Hilton_MAcc_Ch11_Solution

# Hilton_MAcc_Ch11_Solution - CHAPTER 11 Flexible Budgeting...

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CHAPTER 11 Flexible Budgeting and the Management of Overhead and Support Activity Costs ANSWERS TO REVIEW QUESTIONS 11-1 A static budget is based on only one level of activity. A flexible budget allows for several different levels of activity. 11-2 The advantage of a flexible budget is that it is responsive to changes in the activity level. It enables a comparison between actual costs incurred at the actual level of activity and the standard allowed costs that should have been incurred at the actual level of activity. 11-17 The control purpose of a standard-costing system is to provide benchmarks against which to compare actual costs. Then management by exception is used to follow up on significant variances and take corrective action. The product-costing purpose of the standard-costing system is to determine the cost of producing goods and services. Product costs are needed for a variety of purposes in both managerial and financial accounting. SOLUTIONS TO EXERCISES EXERCISE 11-22 (20 MINUTES) 1. Variable-overhead spending variance = actual variable overhead – (AH × SVR) = \$607,500 – (60,750 × \$9.00) = \$60,750 U 2. Variable-overhead efficiency variance = SVR(AH – SH) = \$9.00(60,750 – 54,000*) = \$60,750 U * SH = 54,000 hrs. = 13,500 cases × 4 hours per case 3. Fixed-overhead budget variance = actual fixed overhead – budgeted fixed overhead = \$183,000 – \$180,000 = \$3,000 U

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4. Fixed-overhead volume variance = budgeted fixed overhead – applied fixed overhead = \$180,000 – \$162,000 = \$18,000 (positive)** Applied fixed overhead = × hours allowed standard rate overhead fixed ned predetermi = 4) (13,500 4 15,000 \$180,000 × × × = \$162,000 **Consistent with the discussion in the text, we choose not to interpret the volume variance as either favorable or unfavorable. Some accountants would designate a positive volume variance as "unfavorable" and a negative volume variance as "favorable." EXERCISE 11-30 (10 MINUTES) 1. Flexible budgeted amounts, using activity-based flexible budget: a. Indirect material: \$33,000 (\$18,000 + \$3,000 + \$3,000 + \$9,000) b. Utilities: \$6,000 (\$4,500 + \$1,500) c. Inspection: \$3,300 d. Test kitchen: \$2,400 e. Material handling: \$3,000 f. Total overhead cost: \$64,800 (\$45,000 + \$7,800 + \$2,400 + \$3,000 + \$6,600) 2. Variance for setup cost: a. Using the activity-based flexible budget: \$1,000 F (actual cost minus flexible budget = \$3,500 – \$4,500) b. Using the conventional flexible budget: \$500 U (actual cost minus flexible budget = \$3,500 – \$3,000) EXERCISE 11-31 (45 MINUTES) Budgeted fixed overhead. ................................................................... \$ 25,000 Actual fixed overhead . ....................................................................... \$ 32,500 a
Budgeted production in units . ........................................................... 12,500

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Hilton_MAcc_Ch11_Solution - CHAPTER 11 Flexible Budgeting...

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