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

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 fixed overhead production volume variance in April for Neptune, Inc., to the nearest whole dollar, was:

You are provided with the following summary of overhead-related costs for the most recent accounting period: 1. Actual variable overhead (OH) costs incurred during the month: a. Utilities = $30,000 (incurred, but not yet paid) b. Indirect materials = $10,630 (previously entered in Indirect Materials Inventory) 2. Standard variable OH cost for units produced during the period = $46,800 3. Actual fixed OH costs incurred during the month: a. Supervisory salaries = $30,650 (earned, but not yet paid) b. Depreciation—Plant equipment = $100,000 4. Standard fixed overhead (FOH) cost applied to production during the period = $93,600 5. Total standard cost of units completed during the period = $140,400 6. Standard cost variances for the month: a. Production volume variance = $6,170 favorable b. Total overhead flexible-budget variance = $37,050 unfavorable 7. End-of-period overhead variance disposition—assume that after the variances are recorded into separate variance accounts (via the entry associated with (6) above), they are then closed entirely to Cost of Goods Sold. Required: Prepare the appropriate journal entries for each of the above events. Assume that the company uses a single account, Manufacturing Overhead.

In framing the decision whether to investigate the cause of a reported standard cost (or revenue) variance, which of the following tools would management find most useful? A) Linear regression analysis. B) Payoff table. C) Differential calculus. D) Linear optimization analysis. E) Nonlinear optimization analysis.

The difference between the total actual overhead cost incurred during a period and budgeted total factory overhead cost for the actual quantity of the cost driver used to apply overhead is equal to the:

The difference between the actual fixed overhead cost incurred during a period and the budgeted fixed overhead cost for the period is the:

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 overhead variance in 2019 for Bluecap Co., to the nearest whole dollar, was:

If I = the cost of conducting an investigation, C = the estimated cost to correct the cause of a variance, and L = loss associated with not investigating a variance, what is the formula for determining the indifference probability, p? A) p = I/(L + C). B) p = (L − C)/I. C) p = (L + C)/I. D) p = I/(L − C).

The fixed factory overhead production-volume variance represents:

For which one of the following reasons is the calculation of overhead variances in conjunction with an activity-based cost (ABC) system desirable from the standpoint of management?

The most appropriate end-of-period disposition of underapplied or overapplied factory overhead

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 of fixed factory overhead. What is the fixed overhead production-volume variance (to the nearest whole dollar) for Gerhan Company in May?

When implementing a standard cost system, one of the system-design choices that management must make is choice of the denominator volume level for calculating the fixed overhead application rate, which is used to determine product costs. Various alternatives exist for the denominator volume. Required: 1. List and briefly describe the various alternatives that exist for defining the denominator activity level for product-costing purposes. 2. What provisions of generally accepted accounting principles (GAAP) and current income tax requirements in the U.S. affect the decision as to choice of the denominator volume level when developing the standard fixed overhead application rate? Provide an overview of the requirements in this regard.

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 budget for fixed factory overhead in 2019 for Bluecap Co., to the nearest whole dollar, was:

Which of the following is not a plausible cause of a systematic variance?

Intangible attributes often play dominant roles in determining the value of outputs from a service organization. These characteristics often lead service firms to rely on:

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 total overhead flexible-budget (FB) variance for the period, to the nearest dollar, is:

Some accountants would argue that any variances from standard costs, when such standards are current, should be written off to Cost of Goods Sold (or other income statement account). The principal conceptual rationale for this treatment is:

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

In deciding whether to further investigate a cost variance, managers usually:

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