Exam 11: Flexible Budgeting and Analysis of Overhead Costs

Draco, Inc. has the following overhead standards: Variable overhead: 4 hours at $8 per hour Fixed overhead: 4 hours at $10 per hour The standards were based on a planned activity of 20,000 machine hours when 5,000 units were scheduled for production. Actual data follow. Variable overhead incurred: $167,750 Fixed overhead incurred: $210,000 Machine hours worked: 19,800 Actual units produced: 5,100 Draco's variable-overhead efficiency variance is:

Master Products has the following information for the year just ended: The company's sales-volume variance is:

Atlanta Enterprises incurred $828,000 of fixed overhead during the period. During that same period, the company applied $845,000 of fixed overhead to production and reported an unfavorable budget variance of $41,000. How much was Atlanta's budgeted fixed overhead?

Abbott has a standard variable overhead rate of $4.50 per machine hour, and each unit produced has a standard time allowed of three hours. The company's static budget was based on 46,000 units. Actual results for the year follow. Actual units produced: 42,000 Actual machine hours worked: 120,000 Actual variable overhead incurred: $520,000 Abbott's variable-overhead spending variance is:

The Marketing Club at Southern University recently held an end-of-year dinner and swim party, which the treasurer declared to be a financial success. "Attendance was an all-time high, 60 members, and the results were much better than expected." The treasurer presented the following performance report at the executive board's June meeting: The budget was based on the assumptions that follow. • Forty-five members would attend at a fixed ticket price of $35. • Food and beverage costs were anticipated to be $15 and $7 per attendee, respectively. • A disc jockey was hired via a written contract at $50 per hour. Required: A. Briefly evaluate the meaningfulness of the treasurer's performance report. B. Prepare a performance report by using flexible budgeting and determine whether the end-of-year party was as successful as originally reported. C. Based on your answer in requirement "B," present a possible explanation for the variances in revenue, food costs, beverage costs, and the disc jockey.

Hot Stuff operates a delivery service for local restaurants, delivering call-in, to-go meals for restaurant customers. Variable overhead costs are applied at the budgeted rate of $3 per driving hour. The typical roundtrip takes a driver 45 minutes to complete. Actual results for March follow. Number of roundtrips run: 1,560 Hours of delivery time: 1,250 Variable overhead cost incurred: $3,450 Hot Stuff uses flexible budgets and variance analysis to monitor performance. Required: A. Prepare a flexible-budget performance report that shows (1) actual variable overhead, (2) the amount of variable overhead that should have been incurred for the number of roundtrips taken, and (3) the variance between these amounts. B. Compute the company's variable-overhead spending and efficiency variances. C. Compare the variances that you computed in requirements "A" and "B," and comment on your findings.

Midwestern University operates a motor pool for the convenience of its faculty and staff. The following budget was prepared for an upcoming period: Gasoline and oil \ 40,000 Minor repairs 6,000 Insurance 20,000 Office help 24,000 Depreciation 30,000 Total The budget was based on the assumptions of 20 vehicles, with each vehicle being driven 8,000 miles. Midwestern acquired two additional vehicles early in the period under study. Actual miles driven during the period totaled 180,000. Discussions with the motor pool manager revealed that pool costs are variable and fixed in nature. The manager believed that miles driven was the most appropriate cost driver for studying gasoline and oil expense. In contrast, the number of vehicles in the pool was the best base to use when studying minor repairs, insurance, and depreciation. Office help is a fixed cost. Required: A. Contrast a static budget with a flexible budget. B. Suppose that the university's budget officer desired to prepare a report that compared budgeted and actual costs. Should the report be based on a static budget or a flexible budget? Why? C. On the basis of the information presented, determine the budgeted amounts for the five preceding costs that would be used in a flexible budget.

Master Products has the following information for the year just ended: The company's sales-price variance is:

The variable-overhead spending and efficiency variances are:

Hanks Company uses a standard cost system and applies manufacturing overhead to products on the basis of machine hours. The following information is available for the year just ended: Standard variable-overhead rate per machine hour: $2.50 Standard fixed-overhead rate per machine hour: $5.00 Planned activity during the period: 30,000 machine hours Actual production: 10,700 finished units Production standard: Three machine hours per unit Actual variable overhead: $86,200 Actual total overhead: $225,500 Actual machine hours worked: 35,100 Required: A. Calculate the budgeted fixed overhead for the year. B. Did Hanks spend more or less than anticipated for fixed overhead? How much? C. Was variable overhead under- or overapplied during the year? By how much? D. Was Hanks efficient in its use of machine hours? Briefly explain. E. Would the company's efficiency or inefficiency in the use of machine hours have any effect on Hanks' overhead variances? If "yes," which one(s)?

Smithville uses labor hours to apply variable overhead to production. If the company's workers were very inefficient during the period, which of the following statements would be true about the variable-overhead efficiency variance?

A flexible budget is appropriate for a(n):

Flexible budgets reflect a company's anticipated costs based on variations in activity levels.

Benson Company, which uses a standard cost system, budgeted $600,000 of fixed overhead when 40,000 machine hours were anticipated. Other data for the period were: Actual units produced: 10,000 Standard production time per unit: 3.9 machine hours Fixed overhead incurred: $620,000 Actual machine hours worked: 42,000 Benson's fixed-overhead budget variance is:

Which of the following should have the strongest cause and effect relationship with overhead costs?

Del's Diner anticipated that 84,000 process hours would be worked during an upcoming accounting period when, in fact, 90,000 hours were actually worked. One of the company's cost functions is expressed as follows: Y = $16PH + $640,000 where PH is defined as process hours What is Del's flexible budget (Y) for the preceding cost function?

With respect to overhead, what is the difference between normal costing and standard costing?

Gridiron Merchandising anticipated selling 27,000 units of a major product and paying sales commissions of $6 per unit. Actual sales and sales commissions totaled 27,500 units and $171,400, respectively. If the company used a flexible budget for performance evaluations, Gridiron would report a cost variance of:

Darling Company, which applies overhead to production on the basis of machine hours, reported the following data for the period just ended: Actual units produced: 12,000 Actual fixed overhead incurred: $730,000 Actual machine hours worked: 60,000 Budgeted fixed overhead: $720,000 Planned level of machine-hour activity: 50,000 If Darling estimates four hours to manufacture a completed unit, the company's standard fixed overhead rate per machine hour would be:

What will cause the variable-overhead efficiency variance?