MULTIPLE CHOICE QUESTIONS

1. A static budget:
A. is based totally on prior year's costs.
B. is based on one anticipated activity level.
C. is based on a range of activity.
D. is preferred over a flexible budget in the evaluation of performance.
E. presents a clear measure of performance hen planned activity differs from actual
activity.
Anser: B !": 1 #ype: $C
%. &lexible budgets reflect a company's anticipated costs based on variations in:
A. activity levels.
B. inflation rates.
C. managers.
D. anticipated capital ac'uisitions.
E. standards.
Anser: A !": 1 #ype: $C
(. A flexible budget:
A. parallels a static budget ith respect to format and advantages of use.
B. is preferred over a static budget in the evaluation of performance.
C. gives management flexibility in terms of meeting budget goals.
D. can be used to compare actual and budgeted costs at various levels of activity.
E. is characteri)ed by choices *B* and *D* above.
Anser: E !": 1 #ype: $C
+. ,nterstate -erchandising anticipated selling %./000 units of a ma1or product and paying sales
commissions of 23 per unit. Actual sales and sales commissions totaled (1/400 units and
215%/600/ respectively. ,f the company used a static budget for performance evaluations/
,nterstate ould report a cost variance of:
A. 23/(007.
B. 23/(00&.
C. 25/6007.
D. 25/600&.
E. some other amount not listed above.
Anser: C !": 1 #ype: A
Chapter 11 47
4. -ain 8treet -erchandising anticipated selling %+/000 units of a ma1or product and paying
sales commissions of 24 per unit. Actual sales and sales commissions totaled %(/300 units and
21%0/(30/ respectively. ,f the company used a flexible budget for performance evaluations/
-ain 8treet ould report a cost variance of:
A. 2(307.
B. 2(30&.
C. 2%/(307.
D. 2%/(30&.
E. some other amount not listed above.
Anser: C !": 1 #ype: A
3. Badger Ba9eries anticipated ma9ing 16/000 fancy ca9es during a recent period/ re'uiring
1+/000 hours of process time. Each hour of process time as expected to cost the firm 211.
Actual activity for the period as higher than anticipated: 15/000 ca9es and 14/%00 hours. ,f
each hour of process time actually cost Badger 21%/ hat process:time variance ould be
disclosed on a performance report that incorporated static budgets and flexible budgets;
8tatic &lexible
A. 214/%007 214/%007
B. 214/%007 2%5/+007
C. 2%5/+007 214/%007
D. 2%5/+007 2%5/+007
E. <one of the above
Anser: C !": 1 #ype: A
6. !antern Corporation recently prepared a manufacturing cost budget for an output of 40/000
units/ as follos:
Direct materials 2100/000
Direct labor 40/000
=ariable overhead 64/000
&ixed overhead 100/000
Actual units produced amounted to 30/000. Actual costs incurred ere: direct materials/
2110/000> direct labor/ 230/000> variable overhead/ 2100/000> and fixed overhead/ 2.6/000. ,f
!antern evaluated performance by the use of a flexible budget/ a performance report ould
reveal a total variance of:
A. 2(/000 favorable.
B. 2%(/000 favorable.
C. 2%6/000 unfavorable.
D. 2+%/000 unfavorable.
E. none of the above amounts.
Anser: A !": 1/ % #ype: A
48 Hilton, Managerial Accounting, Seventh Edition
5. ?in/ ,nc./ is planning its cash needs for an upcoming period hen 54/000 machine hours are
expected to be or9ed. Activity may drop as lo as 65/000 hours if some overdue e'uipment
maintenance procedures are performed> on the other hand/ activity could 1ump to .+/000 hours
if one of ?in's ma1or competitors li9ely goes ban9rupt. A flexible cash budget to determine
cash needs ould best be based on:
A. 65/000 hours.
B. 54/000 hours.
C. .+/000 hours.
D. 65/000 hours and .+/000 hours.
E. 65/000 hours/ 54/000 hours/ and .+/000 hours.
Anser: E !": % #ype: <
.. @oung Corporation has a high probability of operating at +0/000 activity hours during the
upcoming period/ and loer probabilities of operating at (0/000 hours and 40/000 hours. #he
company's flexible budget revealed the folloing:
(0/000 Aours +0/000 Aours 40/000 Aours
=ariable costs 21(4/000 2150/000 2%%4/000
&ixed costs 6%0/000 6%0/000 6%0/000
@oung's flexible:budget formula/ here @ is defined as total cost and AA represents activity
hours/ is:
A. @ B 2+.40AA C 2%+AA.
B. @ B 2+.40AA C 26%0/000.
C. @ B 2%%.40AA.
D. @ B 2150/000 C 215AA.
E. @ B 2.+4/000.
Anser: B !": % #ype: A
10. Dourmet $estaurants has the folloing flexible:budget formula:
@ B 21(EA C 2+40/000 here EA is defined as process hours
Fhich of the folloing statements is GareH true;
A. Dourmet has 2+40/000 of fixed costs.
B. Each additional hour of process time is expected to cost Dourmet 21(.
C. @ ould e'ual the amount shon as *total cost* in the firm's flexible budget.
D. Choices *A* and *B* are true.
E. Choices *A/* *B/* and *C* are true.
Anser: E !": % #ype: <
Chapter 11 49
11. Delicious #reats GD#H anticipated that 5+/000 process hours ould be or9ed during an
upcoming accounting period hen/ in fact/ .%/000 hours ere actually or9ed. "ne of the
companyIs cost functions is expressed as follos:
@ B 213EA C 23+0/000 here EA is defined as process hours
Fhat budgeted dollar amount ould appear in D#Is static budget and flexible budget for the
preceding cost function;
8tatic &lexible
A. 21/.5+/000 21/.5+/000
B. 21/.5+/000 2%/11%/000
C. 2%/11%/000 21/.5+/000
D. 2%/11%/000 2%/11%/000
E. <one of the above.
Anser: B !": % #ype: A/ <

1%. Fhich of the folloing mathematical expressions is found in a typical flexible:budget formula
for overhead;
A. #otal activity units C budgeted fixed overhead cost per unit.
B. Budgeted variable overhead cost per unit C budgeted fixed overhead cost.
C. GBudgeted variable overhead cost per unit x total activity unitsH C budgeted fixed
overhead costs.
D. GBudgeted fixed overhead cost per unit x total activity unitsH C Gbudgeted variable
overhead cost per unit x total activity unitsH.
