSB: Reflective thinking 37) At the end of the fiscal year, the fixed overhead spending variance is always written off to cost of goods sold. Answer: FALSE Explanation: At the end of the fiscal year, the fixed overhead spending variance is written off to cost of goods sold if it is immaterial in amount; otherwise it is prorated among work-in-process control, finished goods control, and cost of goods sold on the basis of the fixed overhead allocated to these accounts. Diff: 1 Terms: fixed overhead spending variance Objective: 6 AACSB: Reflective thinking 38) Variance analysis of fixed overhead costs is also useful when a company uses activity-based costing. Answer: TRUE Diff: 1 Terms: total-overhead variance Objective: 7 AACSB: Reflective thinking 39) An unfavorable fixed setup overhead spending variance could be due to higher lease costs of new setup equipment. Answer: TRUE Diff: 2 Terms: fixed overhead spending variance Objective: 7 AACSB: Reflective thinking 40) A variable setup overhead efficiency variance could be due to actual setup-hours exceeding the setup-hours planned for the favorable units produced. Answer: FALSE Explanation: An unfavorable variable setup overhead efficiency variance could be due to actual setup-hours exceeding the setuphours planned for the units produced. Diff: 2 Terms: variable overhead efficiency variance Objective: 7 AACSB: Reflective thinking 41) Overhead costs have been increasing due to all of the following EXCEPT: A) increased B) automation more C) complexity in distribution processes tracing more D) costs as direct costs with the help of technology product proliferation Answer: C Diff: 3 Terms: total-overhead variance Objective: 1 AACSB: Reflective thinking 42) Effective of variable overhead costs means that a company performs those variable overhead costs that primarily add value for: planning A) the current B) shareholders the customer C) using the products or services plant employees D) major suppliers of component parts Answer: B Diff: 2 Terms: total-overhead variance Objective: 1 AACSB: Reflective thinking 43) Variable overhead costs include: A) plant-leasing B) costs the plant C) manager's salary depreciation on plant equipment D) machine maintenance Answer: D Diff: 1 Terms: total-overhead variance Objective: 1 AACSB: Reflective thinking 44) Fixed overhead costs include: A) the cost of sales commissions B) property taxes paid on plant facilities C) energy costs D) indirect materials Answer: B Diff: 1 Terms: total-overhead variance Objective: 1 AACSB: Reflective thinking 45) Effective planning of fixed overhead costs includes all of the following EXCEPT: A) planning dayB) to-day operational decisions eliminating C) nonvalue-added costs planning to be efficient D) choosing the appropriate level of capacity Answer: A Diff: 3 Terms: total-overhead variance Objective: 1 AACSB: Reflective thinking 46) Effective planning of variable overhead includes all of the following EXCEPT: A) choosing the B) appropriate level of capacity eliminating C) nonvalue-adding costs redesigning D) products to use fewer resources redesigning the plant layout for more efficient processing Answer: A Diff: 2 Terms: total-overhead variance Objective: 1 AACSB: Reflective thinking 47) Choosing the appropriate level of capacity: A) is a key B) strategic decision may lead to loss of sales if overestimated C) may lead to idle capacity if underestimated D) All of these answers are correct. Answer: A Diff: 2 Terms: production-volume variance Objective: 1 AACSB: Ethical reasoning 48) The MAJOR challenge when planning fixed overhead is: A) calculating total costs B) calculating the cost-allocation rate C) choosing the D) appropriate level of capacity choosing the appropriate planning period Answer: C Diff: 3 Terms: production-volume variance Objective: 1 AACSB: Reflective thinking 49) In a standard costing system, a cost-allocation base would MOST likely be: A) actual machine- hours B) normal C) machine-hours standard D) machine-hours Any of these answers is correct. Answer: C Diff: 3 Terms: standard costing Objective: 2 AACSB: Reflective thinking 50) For calculating the costs of products and services, a standard costing system: A) only requires a simple recording system B) uses standard costs to determine the cost of products C) does not have to keep track of actual costs D) All of these answers are correct. Answer: D Diff: 3 Terms: standard costing Objective: 2 AACSB: Reflective thinking 51) The variable overhead flexible-budget variance measures the difference between: A) actual variable overhead costs and the static budget for variable overhead costs B) actual variable overhead costs and the flexible budget for variable overhead costs C) the static budget for variable overhead costs and the flexible budget for variable overhead costs D) None of these answers is correct. Answer: B Diff: 2 Terms: variable overhead flexible-budget variance Objective: 2 AACSB: Reflective thinking 52) A $5,000 unfavorable flexible-budget variance indicates that: A) the flexibleB) budget amount exceeded actual variable manufacturing overhead by $5,000 the actual C) variable manufacturing overheadexceeded the flexible-budget amount by $5,000 the flexibleD) budget amount exceeded standard variable manufacturing overhead by $5,000 the standard variable manufacturing overhead exceeded the flexible-budget amount by $5,000 Answer: B Diff: 2 Terms: variable overhead flexible-budget variance Objective: 2 AACSB: Analytical skills 53) Which of the following is NOT a step in developing budgeted variable overhead rates? A) identifying the variable overhead costs associated with each cost-allocation base B) estimating the budgeted denominator level based on expected utilization of available capacity C) selecting the D) cost-allocation bases to use choosing the period to be used for the budget Answer: B Diff: 2 Terms: denominator level Objective: 2 AACSB: Analytical skills 54) In flexible budgets, costs that remain the same regardless of the output levels within the relevant range are: A) allocated costs B) budgeted costs C) fixed costs D) variable costs Answer: C Diff: 1 Terms: total-overhead variance Objective: 2 AACSB: Reflective thinking Answer the following questions using the information below: Shimon Corporation manufactures industrial-sized water coolers and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data: Budgeted output units Budgeted machine-hours Budgeted variable manufacturing overhead costs for 15,000 units Actual output units produced Actual machine-hours used Actual variable manufacturing overhead costs 55) 15,000 units 5,000 hours $161,250 22,000 units 7,200 hours $242,000 What is the budgeted variable overhead cost rate per output unit? A) $10.75 B) $11.00 C) $32.25 D) $48.40 Answer: A Explanation: A) $ Diff: 2 T 2 AACSB: Analytical skills 56) What is the flexible-budget amount for variable manufacturing overhead? A) $165,000 B) $236,500 C) $242,000 D) None of these answers is correct. Answer: B Explanation: B) 2 Diff: 3 T 2 AACSB: Analytical skills 57) What is the flexible-budget variance for variable manufacturing overhead? A) $5,500 B) favorable $5,500 C) unfavorable $4,300 D) favorable None of these answers is correct. Answer: B Explanation: B) $ Diff: 3 T 2 AACSB: Analytical skills 58) Variable manufacturing overhead costs were ________ for actual output. A) higher than B) expected the same as C) expected lower than D) expected indeterminable Answer: A Diff: 2 Terms: variable overhead flexible-budget variance Objective: 2 AACSB: Analytical skills Answer the following questions using the information below: White Corporation manufactures football jerseys and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data: Budgeted output units Budgeted machine-hours Budgeted variable manufacturing overhead costs for 20,000 units Actual output units produced Actual machine-hours used Actual variable manufacturing overhead costs 59) 20,000 units 30,000 hours $360,000 18,000 units 28,000 hours $342,000 What is the budgeted variable overhead cost rate per output unit? A) $12.00 B) $12.21 C) $18.00 D) $19.00 Answer: C Explanation: C) $ Diff: 2 T 2 AACSB: Analytical skills 60) What is the flexible-budget amount for variable manufacturing overhead? A) $324,000 B) $342,000 C) $380,000 D) None of these answers is correct. Answer: A Explanation: A) 1 Diff: 3 T 2 AACSB: Analytical skills 61) What is the flexible-budget variance for variable manufacturing overhead? A) $18,000 B) favorable $18,000 C) unfavorable zero D) None of these answers is correct. Answer: B Explanation: B) $ Diff: 3 T 2 AACSB: Analytical skills 62) Variable- manufacturing overhead costs were ________ for actual output. A) higher than B) expected the same as C) expected lower than D) expected indeterminable Answer: A Diff: 2 Terms: variable overhead flexible-budget variance Objective: 2 AACSB: Analytical skills Answer the following questions using the information below: Fearless Frank's Fertalizer Farm produces fertalizer and distributes the product by using his tanker trucks. Frank's uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data: Budgeted output units Budgeted fleet hours Budgeted pounds of fertalizer Budgeted variable manufacturing overhead costs for 300 loads Actual output units produced and delivered Actual fleet hours Actual pounds of fertalizer produced and delivered Actual variable manufacturing overhead costs 63) 300 truckloads 225 hours 12,000,000 pounds $37,500 315 truckloads 218 hours 12,600,000 pounds $38,250 What is the budgeted variable overhead cost rate per output unit? A) $120.00 B) $125.00 C) $166.67 D) $175.00 Answer: B Explanation: B) $ Diff: 2 T 2 AACSB: Analytical skills 64) What is the flexible-budget amount for variable manufacturing overhead? A) $40,000 B) $39,375 C) $37,500 D) $38,250 Answer: B Explanation: B) 3 Diff: 3 T 2 AACSB: Analytical skills 65) What is the flexible-budget variance for variable manufacturing overhead? A) $1,125 B) favorable $1,125 C) unfavorable zero D) None of these answers are correct. Answer: A Explanation: A) $ Diff: 3 T 2 AACSB: Analytical skills 66) Variable- manufacturing overhead costs were ________ for actual output. A) higher than B) expected the same as C) expected lower than D) expected indeterminable Answer: C Diff: 2 Terms: variable overhead flexible-budget variance Objective: 2 AACSB: Analytical skills 67) The variable overhead flexible-budget variance can be further subdivided into the: A) price variance and the efficiency variance B) static-budget C) variance and sales-volume variance spending D) variance and the efficiency variance sales-volume variance and the spending variance Answer: C Diff: 1 Terms: variable overhead flexible-budget variance Objective: 3 AACSB: Reflective thinking 68) An unfavorable variable overhead spending variance indicates that: A) variable B) overhead items were not used efficiently the price of C) variable overhead items was more than budgeted the variable D) overhead cost-allocation base was not used efficiently the denominator level was not accurately determined Answer: B Diff: 2 Terms: variable overhead spending variance Objective: 3 AACSB: Reflective thinking 69) When hours are used as an overhead cost-allocation base, the MOST likely cause of a favorable variable overhead spending machine- variance is: A) excessive B) machine breakdowns the production scheduler efficiently scheduled jobs C) a decline in the cost of energy D) strengthened demand for the product Answer: C Diff: 3 Terms: fixed overhead spending variance Objective: 3 AACSB: Reflective thinking 70) When hours are used as an overhead cost-allocation base and the unexpected purchase of a new machine results in fewer machine- expenditures for machine maintenance, the MOST likely result would be to report a(n): A) favorable B) variable overhead spending variance unfavorable C) variable overhead efficiency variance favorable fixed overhead flexible-budget variance D) unfavorable production-volume variance Answer: A Diff: 3 Terms: variable overhead spending variance Objective: 3 AACSB: Analytical skills 71) For variable manufacturing overhead, there is no: A) spending B) variance efficiency C) variance flexible-budget variance D) productionvolume variance Answer: D Diff: 2 Terms: production-volume variance Objective: 3 AACSB: Reflective thinking Answer the following questions using the information below: Kellar Corporation manufactured 1,500 chairs during June. The following variable overhead data pertain to June: Budgeted variable overhead cost per unit Actual variable manufacturing overhead cost Flexible-budget amount for variable manufacturing overhead Variable manufacturing overhead efficiency variance 72) $ 12.00 $16,800 $18,000 $360 unfavorable What is the variable overhead flexible-budget variance? A) $1,200 B) favorable $360 C) unfavorable $1,560 D) favorable $1,200 unfavorable Answer: A Explanation: A) $ Diff: 2 T 3 AACSB: Analytical skills 73) What is the variable overhead spending variance? A) $840 B) unfavorable $1,200 C) favorable $1,200 D) unfavorable $1,560 favorable Answer: D Explanation: D) $ Diff: 2 T 3 AACSB: Analytical skills Answer the following questions using the information below: Patel Corporation manufactured 1,000 coolers during October. The following variable overhead data pertain to October: Budgeted variable overhead cost per unit Actual variable manufacturing overhead cost Flexible-budget amount for variable manufacturing overhead Variable manufacturing overhead efficiency variance 74) $ 9.00 $8,400 $9,000 $180 unfavorable What is the variable overhead flexible-budget variance? A) $600 favorable B) $420 C) unfavorable $780 favorable D) $600 unfavorable Answer: A Explanation: A) $ Diff: 2 T 3 AACSB: Analytical skills 75) What is the variable overhead spending variance? A) $420 B) unfavorable $600 favorable C) $600 D) unfavorable $780 favorable Answer: D Explanation: D) $ Diff: 2 T 3 AACSB: Analytical skills Answer the following questions using the information below: Roberts Corporation manufactured 100,000 buckets during February. The overhead cost-allocation base is $5.00 per machine-hour. The following variable overhead data pertain to February: Actual 100,000 units 9,800 hours $5.25 Budgeted 100,000 units 10,000 hours $5.00 Production Machine-hours Variable overhead cost per machine-hour 76) What is the actual variable overhead cost? A) $49,000 B) $50,000 C) $51,450 D) None of these answers is correct. Answer: C Explanation: C) 9 Diff: 1 T 3 AACSB: Analytical skills 77) What is the flexible-budget amount? A) $49,000 B) $50,000 C) $51,450 D) None of these answers is correct. Answer: B Explanation: B) 1 Diff: 2 T 3 AACSB: Analytical skills 78) What is the variable overhead spending variance? A) $1,000 B) favorable $1,450 C) unfavorable $2,450 D) unfavorable None of these answers is correct. Answer: C Explanation: C) ( Diff: 2 T 3 AACSB: Analytical skills 79) What is the variable overhead efficiency variance? A) $1,000 B) favorable $1,450 C) unfavorable $2,450 D) unfavorable None of these answers is correct. Answer: A Explanation: A) [ Diff: 2 T 3 AACSB: Analytical skills Answer the following questions using the information below: Roberson Corporation manufactured 30,000 ice chests during September. The overhead cost-allocation base