Exam 15: Operational Performance Measurement: Indirect-Cost Variances and Resource-Capacity Management

A manufacturing company that uses standard costs and flexible budgets can break the variable factory overhead flexible-budget variance down into:

Which one of the following journal entries in a standard cost system is needed at the end of the period to close out to Cost of Goods Sold an unfavorable production-volume variance?

A deviation from standard because of an inaccurate estimation of the amounts of variables used in the standard-setting process is an example of a(n):

In terms of the variance-investigation decision under uncertainty, which of the following items contains a cross-listing of costs associated with two states of nature (random vs. nonrandom variance) and management actions (investigate the variance vs. do not investigate the variance)?

The total factory overhead flexible-budget variance in April for Neptune, Inc. is:

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? a. 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.) Round final answers to the nearest whole numbers. b. What is the correct management action if the probability of an out-of-control process is greater than the break-even probability, p? Show all calculations.

Which of the following statements regarding the "expected value of perfect information" (EVPI) is not true?

The factory overhead spending variance in 2013, based on a three-variance breakdown (decomposition) of the total overhead variance for Bluecap Co., is:

If standard cost variances are allocated (i.e., prorated) to inventory and cost of goods sold (CGS) accounts at the end of a period, which of the following is correct?

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

What is the factory overhead production volume variance for Zero Company in December?

The term used to refer to persistent variances (i.e., those that are likely to recur until corrected) is

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

A statistical control chart:

A standard costing system will produce the same income as an actual costing system when end-of-period standard cost variances are assigned:

Determining the standard fixed factory overhead applied to production for a period involves all of the following essential elements except:

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 deviation from standard that occurs because of an incorrect number resulting from improper or inaccurate accounting systems or procedures is an example of a(n):

Which of the following statement is true regarding choice of the denominator volume level in conjunction with the process of allocating fixed manufacturing costs to production?

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: 1. Determine the factory overhead flexible-budget variance for the year just completed. Show calculations. 2. Calculate the factory overhead production volume variance for the year just completed. Show calculations. 3. In an essay, provide an interpretation of each of the two variances calculated above.