E. <one of the above.
Anser: C !": % #ype: $C
1(. A flexible budget for 14/000 hours revealed variable manufacturing overhead of 2.0/000 and
fixed manufacturing overhead of 21%0/000. #he budget for %4/000 hours ould reveal total
overhead costs of:
A. 2%10/000.
B. 2%60/000.
C. 2%.0/000.
D. 2(40/000.
E. some other amount.
Anser: B !": % #ype: A
1+. A flexible budget is appropriate for aGnH:
Direct !abor
Budget
-ar9eting
Budget
Administrative
Expense Budget
A. <o <o <o
B. <o @es @es
C. @es <o @es
D. @es @es @es
E. <o <o @es
50 Hilton, Managerial Accounting, Seventh Edition
Anser: D !": % #ype: <
Chapter 11 51
14. A flexible budget is appropriate for a:
8ales Commission
Budget
Direct -aterial
Budget
=ariable "verhead
Budget
A. @es <o @es
B. @es @es @es
C. <o @es <o
D. <o <o <o
E. <o @es @es
Anser: B !": % #ype: <
13. #he manufacturing overhead applied to For9:in:Erocess ,nventory by a company that uses
standard costing ould be computed as:
A. actual hours x a predetermined GstandardH overhead rate.
B. standard hours x a predetermined GstandardH overhead rate.
C. actual hours x an actual overhead rate.
D. standard hours x an actual overhead rate.
E. 20/ as these firms do not apply overhead to or9 in process.
Anser: B !": ( #ype: $C
16. Fith respect to overhead/ hat is the difference beteen normal costing and standard costing;
A. 7se of a predetermined overhead rate.
B. 7se of standard hours versus actual hours.
C. 7se of a standard rate versus an actual rate.
D. #he choice of an activity measure.
E. #here is no difference.
Anser: B !": ( #ype: $C
15. #he activity measure selected for use in a variable: and fixed:overhead flexible budget:
A. should be stated in sales dollars.
B. should be approved by the company's president.
C. should vary in a similar behavior pattern to the ay that variable overhead varies.
D. should remain fixed.
E. should produce the most attractive results for the individual ho ill use the budget in
managerial applications.
Anser: C !": + #ype: $C
1.. Fhich of the folloing should have the strongest cause and effect relationship ith overhead
costs;
A. Cost folloers.
B. <on:value:added costs.
C. Cost drivers.
D. =alue:added costs.
E. 7nits of output.
Anser: C !": + #ype: $C
52 Hilton, Managerial Accounting, Seventh Edition
%0. Fhich of the folloing is not an overhead variance;
A. =ariable:overhead spending variance.
B. =ariable:overhead volume variance.
C. =ariable:overhead efficiency variance.
D. &ixed:overhead budget variance.
E. &ixed:overhead volume variance.
Anser: B !": 4 #ype: $C
%1. Fhich of the folloing is not an overhead variance;
A. =ariable:overhead spending variance.
B. =ariable:overhead efficiency variance.
C. &ixed:overhead efficiency variance.
D. &ixed:overhead budget variance.
E. &ixed:overhead volume variance.
Anser: C !": 4 #ype: $C
%%. Fhich of the folloing is used in the computation of the variable:overhead spending
variance;
Actual =ariable
"verhead Cost
Budgeted =ariable "verhead
Based on Actual Aours
8tandard =ariable
"verhead Applied
A. <o @es <o
B. <o <o <o
C. @es <o @es
D. @es @es <o
E. @es @es @es
Anser: D !": 4 #ype: $C
%(. Fhich of the folloing elements are needed in a straightforard calculation of the variable:
overhead spending variance;
A. =ariable overhead incurred during the period.
B. Budgeted variable overhead based on actual hours or9ed.
C. 8tandard variable overhead applied to production.
D. Elements *A* and *B* above.
E. Elements *A* and *C* above.
Anser: D !": 4 #ype: $C
Chapter 11 5
%+. Assume that machine hours is the cost driver for overhead. #he difference beteen the actual
variable overhead incurred and the applied variable overhead is the:
A. volume variance.
B. net overhead variance.
C. efficiency variance.
D. sum of the spending and efficiency variances.
E. spending variance.
Anser: D !": 4 #ype: $C
%4. Fhat ill cause the variable:overhead efficiency variance;
A. Efficient or inefficient use of a specific component of variable overhead Ge.g./ electricityH.
B. &ull or partial utili)ation of ma1or e'uipment resources.
C. Eroduction of units in excess of the number of units sold.
D. Efficient or inefficient use of the cost driver Ge.g./ machine hoursH for variable overhead.
E. Changes in the salary cost of production supervisors.
Anser: D !": 4 #ype: <
%3. 8mithville uses labor hours to apply variable overhead to production. ,f the company's
or9ers ere very inefficient during the period/ hich of the folloing statements ould be
true about the variable:overhead efficiency variance;
A. #he variance ould be favorable.
B. #he variance ould be unfavorable.
C. #he nature of the variance Gfavorable or unfavorableH ould be un9non based on the
facts presented.
D. #he variance ould be the same amount as the labor efficiency variance.
E. <one of the above.
Anser: B !": 4 #ype: <
%6. #he difference beteen the total actual factory overhead and the total factory overhead applied
to production is the:
A. sum of the spending/ efficiency/ budget/ and volume variances.
B. controllable variance.
C. efficiency variance.
D. spending variance.
E. volume variance.
Anser: A !": 4 #ype: $C
54 Hilton, Managerial Accounting, Seventh Edition
%5. Fhich of the folloing variances ould be useful to help control overhead spending;
=ariable:"verhead
8pending =ariance
&ixed:"verhead
Budget =ariance
&ixed:"verhead
=olume =ariance
A. @es @es @es
B. @es @es <o
C. @es <o <o
D. @es <o @es
E. <o @es <o
Anser: B !": 4 #ype: <
%.. #he budget variance arises from a comparison of:
A. budgeted fixed overhead expenditures ith budgeted fixed overhead costs.
B. actual fixed overhead costs ith budgeted fixed overhead costs.
C. actual variable overhead expenditures ith budgeted variable overhead costs.
D. variable overhead costs ith budgeted fixed overhead costs.
E. static:budget amounts ith flexible:budget amounts.
Anser: B !": 4 #ype: $C
(0. Fhich of the folloing is used in the computation of the fixed overhead budget variance;
Actual &ixed
"verhead
Budgeted &ixed
"verhead
&ixed "verhead Applied to
Eroduction
A. @es @es @es
B. @es @es <o
C. @es <o @es
D. @es <o <o
E. <o @es @es
Anser: B !": 4 #ype: $C
(1. #he difference beteen budgeted fixed manufacturing overhead and the fixed overhead
applied to production is the:
A. sum of the spending and efficiency variances.
B. controllable variance.
C. efficiency variance.
D. spending variance.
E. volume variance.
Anser: E !": 4 #ype: $C
(%. A fixed:overhead volume variance ould normally arise hen:
A. actual hours of activity coincide ith actual units of production.
B. budgeted fixed overhead is overapplied to production.
C. there is a fixed:overhead budget variance.
D. actual fixed overhead exceeds budgeted fixed overhead.
E. there is a variable:overhead efficiency variance.
Anser: B !": 4 #ype: $C
Chapter 11 55
5! Hilton, Managerial Accounting, Seventh Edition
((. Fhich variance is commonly associated ith measuring the cost of under: or over:utili)ation
of plant capacity;
