Exam 11: Flexible Budgets and Overhead Analysis

Newby Company uses an activity-based costing system. Four activities have been identified. The setup activity uses the number of setups as its cost driver. The following budget information is available for this activity: The company expects to perform 25 setups in June. Fixed costs per month \ 240,000 Variable cost per setup \ 5,400 -Refer to the Figure.Suppose the company expects 25 setups in June.What would be the total budgeted costs of the setup activity?

Which of the following is the total fixed overhead variance?

When overhead is applied on the basis of direct labour hours,the variable overhead efficiency variance always has the same sign as the labour efficiency variance.

Define static budget and flexible budget.What is each type used for?

Bridgestone Company has developed the following flexible budget formulas for its four overhead items: Bridgestone normally produces 10,000 units (each unit requires 0.10 direct labour hours); however, this year 15,000 units were produced with the following actual costs: Overhead item Actual costs Maintenance \ 14,000 Power \ 3,600 Direct labour \ 16,000 Equipment lease \ 5,000 -Refer to the Figure.What is the after-the-fact budget for the actual level of activity?

Because activities are what consume resources,activity-based budgeting may prove to be a much more powerful planning and control tool.

What are the two variances for variable overhead?

Which of the following is characteristic of a before-the-fact flexible budget?

The first step of building an activity-based budget is to identify the activities within an organization.

What does the fixed overhead volume variance measure?

Lifter Company uses forklifts to move materials from the store area to the production floor. The company has four forklifts, which are fully used 16 hours per day (making five moves per hour). The company works 300 days per year, running two 8-hour shifts per day. The forklift operators work 2,000 hours per year and are paid an annual salary of $45,000. According to a recent study, each forklift uses 0.25 litres of fuel per move. The cost of fuel is $2.00 per litre. -Refer to the Figure.Assume that the labour market does not permit the hiring of part-time forklift operators.What is the salary budget for moving materials?

How is the standard fixed overhead rate often calculated?

Match the following terms with the items below: -Fixed overhead spending variance

Lifter Company uses forklifts to move materials from the store area to the production floor. The company has four forklifts, which are fully used 16 hours per day (making five moves per hour). The company works 300 days per year, running two 8-hour shifts per day. The forklift operators work 2,000 hours per year and are paid an annual salary of $45,000. According to a recent study, each forklift uses 0.25 litres of fuel per move. The cost of fuel is $2.00 per litre. -Refer to the Figure.What is the fuel budget for the year for moving materials?

What does inefficient use of labour imply?

Before-the-fact flexible budgets are especially useful for comparing expected costs with actual costs.

A before-the-fact flexible budget is used to compute what cost should have been for the actual level of activity.

Static budgets are the best benchmarks for preparing a performance report.

The fixed overhead spending variance is affected primarily by changes in production levels.

Activity-based budgeting focuses on cost items required by organizational units.