Exam 11: Flexible Budgeting and Analysis of Overhead Costs

From a traditional perspective, dollars of raw material have been a popular activity measure in manufacturing firms.

Briefly describe the procedures that are used to apply manufacturing overhead to production for companies that use (1) normal costing systems and (2) those that use standard costing systems.

Consider the seven statements that follow. 1.An analysis of fixed overhead will typically result in the computation of the fixed-overhead spending variance and the fixed-overhead volume variance. 2.The standard rate for fixed overhead is computed by dividing a company's budgeted fixed overhead for the period by the planned manufacturing activity. 3.A company uses direct labor hours to apply manufacturing overhead to units of production.If the company reports an unfavorable labor efficiency variance, that same firm might report a favorable variable-overhead efficiency variance in the same accounting period. 4.The amount of actual fixed overhead for an accounting period is used to compute the fixed-overhead volume variance. 5.If a company's standard hours allowed for the manufacturing activity attained exceeds the planned manufacturing activity, the firm will report a favorable fixed-overhead volume variance. 6.The amount of fixed overhead that a company has budgeted for an accounting period will increase or decrease with the actual number of units produced. 7.The fixed-overhead volume variance indicates whether the level of production activity attained is higher or lower than the level originally anticipated. Required: Determine whether the preceding statements are true or false.If a statement is false, briefly explain why it is false.

Match Point, Inc.has the following overhead standards: Variable overhead: 4 hours at $8 per hour Fixed overhead: 4 hours at $10 per hour The standards were based on a planned activity of 20,000 machine hours when 5,000 units were scheduled for production.Actual data follow. Variable overhead incurred: $167,750 Fixed overhead incurred: $210,000 Machine hours worked: 19,800 Actual units produced: 5,100 Match Point's variable-overhead spending variance is:

Solution Enterprises incurred $828,000 of fixed overhead during the period.During that same period, the company applied $845,000 of fixed overhead to production and reported an unfavorable budget variance of $41,000.How much was Solution's budgeted fixed overhead?

Theory Enterprises uses a standard cost system and prepared the following budget for May when 24,000 machine hours of activity were anticipated: variable overhead, $48,000; fixed overhead: $240,000.Actual data for May were: Standard machine hours allowed for output attained: 25,000 Actual machine hours worked: 24,000 Variable overhead incurred: $50,000 Fixed overhead incurred: $250,000 The standard variable overhead rate for May is:

Admac Technologies has a standard variable overhead rate of $4.50 per machine hour, and each unit produced has a standard time allowed of three hours.The company's static budget was based on 46,000 units.Actual results for the year follow. Actual units produced: 42,000 Actual machine hours worked: 120,000 Actual variable overhead incurred: $520,000 Admac's variable-overhead efficiency variance is:

Holiday Company prepares packed lunches for hikers in Yosemite.Hikers order their lunches by 10 pm and their lunch is left at their hotel room door in a re-useable insulated bag by 5 am the following morning.Holiday budgeted 5,000 lunches for July and each lunch requires 0.50 process hours.Holiday's static budget for electricity for the month is $3,000.Actual sales, process hours, and electricity cost totaled 5,100 lunches, 2,480 PH, and $3,040, respectively.If the company used a static budget for performance evaluations, Holiday would report a cost variance of:

Which of the following statements is/are correct concerning the application of overhead in a standard costing system driven by process hours?

The activity-based flexible budget provides a more accurate benchmark against which to compare actual costs than does a conventional flexible budget.

Which of the following is used in the computation of the variable-overhead spending variance?

Seven Falls Cuisines has the following flexible-budget formula: Y = $13PH + $450,000 where PH is defined as process hours. Which of the following statements is (are) true?

The following selected information was extracted from the accounting records of Comprehensive Technologies, Inc.: Planned manufacturing activity: 40,000 machine hours Standard variable-overhead rate per machine hour: $16 Budgeted fixed overhead: $100,000 Variable-overhead spending variance: $92,000U Variable-overhead efficiency variance: $102,000F Fixed-overhead budget variance: $25,000U Total actual overhead: $675,000 Required: Determine the following: actual fixed overhead, actual variable overhead, actual machine hours worked, standard machine hours allowed for actual production, and the fixed-overhead volume variance.

Canister Industries uses labor hours to apply variable overhead to production.If the company's workers were very inefficient during the period, which of the following statements would be true about the variable-overhead efficiency variance?

In an activity-based flexible budget, each overhead item has the same cost driver, identified by flexible overhead budget for that cost item.

Institute Technologies is choosing new cost drivers for its accounting system.One driver is labor hours; the other is a combination of machine hours for unit variable costs and number of setups for a pool of batch-level costs.Data for the past year follow. Assume that both cost pools for Institute are combined into a single pool, and labor hours is the driver.The total flexible budget for the actual level of labor hours and the total variance for the combined pool are:

Which of the following mathematical expressions is found in a typical flexible-budget formula for overhead?

Campaign Company, which applies overhead to production on the basis of machine hours, reported the following data for the period just ended: Actual units produced: 12,000 Actual fixed overhead incurred: $730,000 Actual machine hours worked: 60,000 Budgeted fixed overhead: $720,000 Planned level of machine-hour activity: 50,000 If Campaign estimates four hours to manufacture a completed unit, the company's standard fixed overhead rate per machine hour would be:

Bannister Motors Corporation reported the following variances for the period just ended: Variable-overhead spending variance: $50,000U Variable-overhead efficiency variance: $28,000U Fixed-overhead budget variance: $70,000U Fixed-overhead volume variance: $30,000U If Bannister prepared an overhead cost performance report, which of these overhead variances is likely to be excluded from the report?

Assume that machine hours drive the cost for overhead.The difference between the actual variable overhead incurred and the applied variable overhead is the: