Question # 00003246 Posted By: mac123 Updated on: 11/08/2013 08:20 AM Due on: 11/30/2013
Subject Accounting Topic Accounting Tutorials:
Question

101. Xero Company's standard factory overhead rate is \$3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is \$3,150, of which \$1,350 is fixed overhead. For December, the actual factory overhead cost was \$3,800 for 840 actual DLHs, of which \$1,300 was for fixed factory overhead. Under a three-way breakdown (decomposition) of the total overhead variance, what is the total factory overhead spending variance for December?

A. N/A—this variance doesn't exist under a three-way breakdown of the total overhead variance.

B. \$225 favorable.

C. \$425 unfavorable.

D. \$560 unfavorable.

E. \$600 unfavorable.

102. Xero Company's standard factory overhead rate is \$3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is \$3,150, of which \$1,350 is fixed overhead. For December, the actual factory overhead cost was \$3,800 for 840 actual DLHs, of which \$1,300 was for fixed factory overhead. Under a four-way breakdown (decomposition) of the total overhead variance, what is the variable factory overhead spending variance for December?

A. \$50 favorable.

B. \$225 favorable.

C. \$425 unfavorable.

D. \$610 unfavorable.

E. \$650 unfavorable.

103. Xero Company's standard factory overhead rate is \$3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is \$3,150, of which \$1,350 is fixed overhead. For December, the actual factory overhead cost was \$3,800 for 840 actual DLHs, of which \$1,300 was for fixed factory overhead. Assuming the use of a four-way breakdown (decomposition) of the total overhead variance, what is the variable factory overhead efficiency variance for December?

A. \$90 unfavorable.

B. \$150 unfavorable.

C. \$225 favorable.

D. \$425 unfavorable.

E. \$650 unfavorable.

104. Xero Company's standard factory overhead rate is \$3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is \$3,150, of which \$1,350 is fixed overhead. For December, the actual factory overhead cost was \$3,800 for 840 actual DLHs, of which \$1,300 was for fixed factory overhead. What was the fixed factory overhead spending variance for December?

A. \$50 favorable.

B. \$225 favorable.

C. \$425 unfavorable.

D. \$560 unfavorable.

E. \$610 unfavorable.

105. Xero Company's standard factory overhead rate is \$3.75 per direct labor hour (DLH), calculated at 90% capacity = 900 standard DLHs. In December, the company operated at 80% of capacity, or 800 standard DLHs. Budgeted factory overhead at 80% of capacity is \$3,150, of which \$1,350 is fixed overhead. For December, the actual factory overhead cost was \$3,800 for 840 actual DLHs, of which \$1,300 was for fixed factory overhead. Assuming a four-variance breakdown (decomposition) of the total overhead variance, what is the fixed factory overhead efficiency variance for the period?

A. N/A—this variance does not exist.

B. \$225 favorable.

C. \$425 unfavorable.

D. \$650 unfavorable.

106. Gerhan Company's flexible budget for the units actually manufactured in May shows \$15,640 of total factory overhead; this output level represents 70% of available capacity. During May the company applied overhead to production at the rate of \$3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company spent 5,000 DLHs and incurred \$16,500 of total factory overhead cost during May, including \$6,800 for fixed factory overhead. What is the factory overhead production-volume variance for May?

A. \$180 unfavorable.

B. \$380 unfavorable.

C. \$680 unfavorable.

D. \$860 unfavorable.

E. \$1,360 unfavorable.

107. Gerhan Company's flexible budget for the units actually manufactured in May shows \$15,640 of total factory overhead; this output level

represents 70% of available capacity. During May the company applied overhead to production at the rate of \$3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company spent 5,000 DLHs and incurred \$16,500 of total factory overhead cost during May, including \$6,800 for fixed factory overhead.

What is the total factory overhead flexible-budget variance for May?

