Exam 8: Flexible Budgets, Overhead Cost Variances, and Management Control

Answer the following questions using the information below: Jenny's Corporation manufactured 25,000 grooming kits for horses during March. The fixed-overhead cost-allocation rate is $20.00 per machine-hour. The following fixed overhead data pertain to March: -What is the flexible-budget amount?

An unfavorable variable setup overhead efficiency variance could be due to actual setup-hours exceeding the setup-hours planned for the units produced.

The lump sum budgeted for fixed overhead will always be the same amount for the static budget and the flexible budget.

Casey Corporation produces a special line of basketball hoops. Casey Corporation produces the hoops in batches. To manufacture a batch of the basketball hoops, Casey Corporation must set up the machines and molds. Setup costs are batch-level costs because they are associated with batches rather than individual units of products. A separate Setup Department is responsible for setting up machines and molds for different styles of basketball hoops. Setup overhead costs consist of some costs that are variable and some costs that are fixed with respect to the number of setup-hours. The following information pertains to January 2005. Required: a. Calculate the efficiency variance for variable setup overhead costs. b. Calculate the spending variance for variable setup overhead costs. c. Calculate the flexible-budget variance for variable setup overhead costs. d. Calculate the spending variance for fixed setup overhead costs. e. Calculate the production-volume variance for fixed setup overhead costs.

An unfavorable variable overhead efficiency variance indicates that:

Andy's Basketball Manufacturing Company reported: To isolate these variances at the end of the accounting period, Brandon would:

Variable overhead costs can be managed by:

Answer the following questions using the information below: Fearless Frank's Fertilizer Farm produces fertilizer and distributes the product by using his tanker trucks. Frank's uses budgeted fleet hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data: -What is the budgeted variable overhead cost rate per output unit?

Overhead costs have been increasing due to all of the following EXCEPT:

Answer the following questions using the information below: Russo Corporation manufactured 16,000 air conditioners during November. The overhead cost-allocation base is $31.50 per machine-hour. The following variable overhead data pertain to November: -What is the actual variable overhead cost?

Lungren has budgeted construction overhead for August of $260,000 for variable costs and $435,000 for fixed costs. Actual costs for the month totaled $275,000 for variable and $445,000 for fixed. Allocated fixed overhead totaled $440,000. The company tracks each item in an overhead control account before allocations are made to individual jobs. Spending variances for August were $10,000 unfavorable for variable and $10,000 unfavorable for fixed. The production-volume overhead variance was $5,000 favorable. Required: a. Make journal entries for the actual costs incurred. b. Make journal entries to record the variances for August.

Fixed overhead costs must be unitized for:

If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be an unfavorable fixed overhead efficiency variance.

When machine-hours are used as an overhead cost-allocation base, a rush order resulting in unplanned overtime that used less-skilled workers on the machines would most likely contribute to reporting a(n):

Explain two concerns when interpreting the production-volume variance as a measure of the economic cost of unused capacity.

The variable overhead efficiency variance measures the efficiency with which the cost-allocation base is used.

Answer the following questions using the information below: Rutch Corporation manufactured 54,000 door jambs during September. The fixed-overhead cost-allocation rate is $50.00 per machine-hour. The following fixed overhead data pertain to September: -What is the fixed overhead spending variance?

The variable overhead flexible-budget variance measures the difference between the actual variable overhead costs and the flexible-budget variable-overhead costs.

Abby Company has just implemented a new cost accounting system that provides two variances for fixed manufacturing overhead. While the company's managers are familiar with the concept of spending variances, they are unclear as to how to interpret the production-volume overhead variances. Currently, the company has a production capacity of 54,000 units a month, although it generally produces only 46,000 units. However, in any given month the actual production is probably something other than 46,000. Required: a. Does the production-volume overhead variance measure the difference between the 54,000 and 46,000, or the difference between the 46,000 and the actual monthly production? Explain. b. What advice can you provide the managers that will help them interpret the production-volume overhead variances?

An unfavorable variable overhead efficiency variance indicates that the company used more than planned of the cost-allocation base.