As part of her annual review of her companys budgets

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Chapter 23 / Exercise 23-3
Accounting
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8-18 As part of her annual review of her company’s budgets versus actuals, Mary Gerard isolates unfavorable variances with the hope of getting a better understanding of what caused them and how to avoid them next year. The variable overhead efficiency variance was the most unfavorable over the previous year, which Gerard will specifically be able to trace to: a. Actual overhead costs below applied overhead costs. b. Actual production units below budgeted production units. c. Standard direct labor hours below actual direct labor hours. d. The standard variable overhead rate below the actual variable overhead rate. SOLUTION Choice "c" is correct. The variable overhead efficiency variance is calculated as the difference between actual direct labor hours used versus standard (budgeted) direct labor hours allowed, multiplied by the standard variable overhead rate. If standard hours are below actual hours, this would mean more hours were used than expected and would therefore cause an unfavorable variance. Choice "a" is incorrect. Overall overhead variance is calculated as actual costs versus applied costs, and this situation would be favorable because applied is above actual. Choice "b" is incorrect. The volume variance focuses on actual versus budgeted units of production.
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Chapter 23 / Exercise 23-3
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Choice "d" is incorrect. The actual variable overhead rate does not factor into the variable overhead efficiency variance calculation. 8-19 Culpepper Corporation had the following inventories at the beginning and end of the month of January: January 1 January 31 Finished goods $125,000 $117,000 Work-in-process 235,000 251,000 Direct materials 134,000 124,000 The following additional manufacturing data was available for the month of January. Direct materials purchased $189,000 Transportation in 3,000 Direct labor 400,000 Actual factory overhead 175,000 Culpepper Corporation applies factory overhead at a rate of 40% of direct labor cost, and any overapplied or underapplied factory overhead is deferred until the end of the year. Culpepper’s balance in its factory overhead control account at the end of January was:

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