A. \$380 unfavorable.

B. \$680 unfavorable.

C. \$860 unfavorable.

D. \$1,160 unfavorable.

E. \$1,360 unfavorable.

108. Gerhan Company's flexible budget for the units actually manufactured in May shows \$15,640 of total factory overhead; this output level represents 70% of available capacity. During May the company applied overhead to production at the rate of \$3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company spent 5,000 DLHs and incurred \$16,500 of total factory overhead cost during May, including \$6,800 for fixed factory overhead.

What is the factory overhead efficiency variance for May, under the assumption that the company uses a two-variance breakdown (decomposition) of the total overhead variance?

A. N/A—this variance does not exist under a two-variance breakdown of the total overead variance.

B. \$180 unfavorable.

C. \$300 favorable.

D. \$480 unfavorable.

E. \$680 unfavorable.

B. Gerhan Company's flexible budget for the units actually manufactured in May shows \$15,640 of total factory overhead; this output level represents 70% of available capacity. During May the company applied overhead to production at the rate of \$3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company spent 5,000 DLHs and incurred \$16,500 of total factory overhead cost during May, including \$6,800 for fixed factory overhead. Under a three-variance breakdown (decomposition) of the total overhead variance, what is the total factory overhead spending variance for May?

A. N/A—this variance does not exist in a three-variance analysis of the total overhead variance.

B. \$300 favorable.

C. \$380 unfavorable.

D. \$480 unfavorable.

E. \$1,160 unfavorable.

110. Gerhan Company's flexible budget for the units actually manufactured in May shows \$15,640 of total factory overhead; this output level represents 70% of available capacity. During May the company applied overhead to production at the rate of \$3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company spent 5,000 DLHs and incurred \$16,500 of total factory overhead cost during May, including \$6,800 for fixed factory overhead.

What is the variable factory overhead spending variance in May assuming the company uses a four-variance breakdown (decomposition) of the total overhead variance?

A. \$180 unfavorable.

B. \$300 favorable.

C. \$380 unfavorable.

D. \$480 unfavorable.

E. N/A—this variance is not defined under the four-way breakdown of the total OVH variance.

111. Gerhan Company's flexible budget for the units actually manufactured in May shows \$15,640 of total factory overhead; this output level represents 70% of available capacity. During May the company applied overhead to production at the rate of \$3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company spent 5,000 DLHs and incurred \$16,500 of total factory overhead cost during May, including \$6,800 for fixed factory overhead.

What is the factory overhead efficiency for May under the assumption that the company uses a four-variance breakdown (decomposition) of the total overhead variance?

A. \$180 unfavorable.

B. \$380 favorable.

C. \$380 unfavorable.

D. \$480 unfavorable.

E. \$480 favorable.

112. Gerhan Company's flexible budget for the units actually manufactured in May shows \$15,640 of total factory overhead; this output level represents 70% of available capacity. During May the company applied overhead to production at the rate of \$3.00 per direct labor hour (DLH), based on a denominator volume level of 6,120 DLHs, which represents 90% of available capacity. The company spent 5,000 DLHs and incurred \$16,500 of total factory overhead cost during May, including \$6,800 for fixed factory overhead. What is the fixed factory overhead spending variance for December?

A. \$0.

B. \$180 unfavorable.

C. \$300 favorable.

D. \$480 unfavorable.

E. \$680 unfavorable.

113.Oslund Company manufactures only one product and uses a standard cost system. During the past month, the following variances were observed:

Oslund applies variable overhead using a standard rate of \$20 per standard DLH allowed. During the month, Oslund used 20% more DLHs than the total standard hours for the units manufactured.

What were the total standard hours for the units manufactured?

A. 1,000.

B. 2,500.

C. 4,000.

D. 5,000.

E. 6,000

114. Oslund Company manufactures only one product and uses a standard cost system. During the past month, the following variances were observed:

Oslund applies variable overhead using a standard rate of \$20 per standard DLH allowed. During the month, Oslund used 20% more DLHs than the total standard hours for the units manufactured. What were the total actual direct hours worked?

A. 1,200.

B. 3,000.

C. 4,800.

D. 6,000.

E. 7,200.

115. Megan, Inc. uses the following standard costs per unit for one of its products: Direct labor (2 hrs @ \$5/hr) = \$10; overhead (2 hrs @ \$2.50/hr) = \$5. The flexible budget for overhead is \$120,000 plus \$1 per direct labor hour (DLH). Actual data for the month show total overhead costs of \$225,000, total fixed overhead of \$123,000, 85,000 hours worked, and 40,000 units produced. What is the budgeted denominator activity level in direct labor hours?

A. 24,000.

B. 48,000.

C. 60,000.

D. 80,000.

E. 100,000.

116. Megan, Inc. uses the following standard costs per unit for one of its products: Direct labor (2 hrs @ \$5/hr) = \$10; overhead (2 hrs @ \$2.50/hr) = \$5. The flexible budget for overhead is \$120,000 plus \$1 per direct labor hour (DLH). Actual data for the month show total overhead costs of \$225,000, total fixed overhead of \$123,000, 85,000 hours worked, and 40,000 units produced. The total overhead variance for the month is:

A. \$0.

B. \$3,000 unfavorable.

C. \$5,000 unfavorable.

D. \$20,000 unfavorable.

E. \$25,000 unfavorable.

117. Megan, Inc. uses the following standard costs per unit for one of its products: Direct labor (2 hrs @ \$5/hr) = \$10; overhead (2 hrs @ \$2.50/hr) = \$5. The flexible budget for overhead is \$120,000 plus \$1 per direct labor hour (DLH). Actual data for the month show total overhead costs of \$225,000, total fixed overhead of \$123,000, 85,000 hours worked, and 40,000 units produced. The overhead production-volume variance is:

A. \$0.

B. \$3,000 unfavorable.

C. \$5,000 unfavorable.

D. \$20,000 unfavorable.

E. None of the above.

118. Megan, Inc. uses the following standard costs per unit for one of its products: Direct labor (2 hrs @ \$5/hr) = \$10; overhead (2 hrs @ \$2.50/hr) = \$5. The flexible budget for overhead is \$120,000 plus \$1 per direct labor hour (DLH). Actual data for the month show total overhead costs of \$225,000, total fixed overhead of \$123,000, 85,000 hours worked, and 40,000 units produced. The variable overhead spending variance is:

A. \$0.

B. \$3,000 unfavorable.

C. \$5,000 unfavorable.

D. \$17,000 unfavorable.

E. \$25,000 unfavorable.

119. Megan, Inc. uses the following standard costs per unit for one of its products: Direct labor (2 hrs @ \$5/hr) \$10. Overhead (2 hrs @ \$2.50/hr) 5. The flexible budget for overhead is \$120,000 plus \$1 per direct labor hour (DLH). Actual data for the month show total overhead costs of \$225,000, total fixed overhead of \$123,000, 85,000 hours worked, and 40,000 units produced. The fixed overhead spending variance is:

A. \$0.

B. \$3,000 unfavorable.

C. \$5,000 unfavorable.

D. \$17,000 unfavorable.

E. \$25,000 unfavorable.

120. Megan, Inc. uses the following standard costs per unit for one of its products: Direct labor (2 hrs @ \$5/hr) \$10. Overhead (2 hrs @ \$2.50/hr) 5. The flexible budget for overhead is \$120,000 plus \$1 per direct labor hour (DLH). Actual data for the month show total overhead costs of \$225,000, total fixed overhead of \$123,000, 85,000 hours worked, and 40,000 units produced. The variable factory overhead efficiency variance is:

A. \$0.

B. \$3,000 unfavorable.

C. \$5,000 unfavorable.

D. \$17,000 unfavorable.

E. \$25,000 unfavorable.

121. The following information is available from the Taro Company:

What is the total overhead spending variance for the period?

A. \$750 favorable.

B. \$750 unfavorable.

C. \$950 favorable.

D. \$1,150 unfavorable.

E. \$2,100 favorable.

122. The following information is available from the Taro Company:

What is the total overhead efficiency variance for the period?

A. \$750 favorable.

B. \$750 unfavorable.

C. \$950 favorable.

D. \$1,150 unfavorable.

E. \$1,150 favorable.

123. The following information is available from the Taro Company:

What is the overhead production volume-variance for the period?

A. \$200 unfavorable.

B. \$600 favorable.

C. \$750 favorable.

D. \$950 favorable.

E. \$2,100 favorable.

124. The following information is available from the Taro Company:

What is the variable overhead spending variance for the period?

A. \$200 unfavorable.

B. \$600 favorable.

C. \$750 favorable.

D. \$950 favorable.

E. \$1,700 favorable.

125. The following information is available from the Taro Company:

What is the fixed overhead spending variance for the period?

A. \$200 unfavorable.

B. \$600 favorable.

C. \$750 favorable.

D. \$950 favorable.

E. \$2,100 favorable.

126. The following information is available from the Taro Company:

The total under or over applied overhead for the period is:

A. \$1,400 overapplied.

B. \$1,700 underapplied.

C. \$1,700 overapplied.

D. \$2,100 underapplied.

E. \$2,100 overapplied.

127. The following information is available from the Taro Company:

The total overhead flexible-budget (FB) variance for the period is:

A. \$550 favorable.

B. \$750 favorable.

C. \$1,500 favorable.

D. \$1,700 favorable.

E. \$2,100 favorable.

128. Air Inc. uses a standard cost system. Overhead cost information for Product CX10 for the month of October is as follows:

What is the total overhead variance for October?

A. \$300 unfavorable.

B. \$500 favorable.

C. \$800 favorable.

D. \$4,100 unfavorable.

E. \$4,600 unfavorable.

129. Air Inc. uses a standard cost system. Overhead cost information for Product CX10 for the month of October is as follows:

What is the total overhead spending variance for the month?

A. \$300 unfavorable.

B. \$500 favorable.

C. \$800 favorable.

D. \$4,600 unfavorable.

E. \$4,900 unfavorable.

130. Air Inc. uses a standard cost system. Overhead cost information for Product CX10 for the month of October is as follows:

What is the variable overhead efficiency variance for October?

A. \$300 unfavorable.

B. \$500 favorable.

C. \$800 favorable.

D. \$4,100 unfavorable.

E. \$4,600 unfavorable.

131. Air Inc. uses a standard cost system. Overhead cost information for Product CX10 for the month of October is as follows:

What is the overhead production-volume variance for the period?

A. \$300 unfavorable.

B. \$500 favorable.

C. \$800 favorable.

D. \$4,100 unfavorable.

E. \$4,600 unfavorable.

132. The following information is available from the Terry Company:

What is the total overhead spending variance for the period?

A. \$800 unfavorable.

B. \$1,000 unfavorable.

C. \$1,200 unfavorable.

D. \$1,400 unfavorable.

E. \$2,000 unfavorable.

133. The following information is available from the Terry Company:

What is the variable overhead efficiency variance for the period?

A. \$600 favorable.

B. \$800 unfavorable.

C. \$1,200 unfavorable.

D. \$1,400 unfavorable.

E. \$2,000 unfavorable.

134.

The following information is available from the Terry Company:

What is the overhead production-volume variance for the period?

A. \$600 favorable.

B. \$1,000 unfavorable.

C. \$1,200 unfavorable.

D. \$1,400 favorable.

E. \$1,400 unfavorable.

135. The following information is available from the Terry Company:

What is the variable overhead (VOH) spending variance for the period?