is $11.25 per machinehour. The following variable overhead data pertain to September: Actual 30,000 units 15,000 hours $11.00 Budgeted 24,000 units 10,800 hours $11.25 Production Machine-hours Variable overhead cost per machine-hour: 80) What is the actual variable overhead cost? A) $121,500 B) $151,875 C) $165,000 D) $168,750 Answer: C Explanation: C) 1 Diff: 1 T 3 AACSB: Analytical skills 81) What is the flexible-budget amount? A) $121,500 B) $151,875 C) $165,000 D) $168,750 Answer: B Explanation: B) 3 Diff: 3 T 3 AACSB: Analytical skills 82) What is the variable overhead spending variance? A) $3,750 B) favorable $16,875 C) unfavorable $13,125 D) unfavorable $30,375 unfavorable Answer: A Explanation: A) ( Diff: 3 T 3 AACSB: Analytical skills 83) What is the variable overhead efficiency variance? A) $3,750 B) favorable $16,875 C) unfavorable $13,125 D) unfavorable $30,375 unfavorable Answer: B Explanation: B) [ Diff: 3 T 3 AACSB: Analytical skills Answer the following questions using the information below: Russo Corporation manufactured 16,000 space heaters during November. The overhead cost-allocation base is $15.75 per machinehour. The following variable overhead data pertain to November: Actual 16,000 units 7,875 hours $15.50 Budgeted 18,000 units 9,000 hours $15.75 Production Machine-hours Variable overhead cost per machine-hour: 84) What is the actual variable overhead cost? A) $122,063 B) $ 139,500 C) $124,031 D) $125,000 Answer: A Explanation: A) 7 Diff: 1 T 3 AACSB: Analytical skills 85) What is the flexible-budget amount? A) $ 124,031.30 B) $126,000.00 C) $124,000.00 D) $139,500.00 Answer: B Explanation: B) 1 Diff: 3 T 3 AACSB: Analytical skills 86) What is the variable overhead spending variance? A) $2,250 B) unfavorable $1,968.75 C) unfavorable $2,250 D) favorable $1,968.75 favorable Answer: D Explanation: D) ( Diff: 3 T 3 AACSB: Analytical skills 87) What is the variable overhead efficiency variance? A) $1,968.75 B) favorable $1,968.75 C) unfavorable $2,250 D) favorable $2,250 unfavorable Answer: A Explanation: A) [ Diff: 3 T 3 AACSB: Analytical skills 88) What is the total variable overhead variance A) $3,937.50 B) unfavorable $1,968.75 C) unfavorable $3,937.50 D) favorable $1,968.75 favorable Answer: C Explanation: C) A Diff: 3 T $ 3 AACSB: Analytical skills 89) The variable overhead efficiency variance is computed ________ and interpreted ________ the direct-cost efficiency variance. A) the same as; the same as B) the same as; C) differently than differently than; the same as D) differently than; differently than Answer: B Diff: 2 Terms: variable overhead efficiency variance Objective: 3 AACSB: Reflective thinking 90) An unfavorable variable overhead efficiency variance indicates that: A) variable B) overhead items were not used efficiently the price of C) variable overhead items was less than budgeted the variable D) overhead cost-allocation base was not used efficiently the denominator level was not accurately determined Answer: C Diff: 2 Terms: variable overhead efficiency variance Objective: 3 AACSB: Reflective thinking 91) Variable overhead costs can be managed by: A) reducing the B) consumption of the cost-allocation base eliminating C) nonvalue-adding variable costs planning for D) appropriate capacity levels Both A and B are correct. Answer: D Diff: 2 Terms: total-overhead variance Objective: 3 AACSB: Reflective thinking 92) When hours are used as a cost-allocation base, the item MOST likely to contribute to a favorable variable overhead efficiency machine- variance is: A) excessive B) machine breakdowns the production scheduler's impressive scheduling of machines C) a decline in the cost of energy D) strengthened demand for the product Answer: B Diff: 3 Terms: variable overhead efficiency variance Objective: 3 AACSB: Reflective thinking 93) When hours are used as a cost-allocation base, the item MOST likely to contribute to an unfavorable variable overhead efficiency machine- variance is: A) using more B) machine hours than budgeted workers C) wastefully using variable overhead items unused capacity D) more units being produced than planned Answer: A Diff: 3 Terms: variable overhead efficiency variance Objective: 3 AACSB: Reflective thinking 94) When hours are used as an overhead cost-allocation base, a rush order resulting in unplanned overtime that used less-skilled machine- workers on the machines would MOST likely contribute to reporting a(n): A) favorable B) variable overhead spending variance unfavorable C) variable overhead efficiency variance favorable fixed overhead flexible-budget variance D) unfavorable production-volume variance Answer: B Diff: 3 Terms: variable overhead efficiency variance Objective: 3 AACSB: Ethical reasoning 95) When hours are used as an overhead cost-allocation base and annual leasing costs for equipment unexpectedly increase, the machine- MOST likely result would be to report a(n): A) unfavorable B) variable overhead spending variance favorable C) variable overhead efficiency variance unfavorable D) fixed overhead flexible-budget variance favorable production-volume variance Answer: C Diff: 3 Terms: fixed overhead flexible-budget variance Objective: 5 AACSB: Analytical skills 96) The fixed overhead costvariance can be further subdivided into the: A) price variance and the efficiency variance B) spending C) variance and flexible-budget variance productionD) volume variance and the efficiency variance flexible-budget variance and the production-volume variance Answer: D Diff: 1 Terms: total-overhead variance Objective: 5 AACSB: Reflective thinking 97) The amount reported for fixed overhead on the static budget is also reported: A) as actual fixed costs B) as allocated C) fixed overhead on the flexible budget D) Both B and C are correct. Answer: C Diff: 1 Terms: fixed overhead flexible-budget variance Objective: 4,5 AACSB: Reflective thinking 98) An unfavorable fixed overhead spending variance indicates that: A) there was more excess capacity than planned B) the price of C) fixed overhead items cost more than budgeted the fixed D) overhead cost-allocation base was not used efficiently the denominator level was more than planned Answer: B Diff: 2 Terms: fixed overhead spending variance Objective: 5 AACSB: Reflective thinking 99) A favorable fixed overhead spending variance might indicate that: A) more capacity was used than planned B) the denominator level was less than planned C) the fixed D) overhead cost-allocation base was not used efficiently a plant expansion did not proceed as originally planned Answer: D Diff: 3 Terms: fixed overhead spending variance Objective: 5 AACSB: Reflective thinking 100) For fixed manufacturing overhead, there is no: A) spending B) variance efficiency C) variance flexible-budget variance D) productionvolume variance Answer: B Diff: 2 Terms: total-overhead variance Objective: 5 AACSB: Reflective thinking Answer the following questions using the information below: Jenny's Corporation manufactured 25,000 grooming kits for horses during March. The fixed-overhead cost-allocation rate is $20.00 per machine-hour. The following fixed overhead data pertain to March: Actual 25,000 units 6,100 hours $123,000 Static Budget 24,000 units 6,000 hours $120,000 Production Machine-hours Fixed overhead costs for March 101) What is the flexible-budget amount? A) $120,000 B) $122,000 C) $123,000 D) $125,000 Answer: A Explanation: A) $ Diff: 2 T 5 AACSB: Analytical skills 102) What is the amount of fixed overhead allocated to production? A) $120,000 B) $122,000 C) $123,000 D) $125,000 Answer: D Explanation: D) 2 Diff: 3 T 5 AACSB: Analytical skills 103) What is the fixed overhead spending variance? A) $1,000 B) unfavorable $2,000 C) favorable $3,000 D) unfavorable $5,000 favorable Answer: C Explanation: C) $ Diff: 3 T 5 AACSB: Analytical skills 104) What is the fixed overhead production-volume variance? A) $1,000 B) unfavorable $2,000 C) favorable $3,000 D) unfavorable $5,000 favorable Answer: D Explanation: D) $ Diff: 3 T 5 AACSB: Analytical skills Answer the following questions using the information below: Rutch Corporation manufactured 54,000 door jambs during September. The fixed-overhead cost-allocation rate is $50.00 per machine-hour. The following fixed overhead data pertain to September: Actual 54,000 units 985 hours $53,400 Static Budget 60,000 units 1150 hours $57,500 Production Machine-hours Fixed overhead costs for September 105) What is the flexible-budget amount? A) $100,000 B) $53,400 C) $57,500 D) $51,750 Answer: C Explanation: C) $ Diff: 2 T 5 AACSB: Analytical skills 106) What is the amount of fixed overhead allocated to production? A) $51,750 B) $100,000 C) $53,400 D) $57,500 Answer: A Explanation: A) R Diff: 3 T 5 AACSB: Analytical skills 107) What is the fixed overhead spending variance? A) $5,750 B) unfavorable $5,750 C) favorable $4,100 D) favorable $4,100 unfavorable Answer: C Explanation: C) $ Diff: 3 T 5 AACSB: Analytical skills Answer the following questions using the information below: Matthew's Corporation manufactured 10,000 golf bags during March. The fixed overhead cost-allocation rate is $20.00 per machinehour. The following fixed overhead data pertain to March: Actual 10,000 units 5,100 hours $122,000 Static Budget 12,000 units 6,000 hours $120,000 Production Machine-hours Fixed overhead cost for March 108) What is the flexible-budget amount? A) $100,000 B) $102,000 C) $120,000 D) $122,000 Answer: C Explanation: C) $ Diff: 2 T 5 AACSB: Analytical skills 109) What is the amount of fixed overhead allocated to production? A) $100,000 B) $102,000 C) $120,000 D) $122,000 Answer: A Explanation: A) 1 Diff: 3 T 5 AACSB: Analytical skills 110) What is the fixed overhead production-volume variance? A) $2,000 B) unfavorable $18,000 C) favorable $20,000 D) unfavorable $22,000 unfavorable Answer: C Explanation: C) $ Diff: 3 T 5 AACSB: Analytical skills 111) Fixed overhead is: A) overallocated by $2,000 B) underallocated by $2,000 C) overallocated by $22,000 D) underallocated by $22,000 Answer: D Explanation: D) $ Diff: 3 T 5 AACSB: Analytical skills 112) The production-volume variance may also be referred to as the: A) flexible-budget variance B) denominatorC) level variance spending D) variance efficiency variance Answer: B Diff: 1 Terms: denominator level, denominator-level variance Objective: 5 AACSB: Analytical skills 113) A favorable production-volume variance indicates that the company: A) has good B) management has allocated C) more fixed overhead costs than budgeted has a total D) economic gain from using excess capacity should increase capacity Answer: B Diff: 2 Terms: production-volume variance Objective: 5 AACSB: Analytical skills 114) An unfavorable production-volume variance of $40,000 indicates that the company has: A) unused fixed B) manufacturing overhead capacity overallocated $40,000 of fixed manufacturing overhead costs C) $40,000 more capacity than needed D) an economic loss of $40,000 from selling fewer products than planned Answer: A Diff: 3 Terms: production-volume variance Objective: 5 AACSB: Analytical skills 115) When hours are used as a cost-allocation base, the item MOST likely to contribute to a favorable production-volume variance is: machineA) an increase in the selling price of the product B) the purchase of a new manufacturing machine costing considerably less than expected C) a decline in the cost of energy D) strengthened demand for the product Answer: D Diff: 3 Terms: production-volume variance Objective: 5 AACSB: Analytical skills 116) When hours are used as a cost-allocation base, the item MOST likely to contribute to an unfavorable production-volume variance machine- is: A) a new B) competitor gaining market share a new C) manufacturing machine costing considerably more than expected an increase in the cost of energy D) strengthened demand for the product Answer: A Diff: 3 Terms: production-volume variance Objective: 5 AACSB: Analytical skills 117) Excess capacity is a sign: A) that capacity B) should be reduced that capacity C) may need to be re-evaluated that the D) company is suffering a significant economic loss of good management decisions Answer: B Diff: 2 Terms: production-volume variance Objective: 5 AACSB: Reflective thinking 118) An unfavorable production-volume variance: A) is not a good B) measure of a lost production opportunity measures the C) total economic gain or loss due to unused capacity measures the D) amount of extra fixed costs planned for but not used takes into account the effect of additional revenues due to maintaining higher prices Answer: C Diff: 3 Terms: production-volume variance Objective: 5 AACSB: Reflective thinking 119) The between budgeted fixed manufacturing overhead and the fixed manufacturing overhead allocated to actual output units difference achieved is called the fixed overhead: A) efficiency B) variance flexible-budget variance C) combinedD) variance analysis productionvolume variance Answer: D Diff: 1 Terms: production-volume variance Objective: 5 AACSB: Reflective thinking 120) Variable overhead costs: A) never have any unused capacity B) have no C) production-volume variance allocated are D) always the same as the flexible-budget amount All of these answers are correct. Answer: D Diff: 2 Terms: total-overhead variance Objective: 6 AACSB: Reflective thinking 121) Fixed overhead costs: A) never have any unused capacity B) should be C) unitized for planning purposes are unaffected by the degree of operating efficiency in a given budget period D) Both A and B are correct. Answer: C Diff: 2 Terms: total-overhead variance Objective: 6 AACSB: Reflective thinking 122) Fixed overhead costs must be unitized for: A) financial B) reporting purposes planning C) purposes calculating the production-volume variance D) Both A and C are correct. Answer: D Diff: 2 Terms: production-volume variance Objective: 6 AACSB: Reflective thinking 123) Generally Accepted Accounting Principles require that unitized fixed manufacturing costs be used for: A) pricing B) decisions costing C) decisions external D) reporting All of these answers are correct. Answer: C Diff: 1 Terms: production-volume variance Objective: 6 AACSB: Reflective thinking 124) A nonfinancial measure of performance evaluation is: A) increased sales B) reducing C) distribution costs energy used per machine-hour D) All of these answers are correct. Answer: C Diff: 2 Terms: total-overhead variance Objective: 6 AACSB: Reflective thinking 125) Variance information regarding nonmanufacturing costs can be used to: A) plan capacity in the service sector B) control C) distribution costs in the retail sector determine the most profitable services offered by a bank D) All of these answers are correct. Answer: D Diff: 2 Terms: total-overhead variance Objective: 6 AACSB: Reflective thinking 126) Tucker standard cost system. In March, $133,000 of variable manufacturing overhead costs were incurred and the flexible-budget Company amount for the month was $150,000. Which of the following variable manufacturing overhead entries would have been uses a recorded for March? A) Accounts and other accounts Payable Control Work-in-Process Control B) 150,000 150,000 Variable Overhead Allocated Manufacturing Accounts Payable and other accounts C) 150,000 150,000 Work-inProcess Control D) 133,000 