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

Among characteristics that distinguish service and manufacturing firms are the:

The following information is available from the Terry Company: Actual total factory overhead cost incurred \ 25,000 Actual fixed overhead cost incurred \ 10,400 Budgeted fixed overhead expenses \ 11,000 Actual direct labor hours (DLH) worked 4,400 Standard DLHs for this period's production (output) 4,000 Standard variable overhead rate per DLH \ 3.00 Standard fixed overhead rate per DLH \ 2.50 What is the fixed overhead production volume variance for Terry Company for the period, to the nearest whole dollar?

The following information for the past year is available from Thinnews Co., a company that uses machine hours to apply standard factory overhead cost to outputs: Actual total factory overhead cost incurred \ 24,000 Actual fixed overhead cost incurred \ 10,000 Budgeted fixed overhead cost \ 11,000 Actual machine hours 5,000 Standard machine hours allowed for the units manufactured 4,800 Denominator volume-machine hours 5,500 Standard variable overhead rate per machine hour \ 3.00 Under a three-variance breakdown (decomposition) of the total factory overhead variance, the factory overhead efficiency variance (to nearest whole dollar) is:

Which of the following statements about variable overhead costs is true?

Because fixed factory overhead cost in total does not vary with changes in output:

Cost behavior for variable overhead is more difficult to predict than the behavior of direct materials or direct labor cost for all the following reasons except:

The production-volume variance should generally not be calculated and reported for control purposes because, unless interpreted properly, it can:

In terms of the variance-investigation decision, an "indifference probability," p, of 10% A) Refers to the probability of a non-random (i.e., systematic variance) occurring. B) Means that there is a 10% probability that management will make an incorrect decision. C) Implies that if the probability of a nonrandom variance is less than 10% the variance should be investigated. D) Implies a 90% probability of not taking corrective action after the variance is investigated. E) Suggests that management a 90% probability that management would be indifferent between investigating and not investigating the variance.

Zero 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 (to the nearest whole dollar) for Zero Company in December?

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?

Bonehead Co. has the following factory overhead costs for the most recent period: Standard overhead cost applied to this period's production \ 72,000 Flexible budget for overhead based on output (i.e., units produced) 65,000 Total budgeted overhead in the master (static) budget 86,000 Actual total overhead cost incurred during the period 76,000 The fixed overhead production volume variance for Bonehead Co. this period, to the nearest whole dollar, is:

For product-costing purposes, which of the following statements is true?

Bluecap Co. uses a standard cost system and flexible budgets for control purposes. The following budgeted information pertains to 2019: Denominator volume-number of units 8,000 Denominator volume-percent of capacity 80\% Denominator volume-standard direct labor hours (DLHs) 24,000 Budgeted variable factory overhead cost at denominator volume \1 03,200 Total standard factory overhead rate per DLH \ 15.10 During 2019, Bluecap worked 28,000 DLHs and manufactured 9,600 units. The actual factory overhead cost for the year was $14,000 greater than the flexible budget amount for the units produced, of which $6,000 was due to fixed factory overhead. In preparing a budget for 2020 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity"), to manufacture 9,000 units at a budgeted total of 27,000 DLHs. The fixed overhead production volume variance for Bluecap Co. in 2019, to the nearest dollar, was:

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?

Which of the following statements regarding the "expected value of perfect information" (EVPI) is not true? A) It is useful for addressing the variance-investigation decision under uncertainty. B) It can be used to measure manufacturing cycle efficiency (MCE). C) It represents the maximum amount that a rational decision maker would be willing to pay for information that would reveal the correct decision/course of action to take. D) It is the difference between the expected cost of a decision with perfect information and the expected cost of a decision without perfect information. E) It requires for its calculation knowledge of the best course of action (decision) for each possible state of nature that could occur.

If the organization is making good progress toward achieving an ideal standard, its management may not need to:

Which of the following would not be considered a possible cause of a controllable (i.e., a systematic) variance?

The following information is available from the Terry Company: Actual total factory overhead cost incurred \ 25,000 Actual fixed overhead cost incurred \ 10,400 Budgeted fixed overhead expenses \ 11,000 Actual direct labor hours (DLH) worked 4,400 Standard DLHs for this period's production (output) 4,000 Standard variable overhead rate per DLH \ 3.00 Standard fixed overhead rate per DLH \ 2.50 What is the variable overhead (VOH) spending variance for Terry Company for the period, to the nearest whole dollar?

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: 1. Overhead standard cost variances for the period: a. Fixed overhead (FOH) spending variance = $1,600U b. Fixed overhead production volume variance = $200F c. Variable overhead (VOH) efficiency variance = $1,050U d. Variable overhead (VOH) spending variance = $150U 2. Actual fixed overhead cost incurred (depreciation) = $15,800; actual variable overhead cost incurred (paid in cash) = $4,800 3. Standard overhead cost applied to production (i.e., WIP inventory) during the period = $18,000 4. Standard overhead cost of units transferred to Finished Goods Inventory = $20,000 5. Before closing its accounts at the end of the period, the (standard cost) amounts affecting the inventory and CGS accounts are as follows: Required: Prepare the proper journal entry for each of the following events: 1. Incurrence of actual fixed overhead (FOH) costs for the period. 2. Incurrence of actual variable overhead (VOH) costs for the period. 3. Application of standard overhead costs to production (i.e., to WIP inventory). 4. Recording of standard overhead costs for units completed during the period. 5. Recording of the four standard cost variances for the period. 6. Closing the standard cost variances, under the assumption that the company closes these variances entirely to Cost of Goods Sold (CGS). 7. Closing the standard cost variances, under the assumption that the company prorates the variances to the CGS and inventory accounts. (Note: round allocated amounts to nearest whole dollar.)

A statistical control chart: