Deck 8: Flexible Budgets, Variances, and Management Control: II

Question 1

Actual overhead is $700,000, while budgeted overhead is $598,000. What is the fixed overhead static-budget variance if 250,000 units are produced and 225,000 are budgeted?

A) $80,000 favourable
B) $100,000 unfavourable
C) $100,000 favourable
D) $102,000 unfavourable
E) $102,000 favourable

Answer 1

$102,000 unfavourable

Question 2

In order to properly record a fixed manufacturing overhead rate variance of $30,000 unfavourable and a production-volume overhead variance of $20,000 favourable, what would the appropriate journal entry be if actual fixed overhead is $500,000?

A)

B)

C)

D)

E)

Answer 2

Question 3

Answer the following question(s) 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 for fixed-overhead?

A) $120,000
B) $122,000
C) $123,000
D) $125,000
E) $120,983

Answer 3

$120,000

Question 4

Answer the following question(s) 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 fixed overhead rate variance?

A) $1,000 unfavourable
B) $2,000 favourable
C) $3,000 unfavourable
D) $5,000 favourable
E) $983 unfavourable

Question 5

Answer the following question(s) 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 production-volume variance?

A) $2,000 unfavourable
B) $3,000 favourable
C) $4,000 unfavourable
D) $5,000 favourable
E) $10,000 favourable

Question 6

Answer the following question(s) 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 flexible-budget amount for fixed overhead?

A) $63,888
B) $53,400
C) $49,250
D) $51,750
E) $57,500

Question 7

Answer the following question(s) 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 amount of fixed overhead allocated to production?

A) $51,750
B) $100,000
C) $53,400
D) $57,500
E) $49,250

Question 8

Answer the following question(s) 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 rate variance?

A) $5,750 unfavourable
B) $5,750 favourable
C) $4,100 favourable
D) $4,100 unfavourable
E) $1,650 unfavourable

Question 9

Answer the following question(s) 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 production-volume variance?

A) $4,100 unfavourable
B) $4,100 favourable
C) $1,650 unfavourable
D) $5,750 unfavourable
E) $5,750 favourable

Question 10

A company had the following information pertaining to two different cases:
The total fixed overhead variance in Case Y was

A) $4,000 unfavourable.
B) $4,000 favourable.
C) $10,000 unfavourable.
D) $12,000 favourable.
E) $12,000 unfavourable.

Question 11

All Clean of Alberta manufactures individual shampoos for hotel/motel clientele. The fixed manufacturing overhead costs for 2016 will total $576,000. The company uses good units finished for fixed overhead allocation and anticipates 300,000 units of production. Good units finished average 92 percent of total units produced. During January, 20,000 units were produced. Actual fixed overhead cost per good unit averaged $2.82 in January.
Required:
a. Determine the fixed overhead rate for 2016.
b. Determine the fixed overhead static-budget variance for January.
c. Determine the fixed overhead production-volume variance for January.
d. Determine the fixed overhead rate variance for January.

Question 12

Johnston Equipment develops food processing equipment. The budgeted fixed overhead costs for 2015 total $768,000. The company uses direct labour-hours for fixed overhead allocation and anticipates 480,000 hours during the year for 960,000 units. An equal number of units are budgeted for each month.
During April 84,000 packages (units) were produced and $66,000 was spent on fixed overhead.
Required:
a. Determine the fixed overhead rate for 2015 based on direct labour-hours.
b. Determine the fixed overhead static-budget variance for April.
c. Determine the production-volume overhead variance for April.

Question 13

Everjoice Company makes clocks. The budgeted fixed overhead costs for 2015 total $720,000. The company uses direct labour-hours for fixed overhead allocation and anticipates 240,000 hours during the year for 480,000 units. An equal number of units are budgeted for each month.
During June, 42,000 clocks were produced and $63,000 were spent on fixed overhead.
Required:
a. Determine the fixed overhead rate for 2015 based on units of input.
b. Determine the fixed overhead static-budget variance for June.
c. Determine the production-volume overhead variance for June.

Question 14

Calculate the fixed manufacturing overhead rate variance based on the following data:

Question 15

Brown Company makes watches. The budgeted fixed overhead costs for 2016 total $324,000. The company uses direct labour-hours for fixed overhead allocation and anticipates 10,800 hours during the year for 540,000 units. An equal number of units are budgeted for each month.
During October, 48,000 watches were produced and $28,000 was spent on fixed overhead.
Required:
a. Determine the fixed overhead rate for 2016 based on the units of input.
b. Determine the fixed overhead static-budget variance for October.
c. Determine the production-volume overhead variance for October.

Question 16

The Saskatchewan division of a Canadian farm machinery company uses a standard cost system for its machine-based production of grain drying equipment. Data regarding production for April are as follows:

Required:
1. Prepare the necessary journal entries to account for the fixed manufacturing overhead incurred and allocated to production.
2. Prepare the journal entry to close the fixed overhead variance accounts assuming that the fluctuation in denominator level is considered to be normal.

Question 17

Mostly Miniatures 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 static-budget variance, they are unclear as to how to interpret the production-volume overhead variances. Currently the company has a production capacity of 54,000 miniatures a month although it generally produces only 46,000 cases. 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?

Question 18

Cady Machine Shop used 15,000 machine hours during January. It takes 0.90 machine-hours to produce one unit; 15,000 units were produced during the month. Budgeted production included 12,000 units, using 10,800 machine hours. Budgeted variable manufacturing overhead costs per machine-hour is $22.50. What is the variable overhead efficiency variance for Cady?

A) $67,500 unfavourable
B) $67,500 favourable
C) $37,000 favourable
D) $33,750 favourable
E) $33,750 unfavourable

Question 19

A leased factory building has a fixed monthly rental payment, and a variable overhead cost of energy and indirect labour. Which of the following is TRUE, assuming that all activity levels are within the relevant range?

A) Variable OVH costs will increase as production increases, but Fixed OVH costs will decrease.
B) Variable OVH costs will decrease as production increases, but Fixed OVH costs will increase.
C) Variable OVH costs will increase as production increases, and Fixed OVH costs will increase.
D) Variable OVH costs will increase as production increases, but Fixed OVH costs will remain constant.
E) Both will increase with production, but at different rates.

Question 20

If Pope Inc. uses standard costing, the overhead allocated to work-in-process is recorded as a

A) debit to Manufacturing Overhead Allocated and a credit to Work-in-Process.
B) debit to Work-in-Process and credit to Manufacturing Overhead Control.
C) debit to Manufacturing Overhead Allocated and a credit to Manufacturing Overhead Control.
D) debit to Manufacturing Overhead Control and a credit to Manufacturing Overhead Allocated.
E) debit to Work-in-Process and a credits to Manufacturing Overhead Allocated.

Question 21

Which option(s) would be consistent with the proration approach for end-of-period adjustments when the underallocated or overallocated variable overhead costs are significant?

A) prorate based on the allocated overhead amount in the ending balance of work-in-process inventory and cost of goods sold
B) immediate write-off to cost of goods sold
C) prorate based on the total ending balance of variable overhead allocated and variable overhead control
D) prorate based on the allocated overhead amount in the ending balance of work-in-process inventory, finished goods inventory, and cost of goods sold
E) prorate based on the total ending balance of cost of goods sold and variable overhead control

Question 22

Zebra Jewellers planned to produce 1,800 necklaces during March with a total overhead budget of $49,600. However, while manufacturing the 2,000th necklace the microcomputer that contained the month's cost information broke down. With the computer out of commission, the accountant has been unable to complete the variance analysis report. The missing information of the report is lettered in the following set of data:
‪
Required:
Compute the missing elements in the report represented by the lettered items.

Question 23

McKenna Company planned to produce 900 units during April with a total overhead budget of $12,400. However, while manufacturing the 1,000 units the microcomputer that contained the month's cost information broke down. With the computer out of commission, the accountant has been unable to complete the variance analysis report. The information missing from the report is lettered in the following set of data:

Required:
Compute the missing elements in the report represented by the lettered items

Question 24

Teri's Furniture uses variance analysis to evaluate manufacturing overhead in its' table factory. The information for the May overhead expenditures is as follows:

Required:
a. Calculate the variable manufacturing overhead rate and efficiency variances; and, the fixed manufacturing overhead rate and production-volume variances.
b. Prepare all necessary journal entries to record the actual costs, allocated costs, and variances. Keep variable and fixed entries separate.

Question 25

Sam's Furniture uses variance analysis to evaluate manufacturing overhead in its' factory. The information for the June overhead expenditures is as follows:

Required:
a. Calculate the variable manufacturing overhead rate and efficiency variances; and, the fixed manufacturing overhead rate and production-volume variances.
b. Prepare all necessary journal entries to record the actual costs, allocated costs, and variances. Keep variable and fixed entries separate.

Question 26

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

Question 27

The Saskatchewan division of a Canadian farm machinery company uses a standard cost system for its machine-based production of grain drying equipment. Data regarding production for April are as follows:


Required:
1. Prepare the necessary journal entries to account for the variable manufacturing overhead incurred and allocated to production.
2. Prepare the journal entry to close the variable overhead variance accounts under the assumption that the amount is immaterial.

Question 28

Brown Dental Equipment uses a flexible budget for its indirect manufacturing costs. For 2016 the company anticipated that it would produce 36,000 components with 7,000 machine hours and 14,400 employee days. The costs and cost drivers were to be as follows:
‪
Required:
a. Prepare an overhead static budget for 2016 with variances.
b. Prepare an overhead flexible budget for 2016 with variances.

Question 29

Jael Equipment uses a flexible budget for its indirect manufacturing costs. For 2015 the company anticipated that it would produce 18,000 units with 3,500 machine-hours and 7,200 employee days. The costs and cost drivers were to be as follows:

Required:
a. Prepare the static-budget using the overhead items above and then compute the static-budget variances.
b. Prepare the flexible-budget using the overhead items above and then compute the flexible-budget variances.

Question 30

Casey Corporation produces a special line of basketball hoops in batches. To manufacture a batch of the basketball hoops Casey Corporation must setup the machines and moulds. 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 moulds 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.

Required:
a. Calculate the efficiency variance for variable setup overhead costs.
b. Calculate the rate variance for variable setup overhead costs.
c. Calculate the flexible-budget variance for variable setup overhead costs.
d. Calculate the rate variance for fixed setup overhead costs.
e. Calculate the production-volume variance for fixed setup overhead costs.

Question 31

Layer Corporation produces a special line of hockey sticks in batches. To manufacture a batch of the hockey sticks Layer Corporation must setup the machines and moulds. 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 moulds for different styles of hockey sticks.
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.

Required:
a. Calculate the efficiency variance for variable setup overhead costs.
b. Calculate the rate variance for variable setup overhead costs.
c. Calculate the flexible-budget variance for variable setup overhead costs.
d. Calculate the rate variance for fixed setup overhead costs.
e. Calculate the production-volume variance for fixed setup overhead costs.

Question 32

Ever-Sharp Lawnmowers Ltd. controls variable manufacturing overhead costs with assembly-line hours as the denominator. Fixed manufacturing overhead costs are applied on a unit-of-output basis. Each lawnmower is allowed 10 assembly-line hours and standard variable manufacturing overhead totals $650 per unit. Budgeted fixed manufacturing overhead totals $29,400 for 420 lawnmowers. During July 4,200 assembly-line hours were incurred and 400 lawnmowers were produced. Actual manufacturing overhead costs for July were $260,400 for variable expenses and $32,300 for fixed expenses.
Required:
a. Compute a 4-variance analysis for the month of July.
b. Compute a 3-variance analysis for the month of July.
c. Compute a 2-variance analysis for the month of July.

Question 33

Different management levels in Bates Inc. require varying degrees of managerial accounting information. Because of the need to comply with the managers' requests, four different variances for manufacturing overhead are computed each month. The information for the September overhead expenditures is as follows:

Required:
a. Compute a 4-variance analysis for the plant controller.
b. Compute a 3-variance analysis for the plant manager.
c. Compute a 2-variance analysis for the corporate controller.
d. Compute the flexible-budget variance for the manufacturing vice-president.

Question 34

All-Green Company has traditionally used only financial accounting for its decision making purposes. The president recently attended a seminar for small-business executives where the importance of managerial accounting was stressed as a way to improve operating decisions. The president was very interested in the use of managerial accounting as a way of planning the company's manufacturing overhead. It seems that the managers have always been at odds over how to best control the overhead accounts.
Required:
Explain how the planning of variable and fixed manufacturing overhead can improve the company's decision making process.

Question 35

Mediquip International is a manufacturing firm that has many assembly lines, numerous heavy duty machines and highly skilled machine operators. It has used very complex variance analysis in planning and controlling it operations during the last few years. Everything always appeared to be satisfactory until an economic recession tightened the competition and cost control became critical to the company's success. The operating managers believe that the traditional managerial accounting variance measures do not provide all the information they need during times of economic difficulties.
Required:
Discuss what additional information could be provided to the managers.