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

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 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 using flexible budgets can be expanded when production 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.

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. Budgeted fixed overhead at 75% of factory capacity would be $160,000 (and 30,000 machine hours). The company operated at 90% capacity for the year, and incurred $252,000 total factory overhead cost. Required: 1. Determine the total overhead flexible-budget variance (to the nearest whole dollar) for the year. Show calculations. 2. Calculate the fixed overhead production-volume variance (to the nearest whole dollar) for the year. Show calculations.

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):

In firms using activity-based costing (ABC), budgeted total factory overhead varies with changes in:

Random variances are:

Which one of the following factory overhead variances reflects the effect of deviation in input quantities only if the cost driver for applying variable overhead is a perfect predictor of variable overhead cost?

At the denominator activity level, Norland Company's total overhead budget for 25,000 units of production shows variable overhead costs of $36,000 and fixed overhead costs of $32,000. During the most recent period, the company incurred total overhead costs of $61,400 to manufacture 20,000 units. The total overhead flexible-budget variance for Norland Co. for the most recent period, to the nearest whole dollar, was:

Gerhan Company's flexible budget for the units 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 used 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 (to the nearest whole dollar) for May under the assumption that Gerhan uses a four-variance breakdown (decomposition) of the total overhead variance?

Megan, Inc. uses the following standard costs per unit for one of its products: Direct labor (2.0 hrs. @ $5.00/hr.) = $10.00; overhead (2.0 hrs. @ $2.50/hr.) = $5.00. The flexible budget for overhead is $120,000 plus $1.00 per direct labor hour (DLH). Actual data for the past 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 past month for Megan, Inc., to the nearest whole dollar, was:

Oslund Company manufactures only one product and uses a standard cost system. During the past month, the following variances were observed: Direct labor rate variance \ 30,000 favorable Direct labor efficiency variance 50,000 unfavorable Variable overhead efficiency variance 20,000 unfavorable Standard direct labor hours (DLH) per unit of output 5.00 Oslund applies variable overhead using a standard rate of $20.00 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 DLHs worked by Oslund Company during the past month, to the nearest whole number?

The "death-spiral" effect refers to:

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 fixed factory overhead production-volume variance (to the nearest whole dollar) is:

For internal reporting purposes, it is recommended that fixed overhead allocation rates in a standard costing system be based on which of the following denominator volume choices?

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 was the variable overhead efficiency variance for the period, to the nearest whole dollar?

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. Under a three-way breakdown (decomposition) of the total overhead variance, what is the total factory overhead spending variance for Zero Company in December (to the nearest whole dollar)?

Megan, Inc. uses the following standard costs per unit for one of its products: Direct labor (2.0 hrs. @ $5.00/hr.) = $10.00; overhead (2.0 hrs. @ $2.50/hr.) = $5.00. The flexible budget for overhead is $120,000 plus $1.00 per direct labor hour (DLH). Actual data for the past 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 for Megan, Inc., in direct labor hours (DLHs), to the nearest whole number?

Which one of the following journal entries in a standard cost system would be used to apply standard factory overhead costs to production?

Neptune Inc. uses a standard cost system and has the following information for the most recent month, April: Actual direct labor hours (DLHs) worked 17,000 Standard DLHs allowed for good output produced this period 18,000 Actual total factory overhead costs incurred \ 45,400 Budgeted fixed factory overhead costs \ 10,800 Denominator activity level, in direct labor hours (DLHs) 15,000 Total factory overhead application rate per standard DLH \ 2.70 The variable factory overhead efficiency variance for Neptune, Inc. in April, to the nearest whole dollar, was:

Finding a single cost driver that changes in the same proportion as variable factory overhead costs is:

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