A. \$600 favorable.

B. \$800 unfavorable.

C. \$1,000 unfavorable.

D. \$1,400 favorable.

E. \$1,400 unfavorable.

136. The following information is available from the Terry Company:

The fixed overhead spending variance for the period is:

A. \$600 favorable.

B. \$800 unfavorable.

C. \$1,000 unfavorable.

D. \$1,200 unfavorable.

E. \$1,200 favorable.

137. The following information is available from the Terry Company:

The total under or over applied overhead for the period is:

A. \$800 overapplied.

B. \$800 underapplied.

C. \$2,600 underapplied.

D. \$3,000 overapplied.

E. \$3,000 underapplied.

138. The following information is available from the Terry Company:

The total overhead flexible-budget (FB) variance for the period is:

A. \$800 unfavorable.

B. \$1,400 unfavorable.

C. \$2,000 unfavorable.

D. \$2,600 unfavorable.

E. \$3,000 unfavorable.

139. For which one of the following reasons is the calculation of overhead variances in conjunction with an activity-based cost (ABC) system desirable from the standpoint of management?

A. The resulting cost-management system is currently required by generally accepted accounting principles (GAAP).

B. Such a system would be consistent with the goal of managing activities rather than cost.

C. Such a system is likely to be less costly to design and implement.

D. Far fewer variances would likely be expected under such a system.

E. Conventional systems, though appropriate for a manufacturing setting, are not applicable to the service sector.

140. Which of the following is a characteristic of calculating standard cost variances for manufacturing overhead costs under an activity-based cost (ABC) system?

A. Only non-volume-related cost drivers are used in the cost-allocation process.

B. An ABC system would likely have a greater number of standard cost variances reported each period.

C. Fewer variances need to be reported, compared to the number of overhead variances calculated under a traditional cost system.

D. Flexible budgets are used for planning but not cost-control purposes.

E. The flexible budget variance will be the same under both a traditional cost system and an ABC system.

141. Which one of the following characteristics is associated with standard cost variance analysis for manufacturing overhead under a traditional versus an activity-based cost (ABC) system?

A. The total manufacturing overhead variance will be the same under either system.

B. The traditional cost system does not meet the current International Financial Reporting Standards for internal control and product costing.

C. The traditional system, but not the ABC system, is acceptable for income tax purposes.

D. Cost variances under an ABC system must be closed to cost of goods sold (CGS), while those calculated under a traditional system can also be prorated (allocated) to CGS and inventory accounts.

E. Under both cost systems a flexible budget (FB) is used for control purposes.

142. When there is a standard batch size for production activity:

A. A modification of the traditional approach to constructing the flexible budget for control purposes allows for a more detailed analysis of batch-related overhead costs.

B. It is not possible to construct a flexible budget for cost-control purposes.

C. Standard cost variances for only the variable portion of batch-related manufacturing overhead costs can be calculated.

D. The variable portion of the total flexible-budget variance for batch-related costs can be further decomposed into a spending and a volume variance, which leads to better cost control.

143. Which one of the following standard cost variances is not available when analyzing batch-related manufacturing overhead costs using an activity-based cost (ABC) system?

A. Production-volume variance.

B. Variable setup spending variance.

C. Fixed spending variance.

D. Fixed flexible-budget variance.

E. Sales volume variance.

144. Which of the following is not a cost system proposed as an extension to ABC systems, with the overall goal of more accurately allocating manufacturing overhead costs to outputs?

A. Resource consumption accounting (RCA).

B. Flexible standard costing.

C. GPK (Grenzplankostenregnung).

D. Variable costing.

145. A comprehensive management accounting and control system regarding manufacturing overhead costs:

A. Includes nonfinancial but not financial performance indicators.

B. Relies on direct managerial observation rather than a formal system for cost-control purposes.

C. Provides information for strategic but not operational control.

D. Provides financial-control information to operating personnel, while both financial and nonfinancial performance indicators to managers.

E. Includes both financial performance indicators as well as nonfinancial performance indicators.

146. What are the steps in establishing the standard application rate for variable factory overhead cost? Does the procedure differ for product-costing versus cost control purposes?

147. What are the steps in determining the standard fixed factory overhead application rate? Does the procedure differ for product-costing versus cost-control purposes?

148. "Firms need to use the capacity of the equipment or division that is the ‘bottleneck' of the manufacturing process as the denominator volume in setting the fixed overhead allocation rate. In cases where there is more than one ‘bottleneck,' the denominator should be the smallest capacity among the bottleneck production processes."

Required: (a) What type of variance is related to this "denominator?" Explain.

(b) Why should a firm choose the smallest capacity "bottleneck" as the denominator in a manufacturing process?

149. "In fact, a ‘favorable' production-volume variance of a ‘non-bottleneck' machine or operation is not favorable to the firm as a whole; rather, it increases work and costs for the firm." Why?

150. Eileen Bellows is controller at a new, rapidly growing company that produces replacement windows for existing houses or for initial installation in new houses. Competition is stiff in this industry, but the company for which Eileen works is aggressive in sales development, and just showed a modest profit for the first year since its founding four years ago. Howard Zeller is controller at Accents Incorporated, an established drapery and blinds manufacturer. Accent is an industry leader and has experienced sustained growth in both sales and profits for the past five years. Eileen: Our manufacturing support costs seem to be growing over time. For planning and control purposes we're using "currently attainable" standards in our standard cost system, including the costing of manufacturing overhead. But now that we're making profit, I've been thinking of a switch to tighter standards. Howard: We've always used ideal standards, although our enforcement of these goals hasn't been strict. It seems to work for us.

Required: What does this conversation say about each company's expectations regarding their standard cost system and anticipatedvariances from each of the two different systems?

151. Erie Co. uses machine hours to apply standard overhead cost to production. The following data pertain to October:

Required: Compute the following variances using machine hours as the activity variable used to assign standard overhead costs toproduction. Show calculations.

152. Bluetop Company uses standard costs. For the month of April, the firm budgeted \$160,000 for total factory overhead based on 40,000 machine hours. The standard calls for 4 machine hours for each finished units. During April the firm used 39,000 machine hours to manufacture 9,500 units and incurred \$159,000 in total factory overhead.

Required: (a) Determine the total amount of standard factory overhead cost charged to production in April.

(b) Provide the correct journal entry to record the application of standard factory overhead costs to production. (Assume that the company uses a single overhead account, Manufacturing Overhead.)

153. McAllister Company's master budget for the year just completed was based on 100% capacity and included 40,000 machine hours and \$240,000 total factory overhead. The budgeted fixed overhead at 75% of factory capacity would be \$160,000 (and 30,000 machine hours). The company actually operated at 90% capacity for the year, and incurred \$252,000 total factory overhead.

Required: (a) Determine the factory overhead flexible-budget variance for the year. Show calculations. (b) Calculate the factoryoverhead production-volume variance for the year. Show calculations.

154. Bike Pedals manufactures bicycle seats. The company budgeted to manufacture 25,000 seats in April with 0.05 standard machine hours per seat. The total variable factory overhead was budgeted at \$30,000 for the operation. During April the company manufactured 30,000 seats using 1,600 machine hours. It incurred \$34,000 of variable factory overhead (VOH) costs.

Required: Determine each of the following variances. Show calculations.

155. Ben Simon Corp. has the following information about its standards and production activity for the month of November:

Required: Calculate and show supporting calculations for each of the following variances: (a) Variable overhead flexible-budgetvariance. (b) Fixed overhead spending variance. (c) Fixed overhead production-volume variance.

156. Dillard, Inc., has developed the following standard cost data based on a denominator volume of 60,000 direct labor hours (DLHs), which is 75% of the firm's capacity. Budgeted fixed overhead is \$360,000 and budgeted variable overhead is \$180,000 at this level of activity.

During the last period, the company used 48,000 DLHs to produce 128,000 units. It incurred the following manufacturing costs:

Required: Determine all variances for direct materials, direct labor, and factory overhead. Use a 4-variance breakdown (decomposition)of the total overhead variance for the period.

157. Harrison Corporation's direct labor rate variance for May was \$200 favorable, and the direct labor efficiency variance was \$150 unfavorable. The total direct labor payroll for the month was \$10,050.

Required: (a) Prepare the summary journal entry (May 31) to accrue payroll costs, to charge Work in Process Inventory for the standardlabor cost of the goods manufactured in May, and to record the direct labor variances for the month.

(b) Assuming that the direct labor variances are not material, prepare the journal entry that Harrison would make to close the variance accounts.

158.

Redtop Co. uses a standard cost system and flexible budgets. The following flexible budget was prepared at the 80% operating level for the year:

However, for purposes of calculating the fixed overhead application rate, the company defined the denominator volume as the 90% capacity level. The standard calls for four DLHs per unit manufactured. During the year, Redtop worked 33,600 DLHs to manufacture 8,500 units. The actual factory overhead was \$12,000 greater than the flexible-budget amount for the units produced, of which \$5,000 was due to fixed factory overhead.

Required: Calculate (and provide supporting details for) each of the following variances:

(a) The standard variable overhead application rate.

(b) The variable overhead efficiency variance.

(c) The factory overhead spending variance.

(d) The factory overhead production-volume variance.

(e) The variable overhead spending variance.

(f) Provide an interpretation for each of the above variances you calculated.

159. Carl Jones Company's master budget for the year just completed was based on 100% capacity and included 50,000 machine hours and \$300,000 total factory overhead. (That is, the denominator volume, for purposes of calculating the fixed overhead application rate, is defined as 100% capacity.) Budgeted fixed overhead at 70% factory capacity is \$200,000 (and 35,000 machine hours). The company operated at 80% capacity for the year, and incurred \$275,000 total factory overhead.

Required: (a) Determine the factory overhead flexible-budget variance for the year just completed. Show calculations. (b) Calculate thefactory overhead production-volume variance for the year just completed. Show calculations. (c) Supply an interpretation of each of the two variances calculated above.

160. ABN Corp. has the following information about its standards and production activity in May:

Required: Calculate and show calculations for each of the following variances:

(a) Variable overhead flexible-budget (FB) variance.

(d) Provide and interpretation of each of the above variances.

161.You are provided with the following summary of overhead-related costs for the most recent accounting period:

Required: Prepare the appropriate journal entries for each of the above events. Assume that the company uses a single account,

Manufacturing Overhead. For entry (f), assume that any overhead variances are closed to Cost of Goods Sold (CGS).

162. You are provided with the following summary of overhead-related costs for the most recent accounting period for a company that uses a single overhead account, Factory Overhead, into which it records both actual and standard overhead costs during the period:

Required: Prepare the proper journal entry for each of the following events:

(a) Incurrence of actual FOH costs for the period.

(b) Incurrence of actual VOH costs for the period.

(c) Application of standard overhead costs to production (i.e., WIP inventory).

(d) Recording of standard overhead costs for units completed during the period.

(e) Recording of the four standard cost variances for the period.

(f) Closing the standard cost variances under the assumption that the company closes these variances entirely to Cost of Goods Sold (CGS).

(g) Closing the standard cost variances under the assumption that the company prorates the variances to the CGS and inventory accounts.

163. Management is currently deciding whether or not to investigate a cost variance that was identified by the accounting system. To help address this question, you have generated the following data:

Possible States of Nature:

1. The underlying operation is in control (i.e., is operating normally).

2. The underlying operation is out of control (and therefore is in need of an intervention)

Possible Decisions/Courses of Action:

1. Investigate the variance (to determine its underlying cause(s)). 2. Do not investigate the variance

Estimated Costs and Probabilities:

1. Cost of investigating the variance = I = \$5,000.

2. Cost of correcting an out-of-control process (if the process is found to be out of control) = C = \$10,000. 3. Losses from not correcting an out-of-control process = L = \$110,000.

4. Probability, p, of the process being out of control = 60% Required: 1. Recast the above information in a payoff table.

2. What is the expected cost of the decision to investigate the variance? Show calculations.

3. What is the expected cost of the decision to not investigate the variance? Show calculations.

4. What is the break-even probability of the process being out of control, p, that would make management indifferent between investigating and not investigating the observed variance? Demonstrate that, in fact, this is the break-even probability by showing the expected value of each management action. Show calculations.

164.Management is currently deciding whether or not to investigate a cost variance that was identified by the accounting system. To help address this question, you have generated the following data:

Possible States of Nature:

1. The underlying operation is in control (i.e., is operating normally).

2. The underlying operation is out of control (and therefore is in need of an intervention)

Possible Decisions/Courses of Action:

1. Investigate the variance (to determine its underlying cause(s)). 2. Do not investigate the variance.

Estimated Costs and Probabilities:

1. Cost of investigating the variance = I = \$1,500.

2. Cost of correcting an out-of-control process (if the process is found to be out of control) = C = \$6,000.

3. Losses from not correcting an out-of-control process = L = \$50,000.

4. Probability, p, of the process being out of control = 15%

Required: 1. Given the above information, what is the expected value of investigating the reported variance? (Show calculation.).

2. Prepare a payoff table that summarizes the states of nature (i.e., possible outcomes) and the decision alternatives (i.e., management actions). Your table should include cells for combinations of management actions and states of nature, plus cells to represent the expected value of each management action. Which decision is recommended on the basis of information in your payoff table?

3. Given the above information, what is the probability level, p, for an out-of-control process (i.e., a nonrandom variance) that would make management indifferent between investigating and not investigating the variance? In what sense can this probability be considered a breakeven probability? (Demonstrate this by calculating the expected value of each management action, based on the break-even probability, p, you calculated.) What is the correct management action of the probability of an out-of-control process is greater than the break-even probability, p? Show all calculations. Round final answers to the nearest whole numbers.

165. When implementing a standard cost system, one of the system-design choices that management must make is choice of the denominator volume level for the purpose of calculating the fixed overhead application rate, which is used to determine product costs. Various alternatives exist for the denominator volume.

Required: 1. List and briefly describe the various alternatives that exist for defining the denominator activity level for product-costingpurposes.

2. What provisions of generally accepted accounting principles (GAAP) and current income tax requirements affect the decision as to choice of the denominator volume level when developing the standard fixed overhead application rate? Provide an overview of the requirements in this regard.

166. It can be argued that manufacturing overhead analysis under an ABC system is more informative or useful to management because of the associated richness of the analysis and therefore increased potential for cost control. Of particular interest under an ABC system is the flexible-budget analysis that can be performed when there is a standard batch size for production activity.

Required: Explain how the conventional analysis of overhead variances through the use of flexible budgets can be expanded whenproduction is characterized by a standard batch size. Focus specifically on the analysis of batch-related costs, for example, production-related set-up costs.

Discuss separately the analysis of fixed setup-related costs and variable setup-related manufacturing support costs.

167. The variances discussed in Chapter 15 (for manufacturing overhead) are all components of a short- term financial control system. These variances are calculated using standard manufacturing costs and flexible budgets. As was argued in the text (both in Chapter 15 and elsewhere) a financial control system is but part of a more comprehensive management accounting and control system.

Required: (a) What are the primary limitations of short-run financial control measures?

(b) How can a short-run financial control system be expanded to become a more comprehensive management accounting and control system? Discuss, in at least some detail, how and why you would expand the system in an attempt to provide management with more useful information.

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1. ## Solution: general business data bank

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