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Chapter 11

Flexible Budgets and Overhead Analysis


True/False
1.
F
Easy

A flexible budget is "flexible" in the sense that a budget can be


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

2.
F
Easy

In a performance report, actual costs should be compared to budgeted


costs at the original budgeted activity level.

3.
T
Easy

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

4.
F
Medium

The variable overhead efficiency variance reflects how efficiently


variable overhead resources were used.

5.
T
Easy

A reason for keeping a constant denominator activity level is to


maintain stability in the amount of overhead cost that is applied to
each unit of product manufactured over the period.

6.
T
Medium

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

7.
F
Easy

When choosing an activity measure for a flexible budget, it is best to


choose an activity that is measured in dollars.

8.
T
Medium

In a standard costing system, under- or overapplied fixed overhead is


equal to the sum of the fixed overhead budget variance and the fixed
overhead volume variance.

9.
F
Medium

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

10.
F
Medium

The fixed overhead budget variance is not controllable by managers since


fixed costs are not controllable.

ManagerialAccounting,9/e

141

11.
F
Medium

One cause of an unfavorable overhead volume variance would be increases


in cost for fixed overhead items.

12.
F
Hard

If the denominator activity (in hours) used to compute the predetermined


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

13.
T
Medium

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

14.
T
Easy

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

15.
F
Medium

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

Multiple Choice
16.
B
Easy

Which one of the following variances is MOST controllable by a


production supervisor?
a. Material price variance.
b. Material usage variance.
c. Fixed overhead volume variance.
d. Variable overhead spending variance.

17.
D
Easy

A major weakness of flexible budgets is that:


a. they are geared only to a single level of activity.
b. they give subordinates too much flexibility.
c. they force the manager to compare actual costs at one level
activity to budgeted costs at a different level of
activity.
d. none of these.

18.
D
Easy

Which of the following variances would be useful in calling attention to


possible problems in the control of spending on overhead item?

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

of

Variable
overhead
spending
variance
No
No
Yes
Yes

Fixed
overhead
budget
variance
No
Yes
No
Yes

Which of the following variances would be useful in calling attention to


possible problems in the control of spending on overhead items?

a.
b.
c.
d.

Variable
overhead
spending
variance
No
No
Yes
Yes

142ManagerialAccounting,9/e

Fixed
overhead
volume
variance
No
Yes
No
Yes

20.
B
Hard

The higher the denominator level of activity:


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

21.
B
Medium

A decrease in denominator level of activity will:


a. decrease the fixed portion of the predetermined overhead
b. increase the fixed portion of the predetermined overhead
c. decrease the variable portion of the predetermined overhead
d. increase the variable portion of the predetermined overhead
rate.

22.
B
Hard

The economic impact of the inability to reach a target denominator level


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

23.
C
Medium

Which of the following is not correct?


a. If the denominator level of activity and the standard hours
allowed for the output of the period are the same, then there
volume variance.
b. If the denominator level of activity is greater than the
standard hours allowed for the output of the period, then the
volume variance is unfavorable.
c. If the denominator level of activity is greater than the
standard hours allowed for the output of the period, then the
volume variance is favorable.
d. The volume variance is the most appropriate measure of the
utilization of plant facilities.

24.
C
Easy

The fixed overhead volume variance is due to:


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

25.
D
Easy

Which of the following variances is caused by a difference between the


denominator activity in the predetermined overhead rate and the standard
hours allowed for the actual production of the period?
a. variable overhead spending variance.
b. variable overhead efficiency variance.
c. fixed overhead budget variance.
d. fixed overhead volume variance.

26.
B
Easy
CPA adapted

Lanta Restaurant compares monthly operating results with a static budget


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

Food Costs
Yes
Yes
No
No

ManagerialAccounting,9/e

rate.
rate.
rate.

is no

Supervisory Salaries
Yes
No
Yes
No

143

27.
A
Medium
CPA adapted

Overhead cost is applied to units based on direct labor hours. For


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

144ManagerialAccounting,9/e

28.
C
Easy

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

29.
B
Hard

At Jacobson Company, indirect labor is a variable cost that varies with


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

30.
A
Hard

At Overland Company, maintenance cost is exclusively a variable cost


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

31.
C
Hard
CPA adapted

Tyro Company has a standard cost system in which it applies


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

32.
B
Hard

Web Company uses a standard cost system in which manufacturing overhead


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

ManagerialAccounting,9/e

145

33.
D
Medium

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

34.
B
Medium

The predetermined overhead rate (variable and fixed) is $7.50 per


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

146ManagerialAccounting,9/e

35.
A
Medium

Mauve Company uses a standard cost system in which it applies


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

36.
A
Medium

Jaune Company uses a standard cost system in which it applies


manufacturing overhead to units of product on the basis of direct labor
hours (DLHs). The following data pertain to last month's operations:
Budgeted fixed overhead costs .......
Actual fixed overhead costs .........
Standard hours allowed for output ...
Predetermined overhead
rate ($2 variable + $3 fixed) ....

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

The fixed overhead budget variance is:


a. $500 U.
b. $500 F.
c. $2,200 U.
d. $1,700 U.
37.
C
Hard

Henley Company uses a standard cost system in which it applies


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

38.
C
Medium
CPA adapted

Patridge Company uses a standard cost system in which it applies


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

ManagerialAccounting,9/e

147

39.
A
Medium
CPA adapted

Union Company uses a standard cost accounting system. The following


overhead costs and production data are available for August:
Standard fixed overhead rate .......
Standard variable overhead rate ....
Denominator activity ...............
Actual hours .......................
Standard hours allowed for output ..
Overapplied overhead ...............

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

per hour
per hour
hours
hours
hours

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

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

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

The amount of fixed overhead contained in the company's overhead


flexible budget for May was:
a. $64,125.
b. $67,500.
c. $68,400.
d. $70,275.

41.
D
Hard
Refer To:
11-1

The amount of fixed manufacturing overhead cost applied to work in


process during May was:
a. $61,725.
b. $62,700.
c. $42,750.
d. $64,125.

42.
B
Hard
Refer To:
11-1

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

overhead budget variance for May was:


U.
F.
U.
F.

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

148ManagerialAccounting,9/e

43.
D
Easy
Refer To:
11-2

At an activity level of 180,000 direct labor hours, the flexible budget


would show indirect labor cost of:
a. $180,000.
b. $108,000.
c. $144,000.
d. $162,000.

44.
C
Easy
Refer To:
11-2

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

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149

45.
D
Easy
Refer To:
11-2

At an activity level of 180,000 direct labor hours, the flexible budget


would show total budgeted fixed costs to be:
a. $100,000.
b. $144,000.
c. $150,000.
d. $160,000.

46.
B
Easy
Refer To:
11-2

At an activity level of 160,000 direct labor hours, the flexible budget


would show the budgeted amount for utilities to be:
a. $80,000.
b. $100,000.
c. $120,000.
d. $160,000.

Reference: 11-3
A manufacturing company has a standard costing system based on machine-hours (MHs) as
the measure of activity. Data from the company's flexible budget for manufacturing
overhead are given below:
Denominator level of activity .................
6,100 MHs
Overhead costs at the denominator activity level:
Variable overhead cost ......................
$35,075
Fixed overhead cost .........................
$77,775
The following data pertain to operations for the most recent period:
Actual hours ..................................
Standard hours allowed for the actual output ..
Actual total variable overhead cost ...........
Actual total fixed overhead cost ..............

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

47.
D
Medium
Refer To:
11-3

What is the predetermined overhead rate to the nearest cent?


a. $17.91
b. $18.59
c. $18.00
d. $18.50

48.
D
Medium
Refer To:
11-3

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

49.
A
Medium
Refer To:
11-3

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

50.
C
Medium
Refer To:
11-3

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

150ManagerialAccounting,9/e

51.
A
Medium
Refer To:
11-3

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

52.
D
Medium
Refer To:
11-3

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

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

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

53.
B
Medium
Refer To:
11-4

The variable overhead spending variance for March is:


a. $4,900 U.
b. $11,060 U.
c. $14,700 U.
d. $17,300 U.

54.
D
Medium
Refer To:
11-4

The variable overhead efficiency variance for March is:


a. $12,400 F.
b. $6,160 U.
c. $12,400 U.
d. $6,160 F.

55.
C
Medium
Refer To:
11-4

The fixed overhead budget variance for March is:


a. $900 F.
b. $3,900 F.
c. $3,000 U.
d. $7,750 F.

56.
A
Medium
Refer To:
11-4

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

overhead volume variance for March is:


F.
U.
F
U.

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

ManagerialAccounting,9/e

$ 99,000
$118,800

151

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

For August, the variable overhead spending variance is:


a. $4,300 F.
b. $4,300 U.
c. $6,500 F.
d. $6,500 U.

58.
C
Medium
Refer To:
11-5

For August, the variable overhead efficiency variance is:


a. $1,800 F.
b. $0.
c. $2,200 U.
d. $2,200 F.

59.
A
Medium
Refer To:
11-5

For August, the fixed overhead budget variance is:


a. $3,500 F.
b. $3,500 U.
c. $3,200 F.
d. $3,200 U.

60.
B
Medium
Refer To:
11-5

For August, the fixed overhead volume variance is:


a. $4,300 U.
b. $7,920 U.
c. $4,980 F.
d. $4,980 U.

152ManagerialAccounting,9/e

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

finished units ....................


direct labor hours ................
variable overhead .................
fixed overhead ....................

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

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

The variable overhead spending variance for the year is:


a. $2,000 F.
b. $10,000 U.
c. $82,000 U.
d. $110,000 U.

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

The variable overhead efficiency variance for the year is:


a. $28,000 U.
b. $100,000 U.
c. $100,000 F.
d. $28,000 F.

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

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

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

The fixed overhead volume variance for the year is:


a. $7,000 U.
b. $25,000 U.
c. $41,667 U.
d. $18,000 F.

ManagerialAccounting,9/e

153

Reference: 11-7
A manufacturing company that has only one product has established the following
standards for its variable manufacturing overhead. The company uses machine-hours as
its measure of activity.
Standard hours per unit of output ......
Standard variable overhead rate ........

8.1 machine-hours
$14.30 per machine-hour

The following data pertain to operations for the last month:


Actual hours ...........................
Actual total variable overhead cost ....
Actual output ..........................

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

65.
C
Medium
Refer To:
11-7

What is the variable overhead spending variance for the month?


a. $1,739 U
b. $595 F
c. $595 U
d. $1,739 F

66.
D
Medium
Refer To:
11-7

What is the variable overhead efficiency variance for the month?


a. $1,172 F
b. $567 F
c. $1,172 U
d. $1,144 U

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

7.2 DLHs
$14.20 per DLH

The following data pertain to operations for the last month:


Actual direct labor-hours ..............
Actual total variable overhead cost ....
Actual output ..........................
67.
D
Medium
Refer To:
11-8

5,100 DLHs
$72,165
600 units

What is the variable overhead spending variance for the month?


a. $10,821 U
b. $255 U
c. $10,821 F
d. $255 F

154ManagerialAccounting,9/e

68.
A
Medium
Refer To:
11-8

What is the variable overhead efficiency variance for the month?


a. $11,076 U
b. $11,037 F
c. $11,037 U
d. $216 U

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

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


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

The following information pertains operations during March:


Units actually produced ...............
Actual direct labor hours worked ......

38,000
80,000

Actual manufacturing overhead incurred:


Variable overhead ...................
Fixed overhead ......................

$250,000
$384,000

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

For March, the variable overhead spending variance was:


a. $6,000 F.
b. $10,000 U.
c. $12,000 U.
d. $22,000 F.

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

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

the fixed overhead volume variance was:


U.
F.
U.
F.

ManagerialAccounting,9/e

155

Reference: 11-10
A furniture manufacturer has a standard costing system based on machine-hours (MHs) as
the measure of activity. Data from the company's flexible budget for manufacturing
overhead are given below:
Denominator level of activity .................
3,300 MHs
Overhead costs at the denominator activity level:
Variable overhead cost ......................
$31,845
Fixed overhead cost .........................
$40,425
The following data pertain to operations for the most recent period:
Actual hours ..................................
Standard hours allowed for the actual output ..
Actual total variable overhead cost ...........
Actual total fixed overhead cost ..............

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

71.
A
Medium
Refer To:
11-10

What is the predetermined overhead rate to the nearest cent?


a. $21.90
b. $21.80
c. $21.16
d. $21.26

72.
C
Medium
Refer To:
11-10

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

73.
B
Medium
Refer To:
11-10

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

74.
A
Medium
Refer To:
11-10

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

156ManagerialAccounting,9/e

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

3,000 MHs
$40,650

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

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

75.
B
Medium
Refer To:
11-11

What is the predetermined fixed overhead rate to the nearest cent?


a. $12.24
b. $13.55
c. $13.87
d. $11.96

76.
B
Medium
Refer To:
11-11

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

77.
B
Medium
Refer To:
11-11

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

78.
B
Medium
Refer To:
11-11

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

ManagerialAccounting,9/e

157

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

The budgeted fixed factory overhead cost for January is:


a. $31,500.
b. $30,625.
c. $32,375.
d. $33,250.

80.
C
Hard
Refer To:
11-12

The denominator level of activity in direct labor-hours (DLHs) used by


Claus in setting the predetermined overhead rate for January is:
a. 9,500 DLHs.
b. 9,250 DLHs.
c. 8,750 DLHs.
d. 10,500 DLHs.

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

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

81.
B
Medium
Refer To:
11-13

What is the predetermined overhead rate to the nearest cent?


a. $23.91
b. $24.30
c. $24.30
d. $23.91

82.
C
Medium
Refer To:
11-13

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

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

158ManagerialAccounting,9/e

Denominator level of activity .................


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

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

83.
B
Medium
Refer To:
11-14

What is the predetermined overhead rate to the nearest cent?


a. $19.30
b. $19.65
c. $19.80
d. $20.15

84.
A
Medium
Refer To:
11-14

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

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

Dori's choice of a production volume as a denominator for calculating


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

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

A volume variance will exist for Dori in a month where:


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

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

The amount of fixed overhead that Dori would apply to finished


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

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

ManagerialAccounting,9/e

159

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

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

overhead budget variance is:


U.
U.
U.
F.

89.
C
Medium
Refer To:
11-16

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

overhead volume variance is:


U.
F.
U.
U.

160ManagerialAccounting,9/e

Reference: 11-17
An outdoor barbecue grill manufacturer has a standard costing system based on direct
labor-hours (DLHs) as the measure of activity. Data from the company's flexible budget
for manufacturing overhead are given below:
Denominator level of activity .................
Fixed overhead cost ...........................

3,300 DLHs
$26,895

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

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

90.
D
Medium
Refer To:
11-17

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

91.
A
Medium
Refer To:
11-17

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

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

4,600 MHs
$50,140

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

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

92.
C
Medium
Refer To:
11-18

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

93.
B
Medium
Refer To:
11-18

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

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

ManagerialAccounting,9/e

161

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

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

94.
C
Medium
Refer To:
11-19

The amount of fixed manufacturing overhead cost applied to work in


process during September was:
a. $61,400.
b. $57,000.
c. $54,150.
d. $59,850.

95.

The amount of fixed overhead cost contained in the companys flexible


budget for manufacturing overhead for September was:
a. $61,400.
b. $57,000.
c. $60,000.
d. $58,550.

B
Hard
Refer To:
11-19

162ManagerialAccounting,9/e

Essay
96.
Hard

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

direct materials price and quantity variances

for

direct labor rate and efficiency variances for

the

variable overhead spending and efficiency

variances

fixed overhead budget and volume variances for

the

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

ManagerialAccounting,9/e

163

29,250 hrs. X $3.00 = .........................


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

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

d. Fixed overhead budget and volume variances:


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

Flick Company uses a standard cost system in which manufacturing


overhead is applied to units of product on the basis of direct laborhours. The company's total budgeted variable and fixed manufacturing
overhead costs at the denominator level of activity are $20,000 for
variable overhead and $30,000 for fixed overhead. The predetermined
overhead rate, including both fixed and variable components, is $2.50
per direct labor-hour. The standards call for two direct labor-hours
per unit of output produced. Last year, the company produced 11,500
units of product and worked 22,000 direct labor-hours. Actual costs
were $22,500 for variable overhead and $31,000 for fixed overhead.
Required:
a. What is the denominator level of activity?
b. What were the standard hours allowed for the output last
year?
c. What was the variable overhead spending variance?
d. What was the variable overhead efficiency variance?
e. What was the fixed overhead budget variance?
f. What was the fixed overhead volume variance?
Answer:
a. Total overhead at the denominator
level of activity (a)....................... $50,000
Predetermined overhead rate (b)...............
$2.50/DLH
Denominator level of activity (a) (b)....... 20,000 DLHs
b.

Actual output ........... 11,500 units


Standard DLH per unit ... x 2 DLH per unit
Standard DLHs allowed ... 23,000 DLHs

c.

Computation of variable overhead spending variance:


Spending variance = (AH x AR) - (AH x SR)
= ($22,500) - (22,000 DLHs x $1.00*)
= $500 U
* $20,000 20,000 DLHs = $1.00

d.

Computation of variable overhead efficiency variance:


Spending variance = (AH x SR) - (SH x SR)
= (22,000 DLHs x $1.00)
(23,000 DLHs* x $1.00)
= $1,000 F
* 2 DLHs per unit x 11,500 units = 23,000 DLHs

e.

Computation of the fixed overhead budget variance:


Budget variance = Actual fixed overhead
Flexible budget fixed overhead
= $31,000 - $30,000

164ManagerialAccounting,9/e

= $1,000 U
f.

98.
Hard

Computation of the fixed overhead volume variance:


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

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

$3.00 per direct labor-hour


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

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

Actual variable ovhd

= Budgeted fixed overhead + Budget


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

Actual variable ovhd rate = Actual variable ovhd/Actual hours


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

ManagerialAccounting,9/e

165

Actual units produced = Standard hours allowed/hours per unit


= 50,000 hours/2 hours per unit
= 25,000 units
Volume variance =
=
=
=

Budgeted fixed - (SH X SR)


$84,800 - (50,000 X $1.60)
$84,800 - $80,000
$4,800 U

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

5,000 hours

Standard hours allowed .....

50,000 hours

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

53,000 hours

Spending variance .......... $ 5,500 U


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

Sucher Company uses a standard cost system in which manufacturing


overhead costs are applied to units of product on the basis of machine
hours. The company's condensed flexible budget for manufacturing overhead
is given below:
Per
Machine Hour
Variable overhead costs
Fixed overhead costs
Total overhead costs

$3

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

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

$ 90,000
300,000
$390,000

The denominator level of activity is 30,000 machine hours. Standards


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

166ManagerialAccounting,9/e

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

What
What
What
What
What

are
was
was
was
was

the
the
the
the
the

standard hours allowed for the output?


variable overhead spending variance?
variable overhead efficiency variance?
fixed overhead budget variance?
fixed overhead volume variance?

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

100.
Easy

Computation of the fixed overhead volume variance:


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

The following overhead data are for a department in a large company.


Actual costs
incurred
Activity level (in units)
250
Variable costs:
Indirect materials ......
Power ...................
Fixed costs:
Supervision .............
Rent ....................

ManagerialAccounting,9/e

Static
budget
220

$8,745
$2,065

$7,634
$1,738

$1,560
$7,210

$1,600
$7,300

167

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

Actual
costs
incurred

Budget
based on
actual
activity

Variance

$ 8,745
2,065
10,810

$ 8,675
1,975
10,650

$ 70 U
90 U
160 U

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

1,560
7,210
8,770

1,600
7,300
8,900

40 F
90 F
130 F

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

$19,580

$19,550

$ 30 U

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

101.
Easy

$34.70
7.90
$42.60

The following overhead data are for a department in a large company.


Actual costs
incurred
Activity level (in units)
480
Variable costs:
Supplies ................ $16,734
Electricity ............. $1,026
Fixed costs:
Supervision ............. $8,570
Depreciation ............ $5,780

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

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

Actual
costs
incurred

Budget
based on
actual
activity

Variance

$16,734
1,026
17,760

$16,944
1,056
18,000

$210 F
30 F
240 F

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

8,570
5,780
14,350

8,600
5,800
14,400

30 F
20 F
50 F

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

$32,110

$32,400

$290 F

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

102.
Hard

$35.30
2.20
$37.50

Nova Corporation produces a single product and uses a standard cost


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

168ManagerialAccounting,9/e

Variable overhead costs ....................... $ 45,000


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

$38,000
37,500
500 U

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

Fixed overhead variances:


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

ManagerialAccounting,9/e

$107,100

169

Flexible budget fixed overhead cost .............


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

108,000
900 F

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

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

U
F
F
U
U

Warner Manufacturing has established the following master flexible budget


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

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

300,000

300,000

192,000
492,000
660,000

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

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

Manufacturing overhead is applied on the basis of machine-hours. At


standard, each unit of product requires one machine-hour to complete.
Required:
a. The denominator activity level is 120,000 units. What are
the
predetermined variable and fixed manufacturing overhead
rates?
b. Actual data for the year were as follows:
Actual variable manufacturing overhead cost ....... $159,500
Actual fixed manufacturing overhead cost .......... $305,000
Actual machine-hours incurred ..................... 110,000
Units produced and sold ........................... 105,000
Compute the variable overhead spending and efficiency variances and
the fixed overhead budget and volume variances for the year.

170ManagerialAccounting,9/e

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

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

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


Efficiency variance

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

SR = 105,000 units X 1 hour per unit = 105,000 hours.


Fixed overhead variances:
Budget variance

Volume variance

= Actual fixed overhead Budgeted fixed overhead


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

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


104.
Hard

Wattis Manufacturing has established the following master flexible


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

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

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

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

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

Manufacturing overhead is applied on the basis of machine-hours. At


standard, each unit of product requires one machine-hour to complete.
Required:
a. The denominator activity level is 150,000 units. What are
the
predetermined variable and fixed manufacturing overhead
rates?

ManagerialAccounting,9/e

171

b. Actual data for the year were as follows:


Actual variable manufacturing overhead cost ....... $211,680
Actual fixed manufacturing overhead cost .......... $343,000
Actual machine-hours incurred ..................... 126,000
Units produced and sold ........................... 120,000
Compute the variable overhead spending and efficiency variances and
the fixed overhead budget and volume variances for the year.
Answer:
a. Predetermined variable ovhd rate = $270,000 150,000
machine-hours
= $1.80 per machine-hour
Predetermined fixed overhead rate = $337,500 150,000
machine-hours
= $2.25 per machine-hour
b. Variable overhead variances:
Spending variance

= AH (AR - SR)
= 126,000 ($1.68 - $1.80)
= $15,120 F

AR = $211,680 126,000 actual machine-hours = $1.68


Efficiency variance

= SR (AH - SH)
= $1.80 (126,000 - 120,000)
= $10,800 U

SR = 120,000 units X 1 hour per unit = 120,000 hours.


Fixed overhead variances:
Budget variance

Volume variance

= Actual fixed overhead Budgeted fixed overhead


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

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


105.
Hard

Tracton Corporation uses a standard costing system in which manufacturing


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

172ManagerialAccounting,9/e

of

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

302,100

0.1
3,021,000

c. Fixed overhead in flexible budget, (a) above .... $ 324,000


Standard cost per machine hour ..................
$1.08
MH assumed in flexible budget ............
300,000

ManagerialAccounting,9/e

173

Standard hours allowed per unit .................


Units assumed in flexible budget .........

174ManagerialAccounting,9/e

0.1
3,000,000