A. #he variable:overhead spending variance.
B. #he variable:overhead efficiency variance.
C. #he fixed:overhead budget variance.
D. #he fixed:overhead volume variance.
E. #he total fixed:overhead variance.
Anser: D !": 4 #ype: $C
(+. $oe Corporation reported the folloing variances for the period 1ust ended:
=ariable:overhead spending variance: 240/0007
=ariable:overhead efficiency variance: 2%5/0007
&ixed:overhead budget variance: 260/0007
&ixed:overhead volume variance: 2(0/0007
,f $oe desires to analy)e variances that arose primarily from managers' expenditures in
excess of anticipated amounts/ the company should focus on variances that total:
A. 240/0007.
B. 260/0007.
C. 21%0/0007.
D. 2165/0007.
E. some other amount.
Anser: C !": 4 #ype: A/ <
(4. Delson Company/ hich applies overhead to production on the basis of machine hours/
reported the folloing data for the period 1ust ended:
Actual units produced: 10/000
Actual variable overhead incurred: 23%/000
Actual machine hours or9ed: 13/000
8tandard variable overhead cost per machine hour: 2+
,f Delson estimates 1.6 hours to manufacture a completed unit/ the company's variable:
overhead spending variance is:
A. 2%/000 favorable.
B. 2%/000 unfavorable.
C. 23/000 favorable.
D. 23/000 unfavorable.
E. some other amount not listed above.
Anser: A !": 4 #ype: A
Chapter 11 57
(3. -artin Company/ hich applies overhead to production on the basis of machine hours/
reported the folloing data for the period 1ust ended:
Actual units produced: ./000
Actual variable overhead incurred: 24+/+00
Actual machine hours or9ed: 13/000
8tandard variable overhead cost per machine hour: 2(.40
,f -artin estimates to hours to manufacture a completed unit/ the company's variable:
overhead efficiency variance is:
A. 21/300 favorable.
B. 21/300 unfavorable.
C. 26/000 favorable.
D. 26/000 unfavorable.
E. some other amount not listed above.
Anser: C !": 4 #ype: A
7se the folloing to anser 'uestions (6:(5:
Abbott has a standard variable overhead rate of 2+.40 per machine hour/ and each unit produced has a
standard time alloed of three hours. #he company's static budget as based on +3/000 units. Actual
results for the year follo.
Actual units produced: +%/000
Actual machine hours or9ed: 1%0/000
Actual variable overhead incurred: 24%0/000
(6. Abbott's variable:overhead spending variance is:
A. 2%0/000 favorable.
B. 2%0/000 unfavorable.
C. 2%6/000 favorable.
D. 2%6/000 unfavorable.
E. not listed above.
Anser: A !": 4 #ype: A
(5. Abbott's variable:overhead efficiency variance is:
A. 2%0/000 favorable.
B. 2%0/000 unfavorable.
C. 2%6/000 favorable.
D. 2%6/000 unfavorable.
E. not listed above.
Anser: C !": 4 #ype: A
58 Hilton, Managerial Accounting, Seventh Edition
(.. Arling Company/ hich applies overhead to production on the basis of machine hours/
reported the folloing data for the period 1ust ended:
Actual units produced: 1%/000
Actual fixed overhead incurred: 26(0/000
Actual machine hours or9ed: 30/000
Budgeted fixed overhead: 26%0/000
Elanned level of machine:hour activity: 40/000
,f Arling estimates four hours to manufacture a completed unit/ the company's standard fixed
overhead rate per machine hour ould be:
A. 21%.00.
B. 21+.+0.
C. 21+.30.
D. 214.00.
E. some other amount.
Anser: B !": 4 #ype: A
+0. Aerman Company/ hich applies overhead to production on the basis of machine hours/
reported the folloing data for the period 1ust ended:
Actual units produced: 1(/000
Actual fixed overhead incurred: 26+%/000
8tandard fixed overhead rate: 214 per hour
Budgeted fixed overhead: 26%0/000
Elanned level of machine:hour activity: +5/000
,f Aerman estimates four hours to manufacture a completed unit/ the company's fixed:
overhead budget variance ould be:
A. 2%%/000 favorable.
B. 2%%/000 unfavorable.
C. 230/000 favorable.
D. 230/000 unfavorable.
E. some other amount.
Anser: B !": 4 #ype: A
Chapter 11 59
+1. Enberg Company/ hich applies overhead to production on the basis of machine hours/
reported the folloing data for the period 1ust ended:
Actual units produced: 1+/500
Actual fixed overhead incurred: 26.1/000
8tandard fixed overhead rate: 21( per hour
Budgeted fixed overhead: 2650/000
Elanned level of machine:hour activity: 30/000
,f Enberg estimates four hours to manufacture a completed unit/ the company's fixed:overhead
volume variance ould be:
A. 210/+00 favorable.
B. 210/+00 unfavorable.
C. 211/000 favorable.
D. 211/000 unfavorable.
E. some other amount.
Anser: B !": 4 #ype: A
7se the folloing to anser 'uestions +%:+(:
Benson Company/ hich uses a standard cost system/ budgeted 2300/000 of fixed overhead hen
+0/000 machine hours ere anticipated. "ther data for the period ere:
Actual units produced: 10/000
8tandard production time per unit: (.. machine hours
&ixed overhead incurred: 23%0/000
Actual machine hours or9ed: +%/000
+%. Benson's fixed:overhead budget variance is:
A. 210/000 favorable.
B. 214/000 favorable.
C. 214/000 unfavorable.
D. 2%0/000 favorable.
E. 2%0/000 unfavorable.
Anser: E !": 4 #ype: A
+(. Benson's fixed:overhead volume variance is:
A. 210/000 favorable.
B. 214/000 favorable.
C. 214/000 unfavorable.
D. 2%0/000 favorable.
E. 2%0/000 unfavorable.
Anser: C !": 4 #ype: A
!0 Hilton, Managerial Accounting, Seventh Edition
7se the folloing to anser 'uestions ++:+3:
8ussex Company uses a standard cost system and prepared the folloing budget for -ay hen %+/000
machine hours of activity ere anticipated: variable overhead/ 2+5/000> fixed overhead: 2%+0/000.
Actual data for -ay ere:
8tandard machine hours alloed for output attained: %4/000
Actual machine hours or9ed: %+/000
=ariable overhead incurred: 240/000
&ixed overhead incurred: 2%40/000
++. #he standard variable overhead rate for -ay is:
A. 2%.00.
B. 2%.05.
C. 2(.00.
D. 24.00.
E. 24.%1.
Anser: A !": 4 #ype: A
+4. #he variable:overhead spending and efficiency variances are:
=ariable:"verhead
8pending =ariance
=ariable:"verhead
Efficiency =ariance
A. 20 20
B. 20 2%/000 unfavorable
C. 2%/000 unfavorable 20
D. 2%/000 favorable 2%/000 unfavorable
E. 2%/000 unfavorable 2%/000 favorable
Anser: E !": 4 #ype: A
+3. #he fixed:overhead budget and volume variances are:
&ixed:"verhead
Budget =ariance
&ixed:"verhead
=olume =ariance
A. 20 210/000 favorable
B. 210/000 favorable 20
C. 210/000 favorable 210/000 unfavorable
D. 210/000 unfavorable 20
E. 210/000 unfavorable 210/000 favorable
Anser: E !": 4 #ype: A
Chapter 11 !1
7se the folloing to anser 'uestions +6:41:
Duncanville/ ,nc./ has the folloing overhead standards:
=ariable overhead: + hours at 25 per hour
&ixed overhead: + hours at 210 per hour
#he standards ere based on a planned activity of %0/000 machine hours hen 4/000 units ere
scheduled for production. Actual data follo.
=ariable overhead incurred: 2136/640
&ixed overhead incurred: 2%10/000
-achine hours or9ed: 1./500
Actual units produced: 4/100
+6. Duncanville's fixed:overhead budget variance is:
A. 23/000 unfavorable.
B. 26/000 unfavorable.
C. 210/000 unfavorable.
D. 21%/000 unfavorable.
E. not listed above.
Anser: C !": 4 #ype: A
+5. Duncanville's fixed:overhead volume variance is:
A. 2+/000 favorable.
B. 2+/000 unfavorable.
C. 210/000 favorable.
D. 210/000 unfavorable.
E. not listed above.
Anser: A !": 4 #ype: A
+.. Duncanville's variable:overhead spending variance is:
A. 2440 favorable.
B. 2+/440 unfavorable.
C. 2+/500 favorable.
D. 2./(40 unfavorable.
E. not listed above.
Anser: D !": 4 #ype: A
40. Duncanville's variable:overhead efficiency variance is:
A. 2440 favorable.
B. 2440 unfavorable.
C. 2+/500 favorable.
D. 2+/500 unfavorable.
E. not listed above.
!2 Hilton, Managerial Accounting, Seventh Edition
Anser: C !": 4 #ype: A
Chapter 11 !
41. #he amount of variable overhead that Duncanville applied to production is:
A. 2145/+00.
B. 2130/000.
C. 213(/%00.
D. 2136/640.
E. not listed above.
Anser: C !": 4 #ype: A
4%. !u9e/ ,nc./ has a standard variable overhead rate of 24 per machine hour/ ith each completed
unit expected to ta9e three machine hours to produce. A revie of the company's accounting
records found the folloing:
Actual production: 1./400 units
=ariable:overhead efficiency variance: 2./0007
=ariable:overhead spending variance: 2%1/000&
Fhat as !u9e's actual variable overhead during the period;
A. 2%3%/400.
B. 2%50/400.
C. 2(0+/400.
D. 2(%%/400.
E. 8ome other amount.
Anser: B !": 4 #ype: A/ <
4(. Bushnell/ ,nc./ has a standard variable overhead rate of 2+ per machine hour/ ith each
completed unit expected to ta9e three machine hours to produce. A revie of the company's
accounting records found the folloing:
Actual variable overhead: 2%10/000
=ariable:overhead efficiency variance: 215/0007
=ariable:overhead spending variance: 2(0/000&
Ao many units did Bushnell actually produce during the period;
A. 1(/400.
B. 13/400.
C. 15/400.
D. %1/400.
E. 8ome other amount.
Anser: C !": 4 #ype: A/ <
!4 Hilton, Managerial Accounting, Seventh Edition
4+. Atlanta Enterprises incurred 25%5/000 of fixed overhead during the period. During that same
period/ the company applied 25+4/000 of fixed overhead to production and reported an
unfavorable budget variance of 2+1/000. Ao much as Atlanta's budgeted fixed overhead;
A. 2656/000.
B. 250+/000.
C. 253./000.
D. 2553/000.
E. <ot enough information to 1udge.
Anser: A !": 4 #ype: A/ <
7se the folloing to anser 'uestions 44:43:
8anBox Company is choosing ne cost drivers for its accounting system. "ne driver is labor hours>
the other is a combination of machine hours for unit variable costs and number of setups for a pool of
batch:level costs. Data for the past year follo.
Budget Actual
!abor hours %00/000 %00/000
-achine hours (30/000 +40/000
<umber of setups (/000 (/(00
7nit variable cost pool 21/300/000 2%/000/000
Batch:level cost pool 2.00/000 2..0/000
44. Assume that both cost pools are combined into a single pool/ and labor hours is the driver.
#he total flexible budget for the actual level of labor hours and the total variance for the
combined pool are:
&lexible Budget =ariance
A. 21/300/000 2+00/0007
B. 2%/400/000 2+.0/0007
C. 2%/4.0/000 2+00/0007
D. 2%/.00/000 2.0/0007
E. 2%/..0/000 20
Anser: B !": 6 #ype: A
43. Assume that the to separate pools are used. #he flexible budget amounts for the actual level
of machine hours and actual number of setups are:
7nit =ariable
Cost Eool
Batch:!evel
Cost Eool
A. 21/300/000 2.00/000
B. 21/300/000 2..0/000
C. 2%/000/000 2.00/000
D. 2%/000/000 2..0/000
E. 2%/400/000 20
Anser: D !": 6 #ype: A
Chapter 11 !5
46. Fhat is the most common treatment of the fixed:overhead budget variance at the end of the
accounting period;
A. $eported as a deferred charge or credit.
B. Allocated among For9:in:Erocess ,nventory/ &inished:Doods ,nventory/ and Cost of
Doods 8old.
C. Charged or credited to Cost of Doods 8old.
D. Allocated among Cost of Doods -anufactured/ &inished:Doods ,nventory/ and Cost of
Doods 8old.
E. Charged or credited to ,ncome 8ummary.
Anser: C !": 5 #ype: $C
45. ,n an effort to reduce record:9eeping procedure/ companies that sell perishable goods ill
often enter the standard cost of direct material/ direct labor/ and manufacturing overhead
directly into hat account;
A. For9:in:Erocess ,nventory.
B. &inished:Doods ,nventory.
C. Cost of Doods 8old.
D. Cost of Doods -anufactured.
E. 8ales $evenue.
Anser: C !": 5 #ype: $C
4.. Fhen actual variable cost per unit e'uals standard variable cost per unit/ the difference
beteen actual and budgeted contribution margin is explained by a combination of hich to
variances;
A. #he sales:volume variance and the fixed:overhead volume variance.
B. #he sales:volume variance and the fixed:overhead budget variance.
C. #he sales:price variance and the fixed:overhead volume variance.
D. #he sales:price variance and sales:volume variance.
E. #he sales:price variance and fixed:overhead budget variance.
Anser: D !": . #ype: $C
30. #he sales:volume variance e'uals:
A. Gactual sales volume : budgeted sales volumeH x actual sales price.
B. Gactual sales volume : budgeted sales volumeH x actual contribution margin.
C. Gactual sales volume : budgeted sales volumeH x budgeted sales price.
D. Gactual sales price : budgeted sales priceH x budgeted sales volume.
E. Gactual sales price : budgeted sales priceH x fixed:overhead volume variance.
Anser: C !": . #ype: $C
!! Hilton, Managerial Accounting, Seventh Edition
7se the folloing to anser 'uestions 31:3%:
-aster Eroducts has the folloing information for the year 1ust ended:
Budget Actual
8ales in units 14/000 1+/000
8ales 2140/000 21+6/000
!ess: =ariable expenses .0/000 5%/300
Contribution margin 2 30/000 2 3+/+00
!ess: &ixed expenses (4/000 +0/000
"perating income 2 %4/000 2 %+/+00
31. #he company's sales:volume variance is:
A. 2(/000 unfavorable.
B. 2+/000 unfavorable.
C. 2+/+00 favorable.
D. 210/000 unfavorable.
E. 210/000 favorable.
Anser: D !": . #ype: A
3%. #he company's sales:price variance is:
A. 2(/000 unfavorable.
B. 26/000 unfavorable.
C. 26/000 favorable.
D. 26/400 unfavorable.
E. 26/400 favorable.
Anser: C !": . #ype: A
Chapter 11 !7
EXERCISES
Static Budget vs. Flexile Budget
3(. Bavaria's budget for variable overhead and fixed overhead revealed the folloing information
for an anticipated +0/000 hours of activity: variable overhead/ 2(+5/000> fixed overhead/
2300/000.
#he company actually or9ed +(/000 hours/ and actual overhead incurred as: variable/
2(34/400> fixed/ 2305/000.
$e'uired:
A. Compute the company's total cost variance for variable overhead and fixed overhead if the
firm uses a static budget to help assess performance.
B. $epeat part *A* assuming the use of a flexible budget.
C. Fhich of the to budgets Gstatic or flexibleH is preferred for performance evaluations;
Fhy;
!": 1/ % #ype: A/ <
Anser:
A. Actual G2(34/400 C 2305/000H 2.6(/400
!ess: 8tatic budget G2(+5/000 C 2300/000H .+5/000
=ariance/ unfavorable 2 %4/400
B. Budgeted variable overhead: 2(+5/000 J +0/000 hours B 25.60 per hour
&lexible budget KG+(/000 hours x 25.60H C 2300/000L 2.6+/100
!ess: Actual G2(34/400 C 2305/000H .6(/400
=ariance/ favorable 2 300
C. &lexible budgets are preferred in performance evaluations. #he use of
flexible budgets eliminates volume differences beteen actual and budgeted
activity/ alloing the analyst to concentrate on differences beteen actual
and budgeted costs *on the same/ level playing field.* #he result is a clearer
picture to study.
!8 Hilton, Managerial Accounting, Seventh Edition
Flexile Budgets
3+. #he Aouston Chamber "rchestra presents a series of concerts throughout the year. Budgeted
fixed costs total 2(00/000 for the concert season> variable costs are expected to average 24 per
patron. #he orchestra uses flexible budgeting.
$e'uired:
A. Erepare a flexible budget that shos the expected costs of 5/000/ 5/400/ and ./000 patrons.
B. Construct the orchestra's flexible budget formula.
C. Assume that 5/600 patrons attended concerts during the year 1ust ended/ and actual costs
ere: variable/ 2+%/000> fixed/ 2(06/400. Evaluate the orchestra's financial performance
by computing variances for variable costs and fixed costs.
!": 1/ % #ype: A
Anser:
A. Eatrons 5/000 5/400 ./000
=ariable cost at 24 2 +0/000 2 +%/400 2 +4/000
&ixed cost (00/000 (00/000 (00/000
#otal 2(+0/000 2(+%/400 2(+4/000
B. #otal budgeted cost B Gnumber of patrons x 24H C 2(00/000
C. BudgetM Actual =ariance
=ariable cost 2 +(/400 2 +%/000 21/400&
&ixed cost (00/000 (06/400 6/4007
#otal 2(+(/400 2(+./400 23/0007
M=ariable budget: 5/600 patrons x 24
#he variances reveal that the orchestra exceeded its budget for 5/600 patrons by
23/000. #he overall performance as not that bad/ hoever/ as the variances
Gindividually and in totalH are small in both dollar: and percentage:terms.
Chapter 11 !9
Budgets! Pe"#$"%a&ce Evaluati$&
34. Calgary ,nsurance uses budgets to forecast and monitor overhead throughout the organi)ation.
#he folloing budget formula relates to the processing of applications for automobile policies
in any given month:
#otal overhead B 23.30AEA C 21%/000
here AEA B application processing hours
#he typical automobile insurance policy has an estimated processing time of 1.4 hours.
During Nune/ management originally anticipated that %50 applications ould be processed.
Activity as loer than expected/ ith only %+0 applications completed by month:end/ and
the folloing costs ere incurred: variable overhead/ 2%/650> fixed overhead/ 211/.00.
$e'uired:
A. Fhat volume level ould have been used if Calgary had constructed a static budget;
B. Construct a flexible budget that shos the expected monthly variable and fixed overhead
costs of processing %00/ %40/ and (00 applications.
C. &rom a cost perspective/ did the company perform better or orse than anticipated in
Nune; 8ho calculations to support your anser.
!": 1/ % #ype: A/ <
Anser:
A. #he static budget ould have been based on the original forecast of %50 applications and +%0
processing hours G%50 x 1.4H.
B. Erocessing hoursM (00 (64 +40
=ariable cost at 23.30 2 1/.50 2 %/+64 2 %/.60
&ixed cost 1%/000 1%/000 1%/000
#otal 21(/.50 21+/+64 21+/.60
M<umber of applications G%00/ %40/ (00H x 1.4 hours
C. #he company did orse than expected. Despite processing +0 feer applications G%50 : %+0H
than anticipated/ costs exceeded budgeted amounts by 2(0+:
Actual G2%/650 C 211/.00H 21+/350
&lexible budget KG%+0 x 1.4 x 23.30H C 21%/000L 1+/(63
=ariance/ unfavorable 2 (0+
70 Hilton, Managerial Accounting, Seventh Edition
Budgets! Pe"#$"%a&ce Evaluati$&
33. #he -ar9eting Club at <orthern 7niversity recently held an end:of:year dinner and sim
party/ hich the treasurer noted as a financial success. *Attendance as an all:time high/ 30
members/ and the results ere much better than expected.* #he treasurer presented the
folloing performance report at the executive board's Nune meeting:
Budget Actual =ariance
$evenue 21/464 2%/%04 23(0&
&ood 2 364 2 560 21.47
Beverages (14 +50 1347
Disc 1oc9ey 140 164 %47
&acility rental %00 %00 ::::
#otal costs 21/(+0 21/6%4 2(547
Erofit 2 %(4 2 +50 2%+4&
#he budget as based on the assumptions that follo.
&orty:five members ould attend at a fixed tic9et price of 2(4.
&ood and beverage costs ere anticipated to be 214 and 26 per attendee/ respectively.
A disc 1oc9ey as hired via a ritten contract at 240 per hour.
$e'uired:
A. Briefly evaluate the meaningfulness of the treasurer's performance report.
B. Erepare a performance report by using flexible budgeting and determine hether the end:
of:year party as as successful as originally reported.
C. Based on your anser in re'uirement *B/* present a possible explanation for the variances
in revenue/ food costs/ beverage costs/ and the disc 1oc9ey.
!": 1/ % #ype: A/ <
Anser:
A. #he performance report is not very meaningful/ as it as prepared based on the original
estimate that +4 tic9ets ould be sold. Fith 30 members in attendance/ the resulting
report compares anticipated revenues/ costs/ and profit at one level of activity against
actual amounts at a totally different volume. ,n effect/ it's a comparison of apples vs.
oranges.
Chapter 11 71
B. #he end:of:year party as successful as the treasurer claimed/ as it netted the -ar9eting
Club 2+50. Aoever/ hen actual results are compared against hat should have
happened for the increased number of attendees G30H/ the overall profitability as only
240 greater than expected.
Budget Actual =ariance
$evenueM 2%/100 2%/%04 2104&
&oodM 2 .00 2 560 2 (0&
BeveragesM +%0 +50 307
Disc 1oc9ey 140 164 %47
&acility rental %00 %00 ::::
#otal costs 21/360 21/6%4 2 447
Erofit 2 +(0 2 +50 2 40&
M$evenue/ food/ and beverage figures G2(4/ 214/ and 26/ respectivelyH are all based
on 30 attendees.
C. $evenue G2104&HO#hree members ho purchased tic9ets didn't attend G2104 J 2(4 B (H>
the Club received a donation from the 7niversity or the faculty advisor to help offset
operating costs.
&ood G2(0&HO#he actual food cost per person as less than expected> attendees ate less
than expected.
Beverages G2307HO#he actual beverage cost as more than expected> attendees dran9
more than expected.
Disc 1oc9ey G2%47HO#he disc 1oc9ey played music for (.4 hours G(.4 x 240 B 2164H
rather than the ( hours that ere originally budgeted.
72 Hilton, Managerial Accounting, Seventh Edition
Flexile Budgets a&d Pe"#$"%a&ce Evaluati$&
36. Aempstead Corporation plans to manufacture 5/000 units over the next month at the folloing
costs: direct materials/ 2+50/000> direct labor/ 230/000> variable manufacturing overhead/
2140/000> and fixed manufacturing overhead/ 2(00/000. #he last amount/ hich includes
2%+/000 of straight:line depreciation/ resulted in a total budget of 2..0/000.
8hortly after the conclusion of the month/ Aempstead reported the folloing costs:
Direct materials used 2+.0/400
Direct labor 3./300
=ariable manufacturing overhead 1(%/000
Depreciation %+/000
"ther fixed manufacturing overhead %6%/000
#otal 2.55/100
Aoard Prueger and his cres turned out 6/%00 unitsOa remar9able feat given that the firm's
manufacturing plant as closed for several days because of bli))ards and impassable roads.
Prueger as especially pleased ith the fact that total actual costs ere less than budget. Ae
as thus very surprised hen Aempstead's general manager expressed unhappiness about the
plant's financial performance.
$e'uired:
A. Erepare a performance report that fairly compares budgeted and actual costs for the period
1ust endedOnamely/ the report that the general manager li9ely used hen assessing
performance.
B. 8hould Prueger be praised for *having met the budget* or is the general manager's
unhappiness 1ustified; Explain/ citing any apparent problems for the firm.
!": 1/ % #ype: A/ <
Chapter 11 7
Anser:
A.
Budget:
6/%00
7nits
Actual:
6/%00
7nits =ariance
Direct materials used G230.00H 2+(%/000 2+.0/400 245/4007
Direct labor G26.40H 4+/000 3./300 14/3007
=ariable manufacturing overhead G215.64H 1(4/000 1(%/000 (/000&
Depreciation %+/000 %+/000 ::::
"ther fixed manufacturing overhead %63/000 %6%/000 +/000&
#otal 2.%1/000 2.55/100 236/1007
Budget calculations:
Direct materials used: 2+50/000 J 5/000 units B 230.00 per unit
Direct labor: 230/000 J 5/000 units B 26.40 per unit
=ariable manufacturing overhead: 2140/000 J 5/000 units B 215.64 per unit
"ther fixed manufacturing overhead: 2(00/000 : 2%+/000 B 2%63/000 per month
B. #he general manager's unhappiness is appropriate because of the variances that have arisen.
By comparing the original budget of 2..0/000 vs. actual costs of 2.55/100/ Prueger appears
to have met the budget. Bear in mind/ though/ that volume as belo the original monthly
expectation of 5/000 unitsOpresumably because of the plant closure. A reduced volume ill
li9ely lead to loer variable costs than anticipated Gand resulting favorable variancesH.
Fhen the volume differential is removed/ variable cost variances turn unfavorable for direct
materials and direct labor. #hese to amounts are/ respectively/ 1(.4Q and %5..Q greater
than budget.
74 Hilton, Managerial Accounting, Seventh Edition
U&de"sta&di&g a Flexile Budget' C$st Be(avi$"
35. -idestern 7niversity operates a motor pool for the convenience of its faculty and staff. #he
folloing budget as prepared for an upcoming period:
Dasoline and oil 2 +0/000
-inor repairs 3/000
,nsurance %0/000
"ffice help %+/000
Depreciation (0/000
#otal 21%0/000
#he budget as based on the assumptions of %0 vehicles/ ith each vehicle being driven 5/000
miles. -idestern ac'uired to additional vehicles early in the period under study. Actual
miles driven during the period totaled 150/000.
Discussions ith the motor pool manager revealed that pool costs are variable and fixed in
nature. #he manager believed that miles driven as the most appropriate cost driver for
studying gasoline and oil expense. ,n contrast/ the number of vehicles in the pool as the best
base to use hen studying other selected costs.
$e'uired:
A. Contrast a static budget ith a flexible budget.
B. 8uppose that the university's budget officer desired to prepare a report that compared
budgeted and actual costs. 8hould the report be based on a static budget or a flexible
budget; Fhy;
C. "n the basis of the information presented/ determine the amounts for the five preceding
costs that ould be used in a flexible budget.
!": 1/ % #ype: A/ <
Anser:
A. A static budget is based on a single expected activity level. ,n contrast/ a flexible budget
reflects data for several activity levels.
B. A performance report that incorporates flexible budgets is preferred. #he report compares
budgeted and actual performance at the same volume level/ eliminating any variations in
activity. ,n essence/ everything is placed on a *level playing field.*
C. Dasoline and oil: 2+0/000 J G5/000 x %0H B 20.%4 per mile> 150/000 miles x 20.%4
B 2+4/000
-inor repairs: 23/000 J %0 B 2(00 per vehicle> %% vehicles x 2(00 B 23/300
,nsurance: 2%0/000 J %0 B 21/000 per vehicle> %% vehicles x 21/000 B 2%%/000
"ffice help: 2%+/000 GfixedH
Depreciation: 2(0/000 J %0 B 21/400 per vehicle> %% vehicles x 21/400 B 2((/000
Chapter 11 75
Flexile Budgets a&d )a"iale Ove"(ead )a"ia&ces
3.. Aot 8tuff operates a delivery service for local restaurants/ delivering call:in/ to:go meals for
restaurant customers. =ariable overhead costs are budgeted at 2( per hour/ and the typical
roundtrip ta9es a driver +4 minutes to complete. Actual results for -arch follo.
<umber of roundtrips run: 1/430
Aours of delivery time: 1/%40
=ariable overhead cost incurred: 2(/+40
Aot 8tuff uses flexible budgets and variance analysis to monitor performance.
$e'uired:
A. Erepare a flexible:budget performance report that shos G1H actual variable overhead/ G%H
the amount of variable overhead that should have been incurred for the number of
roundtrips ta9en/ and G(H the variance beteen these amounts.
B. Compute the company's variable:overhead spending and efficiency variances.
C. Compare the variances that you computed in re'uirements *A* and *B/* and comment on
your findings.
!": 1/ 4/ 3 #ype: A/ <
Anser:
A. Budgeted variable overhead G1/430 x +4R30 x 2(H 2(/410
!ess: Actual variable overhead (/+40
=ariance/ favorable 2 30
B. 8pending variance: 2(/+40 : G1/%40 x 2(H B 2(00&
Efficiency variance: G1/%40 x 2(H : G1/430 x +4R30 x 2(H B 2%+07
#he spending and efficiency variances comprise the *total* variance as shon in the
flexible:budget performance report G2(00& C 2%+07 B 230&H. #hat is/ variable overhead
as 230 loer than anticipated because of variations in both spending habits and driver
efficiency.
7! Hilton, Managerial Accounting, Seventh Edition
St"aig(t#$"*a"d )a"ia&ce +&al,sis
60. Aunt/ ,nc./ uses a standard cost system hen accounting for its sole product. Elanned
production is 30/000 process hours per month/ hich gives rise to the folloing per:unit
standards:
=ariable overhead: 1( hours at 214 per hour
&ixed overhead: 1( hours at 26 per hour
During 8eptember/ 4/100 units ere produced and the company incurred the folloing
overhead costs: variable/ 2.+%/400> fixed/ 2+%./000. Actual process hours totaled 34/000.
$e'uired:
A. Calculate the spending and efficiency variances for variable overhead.
B. Calculate the budget and volume variances for fixed overhead.
!": 4 #ype: A
Anser:
A. 8pending variance: 2.+%/400 : G34/000 x 214H B 2(%/400&
Efficiency variance: G34/000 x 214H : G4/100 x 1( x 214H B 21./400&
B. Budget variance: 2+%./000 : G30/000 x 26H B 2./0007
=olume variance: G30/000 x 26H : G4/100 x 1( x 26H B 2++/100&M
M8ome accountants choose to label a negative volume variance as *favorable/* hile
others prefer to omit the unfavorableRfavorable label altogether.
St"aig(t#$"*a"d )a"ia&ce +&al,sis
61. Nefferson Corporation uses a standard cost system/ applying manufacturing overhead on the
basis of machine hours. #he company's overhead standards per unit are shon belo.
=ariable overhead: + hours at 2. per hour
&ixed overhead: + hours at 23M per hour
MBased on planned monthly activity of 1%0/000 machine hours
Actual data for -ay ere:
<umber of units produced: %./000
<umber of machine hours or9ed: 1%4/000
=ariable overhead costs incurred: 21/054/000
&ixed overhead costs incurred: 2644/000
$e'uired:
A. Calculate the spending and efficiency variances for variable overhead.
B. Calculate the budget and volume variances for fixed overhead.
Chapter 11 77
!": 4 #ype: A
Anser:
A. 8pending variance: 21/054/000 : G1%4/000 x 2.H B 2+0/000&
Efficiency variance: G1%4/000 x 2.H : G%./000 x + x 2.H B 251/0007
B. Budget variance: 2644/000 : G1%0/000 x 23H B 2(4/0007
=olume variance: G1%0/000 x 23H : G%./000 x + x 23H B 2%+/0007M
M8ome accountants choose to label a positive volume variance as *unfavorable/* hile
others prefer to omit the unfavorableRfavorable label altogether.
Basic )a"ia&ce +&al,sis
6%. #he folloing information relates to Noplin Company for the period 1ust ended:
8tandard variable overhead rate per hour 21
8tandard fixed overhead rate per hour 2%
Elanned monthly activity +0/000 machine hours
Actual production completed 5%/000 units
8tandard machine processing time #o units per hour
Actual variable overhead 2(6/000
Actual total overhead 21%1/000
Actual machine hours or9ed +0/400
All of the company's overhead is variable or fixed in nature.
$e'uired:
A. Calculate the spending and efficiency variances for variable overhead.
B. Calculate the budget and volume variances for fixed overhead.
!": 4 #ype: A
Anser:
A. 8pending variance: 2(6/000 : G+0/400 x 21H B 2(/400&
Efficiency variance: G+0/400 x 21H : G5%/000 x 0.4M x 21H B 2400&
M#o units per hour B 0.4 hours per unit
B. Budget variance: G21%1/000 : 2(6/000H : G+0/000 x 2%H B 2+/0007
=olume variance: G+0/000 x 2%H : G5%/000 x 0.4M x 2%H B 2%/000&MM
M #o units per hour B 0.4 hours per unit
MM8ome accountants choose to label a negative volume variance as *favorable/* hile
others prefer to omit the unfavorableRfavorable label altogether.
78 Hilton, Managerial Accounting, Seventh Edition
)a"ia&ce I&te""elati$&s(i-s. /$"0i&g Bac0*a"d
6(. #he folloing selected information as extracted from the accounting records of Austin/ ,nc.:
Elanned manufacturing activity: +0/000 machine hours
8tandard variable:overhead rate per machine hour: 213
Budgeted fixed overhead: 2100/000
=ariable:overhead spending variance: 2.%/0007
=ariable:overhead efficiency variance: 210%/000&
&ixed:overhead budget variance: 2%4/0007
#otal actual overhead: 2364/000
$e'uired:
Determine the folloing: actual fixed overhead/ actual variable overhead/ actual machine
hours or9ed/ standard machine hours alloed for actual production/ and the fixed:overhead
volume variance.
!": 4 #ype: A/ <
Anser:
Actual fixed overhead: 21%4/000
Actual variable overhead: 2440/000
Actual machine hours or9ed: %5/3%4
8tandard machine hours alloed: (4/000
&ixed:overhead volume variance: 21%/4007M
M8ome accountants choose to label a positive volume variance as *unfavorable/* hile others
prefer to omit the unfavorableRfavorable label altogether.
=ariable overhead analysis:
%5/3%4 x 213 (4/000 x 213
2440/000 2+45/000 2430/000
2.%/0007 210%/000&
&ixed overhead analysis:
(4/000 x 2%.40M
21%4/000 2100/000 256/400
2%4/0007 21%/4007

M2100/000 J +0/000 hours
Chapter 11 79
Fixed Ove"(ead )a"ia&ces. C$%-utati$& a&d +&al,sis
6+. Alexander Corporation applies fixed manufacturing overhead to production on the basis of
machine hours or9ed. #he folloing data relate to the month 1ust ended:
Actual fixed overhead incurred: 21/%+4/000
Budgeted fixed overhead: 21/%00/000
Anticipated machine hours: %+0/000
8tandard machine hours per finished unit: 5
Actual finished units completed: (1/%40
$e'uired:
A. Compute AlexanderIs standard fixed overhead rate per machine hour.
B. Determine AlexanderIs fixed overhead budget variance and fixed overhead volume
variance.
C. Calculate the amount of fixed overhead applied to production.
D. Consider the to events that follo and determine hether the event ill affect the fixed
overhead budget variance/ the fixed overhead volume variance/ both variances/ or neither
variance. Assume that Alexander has not yet revised its standards to reflect these events if
a revision is arranted.
1. A ra material shortage halted production for to days.
%. An additional assembly line supervisor as hired at the beginning of the month.
!": 4 #ype: A/ <
Anser:
A. Budgeted fixed overhead G21/%00/000H J anticipated machine hours G%+0/000H B 24
B. Budget variance: 21/%+4/000 : 21/%00/000 B 2+4/0007
=olume variance: 21/%00/000 : G(1/%40 x 5 x 24H B 240/000&M
M8ome accountants choose to label a negative variance as Sfavorable/T hile others prefer
to omit the unfavorableRfavorable label altogether.
C. (1/%40 x 25 x 24 B 21/%40/000
D. 1. #he volume variance ould be affected because of reduced output.
%. #he budget variance ould be affected because actual fixed overhead ill increase.
80 Hilton, Managerial Accounting, Seventh Edition
Ove"(ead a&d )a"ia&ces. F$cus $& I&te"-"etati$&
64. Aan9s Company uses a standard cost system and applies manufacturing overhead to products
on the basis of machine hours. #he folloing information is available for the year 1ust ended:
8tandard variable overhead rate per machine hour: 2%.40
8tandard fixed overhead rate per machine hour: 24.00
Elanned activity during the period: (0/000 machine hours
Actual production: 10/600 finished units
Eroduction standard: #hree machine hours per unit
Actual variable overhead: 253/%00
Actual total overhead: 2%%4/400
Actual machine hours or9ed: (4/100
$e'uired:
A. Calculate the budgeted fixed overhead for the year.
B. Did Aan9s spend more or less than anticipated for fixed overhead; Ao much;
C. Fas variable overhead under: or overapplied during the year; By ho much;
D. Fas Aan9s efficient in its use of machine hours; Briefly explain.
E. Fould the company's efficiency or inefficiency in the use of machine hours have any
effect on Aan9s' overhead variances; ,f *yes/* hich oneGsH;
!": 4 #ype: A/ <
Anser:
A. !et U B budgeted fixed overhead
U J (0/000 machine hours B 24.00 per hour
U B 2140/000
B. Aan9s spent less than anticipated. Actual fixed overhead amounted to 21(./(00
G2%%4/400 : 253/%00H hen the budget as set at 2140/000 Gpart *A*H. #he fixed:
overhead budget variance is 210/600 favorable G2140/000 : 21(./(00H.
C. =ariable overhead is underapplied by 24/.40:
Actual variable overhead 253/%00
Applied overhead: 8tandard hours alloed x standard rate
G10/600 x ( x 2%.40H 50/%40
7nderapplied variable overhead 2 4/.40
D. <o. #he company used (4/100 machine hours hen it should have used (%/100
hours G10/600 x (H.
E. @es. #he actual and standard machine hours are used in the calculation of the
variable:overhead efficiency variance.
Chapter 11 81
1ISCUSSION QUESTIONS
Ove"(ead +--licati$&. N$"%al C$sti&g vs. Sta&da"d C$sti&g
63. Briefly describe the procedures that are used to apply manufacturing overhead to production
for companies that use G1H normal costing systems and G%H those that use standard costing
systems.
!": ( #ype: $C
Anser:
,n a normal costing system/ overhead is applied to the For9:in:Erocess ,nventory account as
follos Gassuming hours as an application baseH: actual hours x predetermined overhead rate.
#he actual hours represent the actual time consumed in processing the actual number of units
produced Geither completed or those in productionH. A similar procedure is folloed in a
standard costing system except that the predetermined rate is multiplied by the standard hours
alloed Gi.e./ the actual production x the standard time per unitH.
U&de"sta&di&g t(e )a"iale2Ove"(ead E##icie&c, )a"ia&ce
66. A production manager as recently given a performance report that shoed a si)able
unfavorable variable:overhead efficiency variance. #he manager as pu))led as to ho the
department could be inefficient in the useRincurrence of this cost.
$e'uired:
Briefly explain the nature of this variance to the manager. Does the variance really have much
to do ith variable overhead efficiencies or inefficiencies; Discuss.
!": 4 #ype: $C
Anser:
#he variable:overhead efficiency variance can be somehat misleading. ,t is computed as
follos: Gactual 'uantity x standard priceH : Gstandard 'uantity x standard priceH. #he
'uantities consist of the actual and standard amounts of the application base that is used to
apply overhead to production Gsuch as labor hours or machine hoursH. #he variance really has
nothing to do ith the manager's efficiency or inefficiency in variable overhead consumption>
rather/ it deals ith the efficiency or inefficiency of the application base.
82 Hilton, Managerial Accounting, Seventh Edition
U&de"sta&di&g t(e Fixed2Ove"(ead )$lu%e )a"ia&ce
65. Briefly explain the nature of the fixed:overhead volume variance. Be sure to address the issue
of capacity utili)ation in your response.
!": 4 #ype: $C
Anser:
#he fixed:overhead volume variance is the difference beteen a company's budgeted amount
of fixed overhead and that applied to production. #he variance ill arise if the standard hours
alloed for production differ from the hours of planned activity.
#his hour difference is hat some accountants call an over:utili)ation or under:utili)ation of
capacity. #he cost of this under: or over:utili)ation is really more than the fixed overhead
amount 1ust described/ courtesy of the contribution margin lost on the units not produced
Ghen capacity is under:utili)edH. <ote that in the opposite case/ the company *gains* from
the contribution margin associated ith the excess units.
Chapter 11 8