Accounts Payable Control and other accounts 133,000 Variable Overhead Control Manufacturing Accounts Payable Control and other accounts Answer: 133,000 133,000 D Diff: 2 Terms: standard costing Objective: 6 AACSB: Analytical skills 127) Alvarado Company Variable Manufacturing Overhead Allocated made the Variable Manufacturing Overhead Efficiency Variance following Variable Manufacturing Overhead Control journal Variable Manufacturing Overhead Spending Variance entry: A) 100,000 30,000 125,000 5,000 Alvarado B) overallocated variable manufacturing overhead. A $5,000 C) favorable spending variance was recorded. Work-inD) Process is currently overstated. This entry may be recorded yearly to provide timely feedback to managers. Answer: B Diff: 2 Terms: standard costing, variable overhead spending/efficiency variance Objective: 6 AACSB: Analytical skills 128) John's Actual fixed overhead $800,000 Football Fixed manufacturing overhead spending variance $20,000 favorable Manufact Fixed manufacturing production-volume variance $30,000 unfavorable uring Company To isolate these variances at the end of the accounting period, John would debit Fixed Manufacturing Overhead Allocated reported: for: A) $780,000 B) $790,000 C) $800,000 D) $810,000 Answer: B Explanation: B) $ Diff: 2 T 6 AACSB: Analytical skills 129) Brandon's reported: Basketbal Actual fixed overhead $1,000,000 l Fixed manufacturing overhead spending variance $60,000 unfavorable Manufact Fixed manufacturing production-volume variance $40,000 unfavorable uring Company To isolate these variances at the end of the accounting period, Brandon would: A) debit Fixed B) Manufacturing Overhead Allocated for $1,000,000 debit Fixed C) Manufacturing Overhead Spending Variance for $60,000 credit Fixed D) Manufacturing Production-Volume Variance for $40,000 credit Fixed Manufacturing Control Allocated for $900,000 Answer: B Diff: 2 Terms: standard costing, fixed overhead spending variance, production-volume variance Objective: 6 AACSB: Analytical skills 130) Jovana standard cost system. In March, $117,000 of variable manufacturing overhead costs were incurred and the flexible-budget Company amount for the month was $120,000. Which of the following variable manufacturing overhead entries would have been uses a recorded for March? A) Accounts and other accounts Payable Control Work-in-Process Control B) 120,000 120,000 Work-inProcess Control C) 120,000 Variable Manufacturing Overhead Allocated 120,000 Work-inProcess Control D) 117,000 Accounts Payable Control and other accounts 117,000 Accounts and other accounts Payable Control Variable Manufacturing Overhead Control Answer: 117,000 117,000 B Diff: 2 Terms: standard costing Objective: 6 AACSB: Analytical skills 131) Tate Company Variable Manufacturing Overhead Allocated makes the Variable Manufacturing Overhead Efficiency Variance following Variable Manufacturing Overhead Control journal Variable Manufacturing Overhead Spending Variance entry: A) 150,000 5,000 125,000 30,000 Tate B) underallocated variable manufacturing overhead. A $30,000 C) unfavorable spending variance was recorded. Work-inD) Process is currently understated. A $25,000 favorable flexible-budget variance was recorded. Answer: D Diff: 2 Terms: standard costing, variable overhead efficiency/spending variance Objective: 6 AACSB: Analytical skills 132) Jeremy's Actual fixed overhead $500,000 Football Fixed manufacturing overhead spending variance $30,000 favorable Manufact Fixed manufacturing production-volume variance $20,000 unfavorable uring Company To isolate these variances at the end of the accounting period, Jeremy would debit Fixed Manufacturing Overhead reported: Allocated for: A) $480,000 B) $490,000 C) $500,000 D) $510,000 Answer: D Diff: 2 Terms: standard costing, fixed overhead spending variance, production-volume variance Objective: 6 AACSB: Analytical skills 133) Kristin's reported: Basketbal Actual fixed overhead $800,000 l Fixed manufacturing overhead spending variance $60,000 favorable Manufact Fixed manufacturing production-volume variance $40,000 favorable uring Company To isolate these variances at the end of the accounting period, Kristin would debit: A) Fixed B) Manufacturing Overhead Allocated for $900,000 Fixed C) Manufacturing Overhead Spending Variance for $60,000 Fixed D) Manufacturing Production-Volume Variance for $40,000 All of these answers are correct. Answer: A Diff: 2 Terms: standard costing, fixed overhead spending variance, production-volume variance Objective: 6 AACSB: Analytical skills Answer the following questions using the information below: ProductionEfficiency $15,000 U (A) Variances Variable manufacturing overhead Fixed manufacturing overhead 134) Spending $ 4,500 F $10,000 U Volume (B) $40,000 U Above is a: A) 4-variance B) analysis 3-variance C) analysis 2-variance D) analysis 1-variance analysis Answer: A Diff: 1 Terms: total-overhead variance Objective: 6 AACSB: Analytical skills 135) In the above chart, the amounts for (A) and (B), respectively, are: A) $10,500 U; B) $55,000 U $10,500 U; C) Zero Zero; $55,000 U D) Zero; Zero Answer: D Diff: 1 Terms: total-overhead variance Objective: 6 AACSB: Analytical skills 136) In a 3- variance analysis the spending variance should be: A) $ 4,500 F B) $10,000 U C) $ 5,500 U D) $10,500 U Answer: C Explanation: C) $ Diff: 1 T 6 AACSB: Analytical skills 137) In a 2- variance analysis the flexible-budget variance and the production-volume variance should be ________, respectively. A) $5,500 U; B) $55,000 U $20,500 U; C) $40,000 U $10,500 U; D) $50,000 U $60,500 U; Zero Answer: B Explanation: B) $ Diff: 2 T 6 AACSB: Analytical skills 138) In a 1- variance analysis the total overhead variance should be: A) $20,500 U B) $60,500 U C) $121,000 U D) None of these answers is correct. Answer: B Explanation: B) $ Diff: 2 T 6 AACSB: Analytical skills Answer the following questions using the information below: Munoz, Inc., produces a special line of plastic toy racing cars. Munoz, Inc., produces the cars in batches. To manufacture a batch of the cars, Munoz, Inc., must set up the machines and molds. Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and molds for different styles of car. Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup-hours. The following information pertains to June 2004: Actual Amounts 15,000 250 5 $40 $14,400 Static-budget Amounts 11,250 225 5.25 $38 $14,000 Units produced and sold Batch size (number of units per batch) Setup-hours per batch Variable overhead cost per setup-hour Total fixed setup overhead costs 139) Calculate the efficiency variance for variable setup overhead costs. A) $1,900 B) unfavorable $600 C) unfavorable $1,900 D) favorable $600 favorable Answer: B Explanation: C) { Diff: 3 T 7 AACSB: Analytical skills 140) Calculate the spending variance for variable setup overhead costs. A) $1,900 B) unfavorable $1,900 C) favorable $600 D) unfavorable $600 favorable Answer: C Explanation: C) ( Diff: 3 T 7 AACSB: Analytical skills 141) Calculate the flexible-budget variance for variable setup overhead costs. A) $600 favorable B) $1,300 C) favorable $600 D) unfavorable $1,300 unfavorable Answer: B Explanation: B) $ Diff: 3 T 7 AACSB: Analytical skills 142) Calculate the spending variance for fixed setup overhead costs. A) $3,200 B) unfavorable $400 C) unfavorable $3,600 D) unfavorable $400 favorable Answer: B Explanation: B) $ Diff: 3 T 7 AACSB: Analytical skills 143) Calculate the production-volume variance for fixed setup overhead costs. A) $4,666.67 B) unfavorable $400 C) unfavorable $4,666.67 D) favorable $400 favorable Answer: C Explanation: C) N Diff: 3 T [ 7 AACSB: Analytical skills Answer the following questions using the information below: Lukehart Industries, Inc., produces air purifiers. Lukehart, Inc., produces the air purifiers in batches. To manufacture a batch of the purifiers, Lukehart, Inc., must set up the machines and assembly line tooling. Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and tooling for different models of the air purifiers. Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup-hours. The following information pertains to June 2008: Budget Amounts 10,000 400 6 $50 $18,000 Actual Amounts 9,000 375 5.5 $52 $17,750 Units produced and sold Batch size (number of units per batch) Setup-hours per batch Variable overhead cost per setup-hour Total fixed setup overhead costs 144) Calculate the efficiency variance for variable setup overhead costs. A) $150 favorable B) $114 favorable C) $264 D) unfavorable $264 favorable Answer: A Explanation: A) { Diff: 3 T 7 AACSB: Analytical skills 145) Calculate the spending variance for variable setup overhead costs. A) $150 B) unfavorable $150 favorable C) $264 D) unfavorable $264 favorable Answer: C Explanation: C) ( Diff: 3 T 7 AACSB: Analytical skills 146) Calculate the flexible-budget variance for variable setup overhead costs. A) $114 favorable B) $264 favorable C) $264 D) unfavorable $114 unfavorable Answer: D Explanation: D) $ Diff: 3 T 7 AACSB: Analytical skills 147) Calculate the spending variance for fixed setup overhead costs. A) $250 B) unfavorable $150 C) unfavorable $250 favorable D) $150 favorable Answer: C Explanation: B) $ Diff: 3 T 7 AACSB: Analytical skills 148) Calculate the production-volume variance for fixed setup overhead costs. A) $1,800 B) favorable $1,800 C) unfavorable $250 D) unfavorable $250 favorable Answer: B Explanation: B) N Diff: 3 T [ 7 AACSB: Analytical skills 149) Fixed and variable cost variances can ________ be applied to activity-based costing systems. A) always B) most times C) seldom D) never Answer: A Diff: 1 Terms: total-overhead variance Objective: 7 AACSB: Analytical skills 150) Jael employee days. The costs and cost drivers were to be as follows: Equipmen t uses a Fixed Variable Cost driver flexible Product handling $30,000 $0.40 per unit budget for Inspection 8,000 8.00 per 100 unit batch its Utilities 400 4.00 per 100 unit batch indirect Maintenance 1,000 0.20 per machine-hour manufact Supplies 5.00 per employee day uring costs. For During the year, the company processed 20,000 units, worked 7,500 employee days, and had 4,000 machine-hours. The 20X5, the actual costs for 20X5 were: company anticipate Actual costs d that it Product handling $36,000 would Inspection 9,000 produce Utilities 1,600 18,000 Maintenance 1,200 units with Supplies 37,500 3,500 machine- Required: hours and a. Prepare the static budget using the overhead items above and then compute the static-budget variances. 7,200 b. Prepare the flexible budget using the overhead items above and then compute the flexible-budget variances. Answer: a. Jael Equipment Overhead Static Budget with Variances 20X5 Static Actual Budget Variances Product handling $36,000 $37,200 $1,200 F Inspection 9,000 9,440 440 F Utilities 1,600 1,120 480 U Maintenance 1,200 1,700 500 F Supplies 37,500 36,000 1,500 U Total $85,300 $85,460 $160 F b. Jael Equipment Overhead Flexible Budget with Variances 20X5 Flexible Actual Budget Variances Product handling $36,000 $38,000 $2,000 Inspection 9,000 9,600 600 F Utilities 1,600 1,200 400 U Maintenance 1,200 1,800 600 F Supplies 37,500 37,500 0 Total $85,300 $88,100 $2,800 F Diff: 2 Terms: fxd ovrhd flexbud/spending, prodvol, var ovrhd spending, var ovrhd efficiency varnc Objective: 1 AACSB: Analytical skills 151) Heather's based on production of 20,000 pillows with 0.5 machine-hour allowed per pillow. Variable manufacturing overhead is Pillow anticipated to be $220,000. Company manufact Actual production for 20X5 was 18,000 pillows using 9,500 machine-hours. Actual variable costs were $20 per machineures hour. pillows. The 20X5 Required: operating budget is Calculate the variable overhead spending and efficiency variances. Answer: Budgeted variable overhead per hour = $220,000/(20,000 × 0.5) machine-hours = $22 Spending variance = ($22 - $20) × 9,500 = $19,000 favorable Efficiency variance = [9,500 - (20,000 × 0.5)] × $22 = $11,000 unfavorable Diff: 3 Terms: variable overhead spending variance, variable overhead efficiency variance Objective: 3 AACSB: Analytical skills 152) Cirilla's Weatherv ane Company manufact ures weatherva nes. The 2008 operating budget is based on the production of 10,000 weathervanes with 1.25 machine-hour allowed per weathervane. Variable manufacturing overhead is anticipated to be $300,000. Actual production for 2008 was 11,000 weathervanes using 12,100 machine-hours. Actual variable costs were $23.75 per machine-hour. Required: Calculate the variable overhead spending and the efficiency variances. Answer: Budgeted variable overhead per hour = $300,000/(10,000 × 1.25) machine-hours = $24 Spending variance = ($24 - $23.75) × 12,100 = $3,025 favorable Efficiency variance = [12,100 - (11,000 × 1.25)] × $24 = $39,600 unfavorable Diff: 3 Terms: variable overhead spending variance, variable overhead efficiency variance Objective: 3 AACSB: Analytical skills 153) McKenna puter that contained the month's cost information broke down. With the computer out of commission, the accountant has Company been unable to complete the variance analysis report. The information missing from the report is lettered in the following manufact set of data: ured 1,000 Variable overhead: units Standard cost per unit: 0.4 labor hour at $4 per hour during Actual costs: $2,100 for 376 hours April with Flexible budget: a a total Total flexible-budget variance: b overhead Variable overhead spending variance: c budget of Variable overhead efficiency variance: d $12,400. However, Fixed overhead: while Budgeted costs: e manufact Actual costs: f uring the Flexible-budget variance: $500 favorable 1,000 units the Required: microcom Compute the missing elements in the report represented by the lettered items. Answer: a. 1,000 × 0.40 × $4 = $1,600 b. $2,100 - $1,600 = $500 unfavorable c. $2,100 - (376 × $4) = $596 unfavorable d. $1,504 - $1,600 = $96 favorable e. $12,400 $1,600 = $10,800 f. $10,800 - $500 favorable = $10,300 Diff: 3 Terms: var ovrhd flexbud/spend varnc, var ovrhd efficiency/fixed ovrhd flex-budget varnc Objective: 3, 4, 5 AACSB: Analytical skills 154) Everjoice Company makes clocks. The fixed overhead costs for 20X5 total $720,000. The company uses direct labor-hours for fixed overhead allocation and anticipates 240,000 hours during the year for 480,000 units. An equal number of units are budgeted for each month. During June, 42,000 clocks were produced and $63,000 were spent on fixed overhead. Required: a. Determine the fixed overhead rate for 20X5 based on units of input. b. Determine the fixed overhead static-budget variance for June. c. Determine the production-volume overhead variance for June. Answer: a. Fixed overhead rate = $720,000/240,000 = $3.00 per hour b. Fixed overhead static budget variance = $63,000 ($720,000/12) = $3,000 unfavorable c. Budgeted fixed overhead rate per output unit = $720,000/480,000 = $1.50 Denominator level in output units = (40,000 - 42,000) × $1.50 = $3,000 favorable Diff: 3 Terms: fixed overhead spending variance, production-volume variance Objective: 5 AACSB: Analytical skills 155) Brown The company uses direct labor-hours for fixed overhead allocation and anticipates 10,800 hours during the year for Company 540,000 units. An equal number of units are budgeted for each month. makes watches. During October, 48,000 watches were produced and $28,000 was spent on fixed overhead. The fixed overhead Required: costs for a. Determine the fixed overhead rate for 2008 based on the units of input. 