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

Erie Co. uses machine hours to apply standard overhead cost to production. The following data pertain to October: Master budget data: Units 100,500 Total machine hours (denominator volume) \ 250,000 Total variable overhead cost \ 50,000 Actual operating results: Variable overhead cost incurred \ 265,000 Fixed overhead cost incurred \ 54,000 Units manufactured 2,250 Total machine hours 96,000 Required: Compute the following variances using machine hours as the activity variable used to assign standard overhead costs to production. Show calculations. 1. Variable overhead spending variance 2. Variable overhead efficiency variance 3. Fixed overhead spending variance 4. Fixed overhead production-volume variance

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 total factory overhead spending variance in 2019 (to the nearest whole dollar), based on a three-variance breakdown (decomposition) of the total overhead variance for Bluecap Co., was:

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 variable overhead efficiency variance in 2019 for Bluecap Co. (to nearest whole dollar) was:

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 The fixed overhead spending variance for Terry Company for the period, to the nearest whole dollar, is:

If inventories in a business using a standard cost system are insignificant, the firm would be justified (in a practical sense) by disposing of variances each year:

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 variable factory overhead efficiency variance for Megan, Inc. for the past month, to the nearest whole dollar, was:

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

Bike Pedals manufactures bicycle seats. The company budgeted to manufacture 25,000 seats in April, with 0.05 standard machine hours per seat. Total variable factory overhead was budgeted at $30,000 for April. During April, the company manufactured 30,000 seats using 1,600 machine hours. It incurred $34,000 of variable factory overhead (VOH) costs. Required: Determine each of the following variances. Round all answers to nearest dollar. 1. Variable overhead spending variance. 2. Variable overhead efficiency variance. 3. Variable overhead flexible-budget variance.

Which of the following statements about the standard variable factory overhead application rate is true?

Regarding the investigation of variances under uncertainty, which of the following is not a positive (i.e., desirable) combination of courses of action and states of nature? A) Investigate; a random fluctuation has occurred. B) Do not investigate; a random fluctuation has occurred. C) Do not investigate; a non-controllable fluctuation has occurred. D) Investigate; a nonrandom fluctuation has occurred.

As was the case with the material presented in text Chapter 14, the cost variances covered in Chapter 15 are directed at what might be called short-term financial control. These variances are calculated based on standard costs and the use of flexible budgets. Periodic reports containing these variances are but a part of a larger and more comprehensive management accounting and control system. Required: 1. Explain some of the inherent limitations of short-term financial performance measures (such as standard cost variances). 2. Explain how such measures might be supplemented to better meet the planning and control needs of management.

Which of the following items would be useful to management in deciding whether to investigate the cause of a reported standard cost variance? A) Indifference probability. B) Simultaneous equations. C) Linear regression analysis. D) Cost-volume-profit analysis. E) Iso-profit lines.

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 total underapplied or overapplied factory overhead for Bonehead Co. for the period, to the nearest whole number, is:

Which of the following would not likely be useful for addressing the variance-investigation decision under uncertainty? A) The use of payoff tables. B) Linear optimization analysis. C) Calculating the indifference probability. D) Knowing, or having a good estimate of, the probability of a nonrandom variance. E) The value of perfect information.

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. Under the assumption that the total budgeted fixed overhead for 2020 is the same as it was for 2019, what is the standard fixed overhead application rate per DLH (to two (2) decimal places) for Bluecap Co. for 2020?

An activity-based cost (ABC) driver applies factory overhead to products or services according to the:

All the following choices exist for defining the denominator volume (denominator activity level) for assigning fixed overhead costs in a standard cost system, except:

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. Assuming a four-variance breakdown (decomposition) of the total overhead variance, what is the fixed factory overhead efficiency variance (to the nearest whole dollar) for the period?

The fixed factory overhead application rate (for product-costing purposes) is equal to:

Causes of random variances are beyond the control of management, and are most often found in (or are associated with):