Exam 17: Flexible Budgets, Overhead Cost Management, and Activity-Based Budgeting

The variable-overhead efficiency variance measures the cost of variable overhead cost driver.

Rafter Company uses a standard-cost just-in-time manufacturing system. During the first year of the company's operation direct materials at a standard cost of $100,000 were purchased and charged to Cost of Goods Sold. At the end of the year $45,000 of this can be traced to various inventory accounts: 60 percent to direct materials, 25 percent to Work-in-Process, and 15 percent to Finished Goods. Which of the following entries is the correct end-of-period adjustment?

Smallville Inc. sells Superman jerseys. Last year they budgeted sales of 20,000 jerseys and sold 15,000 despite reducing the selling price from $50 to $45. Required: Compute the revenue sales-price and revenue sales-volume variances and use them to reconcile the difference between budgeted and actual revenue.

Briefly differentiate between a static budget and a flexible budget for manufacturing overhead and why the flexible budget is more appropriate for cost control and performance evaluation.

Use the following to answer questions: The traceable fixed and variable costs of the purchasing activity center are $260,000. An analysis of the center's cost behavior showed a fixed cost of $100,000 and the appropriate cost driver to be the number of lines inputted. The total number of lines inputted is 2,000,000. -What is the overhead cost function for this activity center?

Use the following to answer questions: Tillinghuisen Inc. uses a standard cost system. Last year's records showed the following information: -How much is the variable overhead efficiency variance?

The activity-based budget provides a less accurate benchmark against which to compare actual costs.

Discuss the meaning of the fixed overhead variances.

The revenue budget variance can be broken down into the sales-price variance and the revenue-sales volume variance.

Use the following to answer questions: Tillinghuisen Inc. uses a standard cost system. Last year's records showed the following information: -How much is the fixed overhead volume variance?

Use the following to answer questions: Controller Rachel Tabak of Johnson Inc. is in the process of analyzing its manufacturing overhead costs for March. March results follow: -What are the fixed overhead efficiency and volume variances, respectively?

Budgeted fixed overhead is the basis for controlling fixed overhead because it provides the benchmark against which actual expenditures are compared.

At the beginning of the year, the budget showed the following plan: 45,000 units and 9,000 machine hours. The company uses a flexible budget for its overhead costs. End-of-year results show that 42,000 units were produced and 8,400 machine hours were used. Actual costs were as follows (actual fixed costs equaled budgeted): Herman Company has the following information related to its overhead costs: Required: (1) Prepare an overhead static budget for variable overhead only with variances. (2) Prepare an overhead flexible budget for variable overhead only with variances. (3) Are there any variances that might signal a need for investigation, if so, which ones and why?

Ms. Garcia, the controller for Romine Inc. is not satisfied with the information coming from manufacturing with regard to the overhead variances. She noted that variable overhead is being applied using a measure that has no relation to any of the components in the variable overhead budget. She has gone to the production manager for some information about how the activity measure should be set. Required: Describe how activity measures should be set and what is happening in the light of changes in the manufacturing environment.

The sales-volume variance can be broken down into the revenue sales-mix variance and the revenue sales-quantity variance.

Variable-overhead cost and the activity measure for the flexible budget should move together as overall productive activity changes.

In a standard costing system, overhead application refers to the addition of actual overhead cost to the Work-in-Process inventory as a product cost.