2008 total b. Determine the fixed overhead static-budget variance for October. $324,000. c. Determine the production-volume overhead variance for October. Answer: a. Fixed overhead rate = $324,000/10,800 = $30.00 per hour b. Fixed overhead static budget variance = $28,000 ($324,000/12) = $1,000 unfavorable c. Budgeted fixed overhead rate per output unit = $324,000/540,000 = $0.60 Denominator level in output units = (45,000 - 48,000) × $0.60 = $1,800 favorable Diff: 3 Terms: fixed overhead spending variance, production-volume variance Objective: 5 AACSB: Analytical skills 156) Lungren $260,000 for variable costs and $435,000 for fixed costs. Actual costs for the month totaled $275,000 for variable and has $445,000 for fixed. Allocated fixed overhead totaled $440,000. The company tracks each item in an overhead control budgeted account before allocations are made to individual jobs. Spending variances for August were $10,000 unfavorable for constructi variable and $10,000 unfavorable for fixed. The production-volume overhead variance was $5,000 favorable. on overhead Required: for a. Make journal entries for the actual costs incurred. August of b. Make journal entries to record the variances for August. Answer: a. Variable Overhead Control 275,000 Accounts Payable and other accounts 275,000 To record actual variable construction overhead Fixed Overhead Control 445,000 Accumulated Depreciation, etc. 445,000 To record actual fixed construction overhead b. Variable Overhead Allocated 260,000 Variable Overhead Spending Variance 10,000 Variable Overhead Efficiency Variance* 5,000 Variable Overhead Control 275,000 To record variances for the period *Arrived at this number by $275,000 - $260,000 - $5,000 Fixed Overhead Allocated 440,000 Fixed Overhead Spending Variance 10,000 Diff: 3 Terms: stndrd costing, var ovrhd effic/spending varnc, fixed ovrhd spending/prod-vol varnc Objective: 6 AACSB: Analytical skills 157) Different comply with the managers' requests, four different variances for manufacturing overhead are computed each month. The managem information for the September overhead expenditures is as follows: ent levels in Bates, Budgeted output units 3,200 units Inc., Budgeted fixed manufacturing overhead $20,000 require Budgeted variable manufacturing overhead $5 per direct labor hour varying Budgeted direct manufacturing labor hours 2 hours per unit degrees of Fixed manufacturing costs incurred $26,000 manageria Direct manufacturing labor hours used 7,200 l Variable manufacturing costs incurred $35,600 accountin Actual units manufactured 3,400 g informati Required: on. a. Compute a 4-variance analysis for the plant controller. Because b. Compute a 3-variance analysis for the plant manager. of the c. Compute a 2-variance analysis for the corporate controller. need to d. Compute the flexible-budget variance for the manufacturing vice president. Answer: a. 4-variance analysis: Variable overhead spending variance = $35,600 (7,200 × $5) = $400 favorable Variable overhead efficiency variance = $5 × (7,200 - 6,800*) = $2,000 unfavorable *3,400 units × 2 hours = 6,800 hours Fixed overhead spending variance = $26,000 - $20,000 = $6,000 unfavorable Fixed overhead production-volume variance = $20,000 (3,400 × 2 × $3.125*) = $1,250 favorable *$20,000/(3,200 units × 2 hours) = $3.125 b. 3-variance analysis: Spending variance = $400 favorable + $6,000 unfavorable = $5,600 unfavorable Efficiency variance = $2,000 unfavorable Productionvolume variance = $1,250 favorable c. 2-variance analysis: Flexible-budget variance = $400 F + $2,000 U + $6,000 U = $7,600 unfavorable Diff: 3 Terms: fxd ovrhd flexbud/spending/var ovrhd efficiency/flexbud/spending/prodvol varnc Objective: 6 AACSB: Analytical skills 158) Casey Casey Corporation must set up the machines and molds. Setup costs are batch-level costs because they are associated with Corporati batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and on molds for different styles of basketball hoops. produces a special Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of line of setup-hours. The following information pertains to January 2005. basketball hoops. Static-budget Actual Casey Amounts Amounts Corporati Basketball hoops produced and sold 30,000 28,000 on Batch size (number of units per batch) 200 250 produces Setup-hours per batch 5 4 the hoops Variable overhead cost per setup hour $10 $9 in Total fixed setup overhead costs $22,500 $21,000 batches. To Required: manufact ure a a. Calculate the efficiency variance for variable setup overhead costs. batch of b. Calculate the spending variance for variable setup overhead costs. the c. Calculate the flexible-budget variance for variable setup overhead costs. basketball d. Calculate the spending variance for fixed setup overhead costs. hoops, e. Calculate the production-volume variance for fixed setup overhead costs. Answer: a. ((28,000 / 250) × 4 × $10) (28,000 / 200) × 5 × $10) = $2,520 (F) b. (28,000 / 250) × 4 × ($9 - $10) = $448 (F) c. $2,520 (F) + $448 (F) = $2,968 (F) d. $22,500 $21,000 = $1,500 (F) e. Normal setuphours = (30,000 / 200) × 5 = 750 hours OH rate = $22,500 / 750 = $30 per setup-hour $22,500 ((28,000 / 200) × 5 × $30) = $1,500 (U) Diff: 3 Terms: variable overhead efficiency/spending var, fixed overhead spending/prod-vol Objective: v a r 7 AACSB: Analytical skills 159) Briefly explain the meaning of the variable overhead efficiency variance and the variable overhead spending variance. Answer: The variable overhead efficiency variance is the difference between actual quantity of the cost-allocation base used and the budgeted amount of the cost allocation base that should have been used to produce the actual output, multiplied by budgeted variable overhead cost per unit of the costallocation base. The efficiency variance for variable overhead cost is based on the efficiency with which the cost allocation base was used to make the actual output. The variable overhead spending variance is the difference between the actual variable overhead cost per unit of the costallocation base and the budgeted variable overhead cost per unit of the cost-allocation base, multiplied by actual quantity of the variable overhead cost-allocation base used for actual output. The meaning of this variance hinges on an explanation of why the per unit cost of the allocation base is lower or higher than budgeted. Some explanations might include differentthan-budgeted prices for the individual inputs to variable overhead or perhaps more efficient usage of some of the variable overhead items. Diff: 2 Terms: variable overhead efficiency variance, variable overhead spending variance Objective: 3 AACSB: Reflective thinking 160) Briefly explain why a favorable variable overhead spending variance may not always be desireable. Answer: The variable overhead spending variance is the difference between the actual variable overhead cost per unit of the costallocation base and the budgeted variable overhead cost per unit of the cost-allocation base, multiplied by the actual quantity of the variable overhead cost-allocation base used for the actual output. If a favorable variable overhead spending variance had been obtained by the managers of the company purchasing low-priced, poorquality indirect materials, hired less talented supervisors, or performed less machine maintenance there could be negative future consequences. The long-run prospects for the business may suffer as the company ends up putting out a lower quality product, or it may end up having very large equipment repairs as a result of cutting corners in the short term. Diff: 2 Terms: variable overhead spending variance Objective: 3 AACSB: Reflective thinking 161) Can the efficiency variance variable a. be computed the same way as the efficiency variance for direct-cost items? overhead b. be interpreted the same way as the efficiency variance for direct-cost items? Explain. Answer: a. Yes, the variable overhead efficiency variance can be computed the same way as the efficiency variance for direct-cost items. b. No, the interpretations are different. The variable overhead efficiency variance focuses on the quantity of allocation-base used, while the efficiency variance for directcost items focuses on the quantity of materials and laborhours used. Diff: 2 Terms: variable overhead efficiency variance Objective: 3 AACSB: Analytical skills 162) Explain why there is no efficiency variance for fixed manufacturing overhead costs. Answer: There is no efficiency variance for fixed overhead costs because a given lump sum of fixed costs will be unaffected by how efficiently machinehours are used to produce output in a given budget period. Diff: 2 Terms: total-overhead variance Objective: 5 AACSB: Reflective thinking 163) How is a budgeted fixed overhead cost rate calculated? Answer: The budgeted fixed overhead cost rate is calculated by dividing the budgeted fixed overhead costs by the denominator level of the costallocation base. Diff: 2 Terms: production-volume variance Objective: 5 AACSB: Reflective thinking 164) Explain why there is no production-volume variance for variable manufacturing overhead costs. Answer: There is no production-volume variance for variable overhead costs because the amount of variable overhead allocated is always the same as the flexible-budget amount. Diff: 2 Terms: production-volume variance, totaloverhead variance Objective: 6 AACSB: Reflective thinking 165) Abby Company has just implemen ted a new cost accountin g system that provides two variances for fixed manufacturing overhead. While the company's managers are familiar with the concept of spending variances, they are unclear as to how to interpret the production-volume overhead variances. Currently, the company has a production capacity of 54,000 units a month, although it generally produces only 46,000 units. However, in any given month the actual production is probably something other than 46,000. Required: a. Does the production-volume overhead variance measure the difference between the 54,000 and 46,000, or the difference between the 46,000 and the actual monthly production? Explain. b. What advice can you provide the managers that will help them interpret the production-volume overhead variances? Answer: a. It is the difference between the 46,000 and the actual production level for the period. The difference between the 54,000 and the 46,000 is the unused capacity that was planned for the period. The difference between the 46,000 and the actual level was not planned. b. When actual outputs are less than the denominator level, the production-volume variance is unfavorable. This is opposite the label given other variances that have a favorable label when costs are less than the budgeted amount; therefore, caution is needed. The productionvolume variance is favorable when actual production exceeds what was planned for the period. This actually provides for a cost per unit amount that was less than budgeted using the planned denominator. Diff: 3 Terms: production-volume variance Objective: 5 AACSB: Analytical skills 166) Explain the meaning of a favorable production-volume variance. Answer: The productionvolume variance is favorable when actual production exceeds that which is planned for the period. When this happens, it results in a fixed cost per unit that is less than budgeted amount using the planned production. Diff: 3 Terms: production-volume variance Objective: 5 AACSB: Reflective thinking 167) What are arguments for prorating a production-volume variance that has been deemed to be material among work-in-process, the finished goods, cost and cost of goods sold as opposed to writing it all off to cost of goods sold? Answer: If variances are always written off to cost of goods sold, a company could set its standards to either increase (for financial reporting purposes) or decrease (for tax purposes) operating incomes. The proration method has the effect of approximating the allocation of fixed costs based on actual costs and actual output so it is not susceptible to the manipulation of operating income based on the choice of the denominator level. Diff: 3 Terms: production-volume variance Objective: 5 AACSB: Analytical skills 168) Explain two concerns when interpreting the production-volume variance as a measure of the economic cost of unused capacity. Answer: The first concern would be the fact that management might have maintained some extra capacity to meet uncertain demand surges that are important to satisfy. If these surges are not occurring in a given year an unfavorable production-volume variance might occur. The second concern would be to note that this variance only focuses on fixed overhead costs, and ignores the possibility that price decreases might have been necessary to spur the extra demand to make use of any idle capacity. Diff: 3 Terms: production-volume variance Objective: 5 AACSB: Reflective thinking 169) Explain why sales-volume variance could be helpful to managers. Answer: The sales-volume variance is comprised of the operating income volume variance and the production volume variance. The sales-volume variance is useful because it helps managers understand the significant changes in contribution margin, which will occur as a result of selling fewer (or more) units than called for by the budgeted level. It assumes that the fixed costs remain at the budgeted level and can be helpful to managers as they perform sensitivity analysis to see the effects of potential changes in sales volume (up or down). Based on this type of information, they could potentially make more informed decisions on pricing and other strategies. Diff: 3 Terms: total-overhead variance Objective: 6 AACSB: Reflective thinking 170) The chapter shows that variance analysis of overhead costs can be presented in 4, 3, 2, and 1-variance analysis. Explain what each of the variances presented under each method shows about overhead costs. Answer: Under the 4-variance analysis, there is a spending variance shown for the variable manufacturing overhead, a spending variance for the fixed overhead component, an efficiency variance for the variable overhead, and a production-volume variance for the fixed overhead. When the firm uses a 3-variance approach, the fixed and variable spending variance is combined into a single variance, while the variable overhead efficiency is still shown separately and the fixed overhead production-volume variance is singled out. In the 2variance method, the fixed and variable spending variances are combined into one amount along with the variable efficiency, and then the fixed productionvolume is shown as a separate variance. The 1-variance method shows the difference between the actual costs incurred and the flexible-budget amount for the output level achieved. Diff: 3 Terms: total-overhead variance Objective: 6 AACSB: Reflective thinking ...
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This note was uploaded on 09/18/2010 for the course ACCT 424 taught by Professor All during the Spring '10 term at DeVry Long Beach.

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