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

"Firms need to use the capacity of the equipment or division that is the 'bottleneck' of the manufacturing process as the denominator volume in setting the fixed overhead allocation rate. In cases where there is more than one 'bottleneck,' the denominator should be the smallest capacity among the bottleneck production processes." Required: 1. What type of variance is related to this "denominator?" Explain. 2. Define the terms theoretical capacity, practical capacity, and budgeted capacity utilization. Of the three, which is considered most relevant for setting the predetermined overhead application rate for internal reporting purposes, particularly for fixed overhead costs? Explain.

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. During the year the Machining Department produced 50,000 units, consuming 127,500 machine hours and incurring $433,500 of fixed overhead. For the current year the department has a fixed overhead production volume variance, rounded to the nearest whole dollar, of:

The difference between the total factory overhead cost in the flexible budget for the actual units produced and the amount of factory overhead cost applied to products using the standard overhead rate is called the factory overhead ________:

A payoff table for variance investigation that measures the cost of two states of nature and possible alternative actions by management will have: A) Four combinations. B) Three combinations. C) Only two realistic combinations. D) Only idealistic combinations. E) One combination for each probability level.

In a standard cost system, an unfavorable production-volume variance would result if:

Which one of the following characteristics is associated with standard cost variance analysis for manufacturing overhead under a traditional versus an activity-based cost (ABC) system?

Proration of manufacturing cost variances among ending inventories and cost of goods sold has the effect of carrying the cost (savings) of inefficient (efficient) operations of a period to: