Exam 11: Flexible Budgeting and Analysis of Overhead Costs

A flexible budget for 15,000 hours revealed variable manufacturing overhead of $90,000 and fixed manufacturing overhead of $120,000. The budget for 25,000 hours would reveal total overhead costs of $210,000.

Sussex Company uses a standard cost system and prepared the following budget for May when 24,000 machine hours of activity were anticipated: variable overhead, $48,000; fixed overhead: $240,000. Actual data for May were: Standard machine hours allowed for output attained: 25,000 Actual machine hours worked: 24,000 Variable overhead incurred: $50,000 Fixed overhead incurred: $250,000 The standard variable overhead rate for May is:

Herman Company, which applies overhead to production on the basis of machine hours, reported the following data for the period just ended: Actual units produced: 13,000 Actual fixed overhead incurred: $742,000 Standard fixed overhead rate: $15 per hour Budgeted fixed overhead: $720,000 Planned level of machine-hour activity: 48,000 If Herman estimates four hours to manufacture a completed unit, the company's fixed-overhead budget variance would be:

Hempstead Corporation plans to manufacture 8,000 units over the next month at the following costs: direct materials, $480,000; direct labor, $60,000; variable manufacturing overhead, $150,000; straight-line depreciation, $24,000, and other fixed manufacturing overhead, $272,000. The result is total budgeted cost of $990,000. Shortly after the conclusion of the month, Hempstead reported the following costs: Direct materials used \ 490,500 Direct labor 69,600 Variable manufacturing overhead 132,000 Depreciation 24,000 Other fixed manufacturing overhead 272,000 Total 988,100 Howard Krueger and his crews turned out 7,200 units-a remarkable feat given that the company's manufacturing plant was closed for several days because of blizzards and impassable roads. Krueger was especially pleased with the fact that total actual costs were less than budget. He was thus very surprised when Hempstead's general manager expressed unhappiness about the plant's financial performance. Required: A. Prepare a performance report that fairly compares budgeted and actual costs for the period just ended-namely, the report that the general manager likely used when assessing performance. B. Should Krueger be praised for "having met the budget" or is the general manager's unhappiness justified? Explain, citing any apparent problems for the firm.

The following selected information was extracted from the accounting records of Austin, Inc.: Planned manufacturing activity: 40,000 machine hours Standard variable-overhead rate per machine hour: $16 Budgeted fixed overhead: $100,000 Variable-overhead spending variance: $92,000U Variable-overhead efficiency variance: $102,000F Fixed-overhead budget variance: $25,000U Total actual overhead: $675,000 Required: Determine the following: actual fixed overhead, actual variable overhead, actual machine hours worked, standard machine hours allowed for actual production, and the fixed-overhead volume variance.

Bavaria's budget for variable overhead and fixed overhead revealed the following information for an anticipated 40,000 hours of activity: variable overhead, $348,000; fixed overhead, $600,000. The company actually worked 43,000 hours, and actual overhead incurred was: variable, $365,500; fixed, $608,000. Required: A. Compute the company's total cost variance for variable overhead and fixed overhead if the firm uses a static budget to help assess performance. B. Repeat part "A" assuming the use of a flexible budget. C. Which of the two budgets (static or flexible) is preferred for performance evaluations? Why?

A flexible budget is appropriate for a:

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 fixed-overhead budget variance is:

A flexible budget for 15,000 hours revealed variable manufacturing overhead of $90,000 and fixed manufacturing overhead of $120,000. The budget for 20,000 hours would reveal total overhead costs of:

Sand Box Company is choosing new cost drivers for its accounting system. One driver is labor hours; the other is a combination of machine hours for unit variable costs and number of setups for a pool of batch-level costs. Data for the past year follow. Budget Actual Labor hours 200,000 200,000 Machine hours 360,000 450,000 Number of setups 3,000 3,300 Unit variable cost pool \ 1,600,000 \ 2,000,000 Batch-level cost pool \ 900,000 \ 990,000 Assume that both cost pools are combined into a single pool, and labor hours is the driver. The total flexible budget for the actual level of labor hours and the total variance for the combined pool are:

The difference between budgeted fixed manufacturing overhead and the fixed overhead applied to production is the: