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 total factory overhead flexible-budget variance in April for Neptune, Inc., 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 total factory overhead flexible-budget variance (to the nearest whole dollar) for Gerhan Company in May?

In deciding whether to further investigate a variance, an organization needs to weigh the costs of investigation against the:

The following budget data pertain to the Machining Department of Yolkenverst Co.:The company prepared the budget at 85% of the maximum capacity level. The department uses machine hours as the basis for applying standard factory overhead costs to production. The budgeted total factory overhead for the Machining Department, rounded to the nearest dollar, is:

Which of the following tools is helpful in addressing the variance-investigation problem under uncertainty? A) Simultaneous equations. B) Payoff tables. C) Regression analysis. D) Sensitivity analysis. E) Run charts.

The difference between total factory overhead cost incurred during a period and the total standard factory overhead cost assigned to production of the period is the ________:

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 fixed overhead spending variance for Megan, Inc. for the past month, to the nearest whole dollar, was:

A deviation from standard because of the failure to include one or more relevant variables, or the inclusion of the wrong or irrelevant variables in the standard-setting process is an example of a(n):

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 total overhead flexible-budget variance (to the nearest dollar) for the year just completed. Show calculations. 2. Determine the fixed overhead production-volume variance (to the nearest dollar) for the year just completed. Show calculations. 3. Provide a short discussion/interpretation of each of the above-two variances.

The difference between variable overhead cost incurred and the total standard variable overhead cost allowed for the output of the period is called the:

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?

Based on experience, you observe the following probabilities regarding the underlying cause of an observed cost or revenue variance: the probability, p, of a random variance equals 0.10, and the probability, 1 − p of a nonrandom variance equals 0.90. If management chooses to investigate, the total cost is $1,000 if it is concluded that the reported variance is a random fluctuation, while the total cost is $6,000 if it is concluded that the variance is the result of a nonrandom (i.e., a systematic) cause (i.e., the incremental cost to correct the variance is $5,000). On the other hand, if an observed variance is not investigated, management expects the following costs: if it is concluded that the variance is due to random causes, the cost would be $0; if it is concluded that the observed variance is due to a nonrandom (i.e., a systematic) cause, the cost would be $30,000. Given this information, what is the expected cost (to the nearest whole dollar) of the decision to investigate the observed variance, E(investigate)? A) $0. B) $1,500. C) $3,000. D) $5,500. E) $6,000.

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 The standard fixed overhead application rate, to two (2) decimal places, is:

When there is a standard batch size for production activity:

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 the use of a two-way breakdown (decomposition) of the total overhead variance, what is the factory overhead efficiency variance for Zero Company in December (to the nearest whole dollar)?

Manufacturing companies using a standard cost system often can achieve more effective control when factory overhead variance analysis is done with:

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 Under a two-variance analysis (breakdown) of the total overhead variance for the period, the total overhead flexible-budget (FB) variance, to the nearest whole dollar, is:

The difference between actual overhead costs incurred during a period and the overhead in the flexible budget based on the output for the period is called the:

Which of the following is not a cost system proposed as an extension to ABC systems, with the overall goal of more accurately allocating manufacturing overhead costs to outputs?

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 factory overhead variance for Norland Co. for the most recent period, to the nearest whole dollar, was: