Chapter 11 Flexible Budgets and Overhead Analysis True/False Questions A key feature of a flexible budget is that actual results can be compared to budgeted costs at the same level of activity Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Direct labor-hours would generally be a better measure of activity for a flexible budget than direct labor cost Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy In a flexible budget, when the activity declines, the variable costs per unit also declines Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium Fixed costs should not be included in a flexible budget because they not change when the level of activity changes Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium To assess how well a production manager has controlled costs, actual costs should be compared to what the costs should have been for the planned level of production Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium The overhead spending variance is not affected by excessive usage or waste of overhead materials Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy The variable overhead efficiency variance provides a measure of how efficiently the activity base which underlies the flexible budget is being utilized in production Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 11-5 Chapter 11 Flexible Budgets and Overhead Analysis A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours The company's choice of the denominator level of activity affects the fixed overhead volume variance Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5; Level: Medium The higher the denominator activity level used to compute the predetermined overhead rate, the higher the predetermined overhead rate Ans: False AACSB: Analytic AICPA FN: Reporting LO: AICPA BB: Critical Thinking Level: Easy 10 In a standard costing system, if the actual fixed manufacturing overhead cost exceeds the budgeted fixed manufacturing overhead cost for the period, then fixed manufacturing overhead cost would be underapplied for the period Ans: False AACSB: Analytic AICPA FN: Reporting LO: AICPA BB: Critical Thinking Level: Hard 11 When fixed manufacturing overhead cost is applied to work in process, it is treated as if it were a variable cost Ans: True AACSB: Analytic AICPA FN: Reporting LO: AICPA BB: Critical Thinking Level: Medium 12 A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours The company's choice of the denominator level of activity has no effect on the variable portion of the predetermined overhead rate Ans: True AACSB: Analytic AICPA FN: Reporting LO: AICPA BB: Critical Thinking Level: Medium 13 There can be a volume variance for either variable manufacturing overhead or fixed manufacturing overhead Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 11-6 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 11 Flexible Budgets and Overhead Analysis 14 If the denominator level of activity is less than the standard hours allowed for the output of the period, then the volume variance is unfavorable, indicating an overutilization of available facilities Ans: False AACSB: Analytic AICPA FN: Reporting LO: AICPA BB: Critical Thinking Level: Medium 15 A company has a standard cost system in which fixed and variable manufacturing overhead costs are applied to products on the basis of direct labor-hours A fixed overhead volume variance will necessarily occur in a month in which actual direct labor-hours differ from standard hours allowed Ans: False AACSB: Analytic AICPA FN: Reporting LO: AICPA BB: Critical Thinking Level: Hard Multiple Choice Questions 16 The purpose of a flexible budget is to: A) allow management some latitude in meeting goals B) eliminate fluctuations in production reports by ignoring variable costs C) compare actual and budgeted results at virtually any level of activity D) reduce the time to prepare the annual budget Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Source: CPA; adapted 17 When using a flexible budget, a decrease in activity within the relevant range: A) decreases variable cost per unit B) decreases total costs C) increases total fixed costs D) increases variable cost per unit Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Source: CPA; adapted Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 11-7 Chapter 11 Flexible Budgets and Overhead Analysis 18 The activity base that is used for a flexible budget for an overhead cost should be: A) direct labor-hours B) units of output C) expressed in dollars, if possible D) the cause of the overhead cost Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy 19 A budget that is based on the actual activity of a period is known as a: A) continuous budget B) flexible budget C) static budget D) master budget Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy 20 The fixed manufacturing overhead budget variance equals: A) Actual fixed manufacturing overhead cost Applied fixed manufacturing overhead cost B) Actual fixed manufacturing overhead cost Budgeted fixed manufacturing overhead cost C) Budgeted fixed manufacturing overhead cost Applied fixed manufacturing overhead cost D) Actual fixed manufacturing overhead cost (Actual hours x Standard fixed overhead rate) Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 21 Which of the following variances is least significant from a standpoint of cost control? A) materials price variance B) labor efficiency variance C) fixed overhead volume variance D) variable overhead spending variance Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 11-8 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 11 Flexible Budgets and Overhead Analysis 22 The manufacturing overhead variance that is a measure of capacity utilization is: A) the overhead spending variance B) the overhead efficiency variance C) the overhead budget variance D) the overhead volume variance Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 23 If the denominator activity is less than the standard hours allowed for the actual output, one would expect that: A) the variable overhead efficiency variance would be unfavorable B) the fixed overhead volume variance would be favorable C) the fixed overhead budget variance would be unfavorable D) the variable overhead efficiency variance would be favorable Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 24 The volume variance is nonzero whenever: A) standard hours allowed for the output of a period differ from the denominator level of activity B) actual hours differ from the denominator level of activity C) standard hours allowed for the output of a period differ from the actual hours during the period D) actual fixed overhead costs incurred during a period differ from budgeted fixed overhead costs as contained in the flexible budget Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Medium 25 A volume variance is computed for: A) both variable and fixed overhead B) variable overhead only C) fixed overhead only D) direct labor costs as well as overhead costs Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 11-9 Chapter 11 Flexible Budgets and Overhead Analysis 26 Which of the following standard cost variances would usually be least controllable by a production supervisor? A) Fixed overhead volume variance B) Variable overhead efficiency variance C) Direct labor efficiency variance D) Materials usage (quantity) variance Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Hard Source: CPA; adapted 27 The following costs appear in Malgorzata Company's flexible budget at an activity level of 15,000 machine-hours: Indirect materials Factory rent Total Cost $7,800 $18,000 What would be the flexible budget amounts at an activity level of 12,000 machinehours if indirect materials is a variable cost and factory rent is a fixed cost? A) B) C) D) Indirect Materials Factory Rent $7,800 $14,400 $7,800 $18,000 $6,240 $14,400 $6,240 $18,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Solution: Budgeted number of machine hours: 15,000 Cost Formula (per machine-hour) Variable costs: Indirect materials Fixed costs: Factory rent $0.52* Activity (in machine-hours): 12,000 $6,240 $18,000 *$7,800 ÷ 15,000 MHs = $0.52 per MH 11-10 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 11 Flexible Budgets and Overhead Analysis 28 Mongelli Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion The Inn's guests appreciate its gourmet breakfasts and individually decorated rooms The Inn's overhead budget for the most recent month appears below: Activity level 90 guests Variable overhead costs: Supplies Laundry Fixed overhead costs: Utilities Salaries and wages Depreciation Total overhead cost $ 234 315 220 4,290 2,680 $7,739 The Inn's variable overhead costs are driven by the number of guests What would be the total budgeted overhead cost for a month if the activity level is 99 guests? Assume that the activity levels of 90 guests and 99 guests are within the same relevant range A) $7,793.90 B) $61,541.00 C) $8,512.90 D) $7,739.00 Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 11-11 Chapter 11 Flexible Budgets and Overhead Analysis Solution: Budgeted number of guests: 90 Cost Formula (per guest) Overhead Costs Variable overhead costs: Supplies ($234 ÷ 90 guests) Laundry ($315 ÷ 90 guests) Total variable overhead cost Fixed overhead costs: Utilities Salaries and wages Depreciation Total fixed overhead cost Total budgeted overhead cost 11-12 $2.60 3.50 $6.10 Activity (in guests): 99 $ 257.40 346.50 603.90 220.00 4,290.00 2,680.00 7,190.00 $7,793.90 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 11 Flexible Budgets and Overhead Analysis 29 Kerekes Manufacturing Corporation has prepared the following overhead budget for next month Activity level Variable overhead costs: Supplies Indirect labor Fixed overhead costs: Supervision Utilities Depreciation Total overhead cost 2,500 machine-hours $12,250 22,000 15,500 5,500 6,500 $61,750 The company's variable overhead costs are driven by machine-hours What would be the total budgeted overhead cost for next month if the activity level is 2,400 machine-hours rather than 2,500 machine-hours? Assume that the activity levels of 2,500 machine-hours and 2,400 machine-hours are within the same relevant range A) $59,830.00 B) $59,280.00 C) $60,380.00 D) $61,750.00 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 11-13 Chapter 11 Flexible Budgets and Overhead Analysis Solution: Budgeted variable overhead costs Supplies $12,250 Indirect labor $22,000 Machinehours 2,500 2,500 Per machinehour $4.90 $8.80 Budgeted number of machine-hours: 2,500 Activity Cost Formula (in MHs): (per MH) 2,400 Overhead Costs Variable overhead costs: Supplies Indirect labor Total variable overhead cost Fixed overhead costs: Supervision Utilities Depreciation Total fixed overhead cost Total overhead cost 11-14 $ 4.90 8.80 $13.70 $11,760 21,120 13,880 15,500 5,500 6,500 27,500 $60,380 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 11 Flexible Budgets and Overhead Analysis Ans: a Predetermined variable overhead rate = $270,000 ÷ 150,000 machine-hours = $1.80 per machine-hour Predetermined fixed overhead rate = $337,500 ÷ 150,000 machine-hours = $2.25 per machine-hour b Variable overhead variances: Spending variance = AH (AR − SR) = 126,000 ($1.68* − $1.80) = $15,120 F *AR = $211,680 ÷ 126,000 actual machine-hours = $1.68 Efficiency variance = SR (AH − SH) = $1.80 (126,000 − 120,000*) = $10,800 U *SH = 120,000 units × hour per unit = 120,000 hours Fixed overhead variances: Budget variance = Actual fixed overhead − Budgeted fixed overhead = $343,000 − $337,500 = $5,500 U Volume variance = Fixed rate (Denominator hours − Standard hours) = $2.25 (150,000 − 120,000*) = $67,500 U *Standard hours = 120,000 units × hour per unit = 120,000 hours AACSB: Analytic AICPA BB: Critical Thinking LO: 3; 4; 5; Level: Hard 11-110 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 11 Flexible Budgets and Overhead Analysis 147 Sorrick Corporation, which makes sophisticated industrial valves, has provided the following data from its standard costing system and for its actual operations in March: Budgeted production Actual production Standard machine-hours per valve Budgeted machine-hours (7.5 × 5,300) Standard machine-hours allowed for the actual output (7.5 × 5,400) Actual machine-hours 5,300 5,400 7.5 39,750 valves valves machine-hours machine-hours 40,500 machine-hours 41,160 machine-hours Budgeted variable overhead cost per machine-hour: Indirect labor $9.30 per machine-hour Power $2.40 per machine-hour Actual total variable overhead costs: Indirect labor $363,400 Power $94,821 Required: Compute the variable overhead spending variances for indirect labor and for power for March Indicate whether each of the variances is favorable (F) or unfavorable (U) Show your work! Ans: Indirect labor Power Cost Formula (per machinehour) $9.30 $2.40 Actual Costs Incurred 41,160 MachineHours $363,400 $94,821 Flexible Budget Based on 41,160 MachineHours $382,788 $98,784 AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Spending Variance $19,388 F $3,963 F AICPA FN: Reporting 11-111 Chapter 11 Flexible Budgets and Overhead Analysis 148 The following data for November have been provided by Hunn Corporation, a producer of precision drills for oil exploration: Budgeted production Standard machine-hours per drill Standard indirect labor Standard power Actual production Actual machine-hours Actual indirect labor Actual power 3,700 9.0 $8.80 $2.40 drills machine-hours per machine-hour per machine-hour 3,900 drills 35,350 machine-hours $313,923 $83,310 Required: Compute the variable overhead spending variances for indirect labor and for power for November Indicate whether each of the variances is favorable (F) or unfavorable (U) Show your work! Ans: Indirect labor Power Cost Formula (per machinehour) $8.80 $2.40 Actual Costs Incurred 35,350 MachineHours $313,923 $83,310 Flexible Budget Based on 35,350 MachineHours $311,080 $84,840 AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy 11-112 Spending Variance $2,843 U $1,530 F AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 11 Flexible Budgets and Overhead Analysis 149 Hammond Corporation has provided the following data for October: Budgeted production Actual production Standard machine-hours per unit Budgeted machine-hours (6.0 × 2,100) Standard machine-hours allowed for the actual output (6.0 × 2,400) Actual machine-hours 2,100 2,400 6.0 12,600 units units machine-hours machine-hours 14,400 machine-hours 14,220 machine-hours Budgeted variable overhead cost per machine-hour: Lubricants $1.00 per machine-hour Supplies $1.60 per machine-hour Actual total variable overhead costs: Lubricants $13,974 Supplies $23,558 Required: Compute the variable overhead spending variances for lubricants and for supplies for October Indicate whether each of the variances is favorable (F) or unfavorable (U) Show your work! Ans: Cost Formula (per machinehour) Lubricants $1.00 Supplies $1.60 Actual Costs Incurred 14,220 Machine-Hours $13,974 $23,558 AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Flexible Budget Based on 14,220 Machine-Hours $14,220 $22,752 Spending Variance $246 F $806 U AICPA FN: Reporting 11-113 Chapter 11 Flexible Budgets and Overhead Analysis 150 The following data have been provided by Lopus Corporation: Budgeted production Standard machine-hours per unit Standard lubricants Standard supplies Actual production Actual machine-hours Actual lubricants (total) Actual supplies (total) 2,600 2.7 $4.20 $2.90 units machine-hours per machine-hour per machine-hour 2,900 units 8,080 machine-hours $35,151 $23,038 Required: Compute the variable overhead spending variances for lubricants and for supplies Indicate whether each of the variances is favorable (F) or unfavorable (U) Show your work! Ans: Cost Formula (per machinehour) Lubricants $4.20 Supplies $2.90 Actual Costs Incurred 8,080 Machine-Hours $35,151 $23,038 AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy 11-114 Flexible Budget Based on 8,080 Machine-Hours $33,936 $23,432 Spending Variance $1,215 U $394 F AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 11 Flexible Budgets and Overhead Analysis 151 Osika Corporation, which makes helicopter rotors, has provided the following data for November: Budgeted production Actual production Standard machine-hours per rotor Budgeted machine-hours (8.7 × 3,300) Standard machine-hours allowed for the actual output (8.7 × 3,500) Actual machine-hours 3,300 3,500 8.7 28,710 rotors rotors machine-hours machine-hours 30,450 machine-hours 31,010 machine-hours Budgeted variable overhead cost per machine-hour: Indirect labor $1.00 per machine-hour Power $2.50 per machine-hour Actual total variable overhead costs: Indirect labor $32,673 Power $70,913 Required: Prepare a variable overhead performance report in good form showing the total variances, the spending variances, and the efficiency variances Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 11-115 Chapter 11 Flexible Budgets and Overhead Analysis Ans: Osika Corporation Variable Overhead Performance Report For the Month Ended November 30 Budgeted machine-hours Actual machine-hours Standard machine-hours allowed Variable overhead costs: Indirect labor Power Total Variable overhead costs: Indirect labor Power Total 28,710 31,010 30,450 Cost Formula (per machine -hour) $1.00 2.50 $3.50 Total Variance (1) − (3) $2,223 U 5,212 F $2,989 F (1) (2) (3) Actual Flexible Flexible Costs Budget Budget Incurred Based on Based on 31,010 31,010 30,450 Machine- Machine- MachineHours Hours Hours $32,673 $31,010 $30,450 70,913 77,525 76,125 $103,586 $108,535 $106,575 Spending Variance (1) − (2) $1,663 U 6,612 F $4,949 F AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy 11-116 Efficiency Variance (2) − (3) $560 U 1,400 U $1,960 U AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 11 Flexible Budgets and Overhead Analysis 152 Koppa Corporation, which makes skylights, has provided the following data for January: Budgeted production 6,100 Actual production 6,300 Standard machine-hours per skylight 6.6 Actual machine-hours 42,120 skylights skylights machine-hours machine-hours Budgeted variable overhead cost per machine-hour: Indirect labor $5.90 per machine-hour Power $1.00 per machine-hour Actual total variable overhead costs: Indirect labor $268,306 Power $41,922 Required: Prepare a variable overhead performance report in good form showing the total variances, the spending variances, and the efficiency variances Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 11-117 Chapter 11 Flexible Budgets and Overhead Analysis Ans: Koppa Corporation Variable Overhead Performance Report For the Month Ended January 31 Budgeted machine-hours (6.6 × 6,100) Actual machine-hours Standard machine-hours allowed for the actual output (6.6 × 6,300) Variable overhead costs: Indirect labor Power Total Variable overhead costs: Indirect labor Power Total (1) Actual Cost Costs Formula Incurred (per 42,120 machine Machine-hour) Hours $5.90 $268,306 1.00 41,922 $6.90 $310,228 Total Variance (1) − (3) $22,984 U 342 U $23,326 U 11-118 (2) (3) Flexible Flexible Budget Budget Based on Based on 42,120 41,580 Machine- MachineHours Hours $248,508 $245,322 42,120 41,580 $290,628 $286,902 Spending Variance (1) − (2) $19,798 U 198 F $19,600 U AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy 40,260 42,120 41,580 Efficiency Variance (2) − (3) $3,186 U 540 U $3,726 U AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 11 Flexible Budgets and Overhead Analysis 153 Creger Corporation, which makes landing gears, has provided the following data for a recent month: Budgeted production 7,900 Standard machine-hours per gear 9.3 Budgeted supplies cost $6.20 Actual production 8,300 Actual machine-hours 76,930 Actual supplies cost (total) $479,438 gears machine-hours per machine-hour gears machine-hours Required: Determine the total variance, the spending variance, and the efficiency variance for the variable overhead item supplies cost that would appear on the company's variable overhead performance report Show your work! Ans: Budgeted machine-hours (9.3 × 7,900) Actual machine-hours Standard machine-hours allowed for the actual output (9.3 × 8,300) Variable overhead costs: Supplies cost Variable overhead costs: Supplies cost Cost Formula (per machine -hour) $6.20 Total Variance (1) − (3) $860 U (1) Actual Costs Incurred 76,930 MachineHours $479,438 (2) Flexible Budget Based on 76,930 MachineHours $476,966 Spending Variance (1) − (2) $2,472 U AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 73,470 76,930 77,190 (3) Flexible Budget Based on 77,190 MachineHours $478,578 Efficiency Variance (2) − (3) $1,612 F AICPA FN: Reporting 11-119 Chapter 11 Flexible Budgets and Overhead Analysis 154 Bondi Corporation makes automotive engines For the most recent month, budgeted production was 1,500 engines The budgeted power cost is $3.10 per machine-hour The company's standards indicate that each engine requires 9.3 machine-hours Actual production was 1,800 engines Actual machine-hours were 15,860 machine-hours Actual power cost totaled $51,593 Required: Determine the total variance, the spending variance, and the efficiency variance for the variable overhead item power cost that would appear on the company's variable overhead performance report Show your work! Ans: Budgeted machine-hours (9.3 × 1,500) 13,950 Actual machine-hours 15,860 Standard machine-hours allowed for the actual output (9.3 × 1,800) 16,740 Cost Formula (per machineVariable overhead costs: hour) Power cost $3.10 Total Variance (1) Variable overhead costs: − (3) Power cost $301 F (1) Actual Costs Incurred 15,860 MachineHours $51,593 Spending Variance (1) − (2) $2,427 U AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy 11-120 (2) Flexible Budget Based on 15,860 MachineHours $49,166 (3) Flexible Budget Based on 16,740 MachineHours $51,894 Efficiency Variance (2) − (3) $2,728 F AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 11 Flexible Budgets and Overhead Analysis 155 Hykes Corporation's flexible budget for two levels of activity appears below: Cost Formula (per machinehour) Variable overhead costs: Supplies Indirect labor Total variable overhead cost Fixed overhead costs: Salaries Depreciation Total fixed overhead cost Total overhead cost $4.40 4.40 $8.80 Activity (in machine-hours) 3,000 3,100 $ 13,200 13,200 26,400 $ 13,640 13,640 27,280 55,800 58,590 114,390 $140,790 55,800 58,590 114,390 $141,670 Required: Determine the predetermined overhead rate if the denominator level of activity is 3,100 machine-hours Show your work! Ans: Predetermined overhead rate = Overhead from the flexible budget/Denominator level of activity = $141,670/3,100 machine-hours = $45.70 per machine-hour AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition AICPA FN: Reporting 11-121 Chapter 11 Flexible Budgets and Overhead Analysis 156 Benoit Corporation has provided its flexible budget for two levels of activity: Cost Formula (per machinehour) Variable overhead costs: Supplies Wearing tools Total variable overhead cost Fixed overhead costs: Salaries Occupancy costs Total fixed overhead cost Total overhead cost $ 4.60 8.60 $13.20 Activity (in machine-hours) 5,600 5,700 $ 25,760 48,160 73,920 $ 26,220 49,020 75,240 201,096 201,096 354,312 354,312 555,408 555,408 $629,328 $630,648 Required: Determine the predetermined overhead rate for the denominator level of activity of 5,700 machine-hours Show your work! Ans: Predetermined overhead rate = Overhead from the flexible budget/Denominator level of activity = $630,648/5,700 machine-hours = $110.64 per machine-hour AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy 11-122 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 11 Flexible Budgets and Overhead Analysis 157 Coppin Corporation has provided the following data for August Denominator level of activity Budgeted fixed overhead costs Fixed portion of the predetermined overhead rate Actual level of activity Standard machine-hours allowed for the actual output Actual fixed overhead costs 5,600 machine-hours $196,560 $35.10 per machine-hour 5,800 machine-hours 6,000 machine-hours $193,710 Required: a Compute the budget variance for August Show your work! b Compute the volume variance for August Show your work! Ans: a Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost = $193,710 − $196,560 = $2,850 F b Volume variance = Fixed portion of the predetermined overhead rate × (Denominator hours − Standard hours allowed) = $35.10 × (5,600 − 6,000) = $14,040 F AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy AICPA FN: Reporting 158 Holl Corporation has provided the following data for November Denominator level of activity 4,800 machine-hours Budgeted fixed overhead costs $56,640 Standard machine-hours allowed for the actual output 5,100 machine-hours Actual fixed overhead costs $55,860 Required: a Compute the budget variance for November Show your work! b Compute the volume variance for November Show your work! Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 11-123 Chapter 11 Flexible Budgets and Overhead Analysis Ans: a Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost = $55,860 − $56,640 = $780 F b Fixed portion of the predetermined overhead rate = $56,640/4,800 machine-hours = $11.80 per machine-hour Volume variance = Fixed portion of the predetermined overhead rate × (Denominator hours − Standard hours allowed) = $11.80 × (4,800 − 5,100) = $3,540 F AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy AICPA FN: Reporting 159 Wangerin Corporation applies overhead to products based on machine-hours The denominator level of activity is 6,900 machine-hours The budgeted fixed overhead costs are $240,810 In April, the actual fixed overhead costs were $245,640 and the standard machine-hours allowed for the actual output were 7,200 machine-hours Required: a Compute the budget variance for April Show your work! b Compute the volume variance for April Show your work! Ans: a Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost = $245,640 − $240,810 = $4,830 U b Fixed portion of the predetermined overhead rate = $240,810/6,900 machine-hours = $34.90 per machine-hour Volume variance = Fixed portion of the predetermined overhead rate × (Denominator hours − Standard hours allowed) = $34.90 × (6,900 − 7,200) = $10,470 F AACSB: Analytic AICPA BB: Critical Thinking LO: Level: Easy 11-124 AICPA FN: Reporting Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition ... BB: Critical Thinking AICPA FN: Reporting LO: Level: Easy Garrison/ Noreen/Brewer, Managerial Accounting, Twelfth Edition 11- 11 Chapter 11 Flexible Budgets and Overhead Analysis Solution: Budgeted... Total overhead cost 11- 14 $ 4.90 8.80 $13.70 $11, 760 21,120 13,880 15,500 5,500 6,500 27,500 $60,380 Garrison/ Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 11 Flexible Budgets... Machine-hours = Per machine-hour cost = $24,592 ÷ 11, 600 = $2.12 11- 22 Garrison/ Noreen/Brewer, Managerial Accounting, Twelfth Edition Chapter 11 Flexible Budgets and Overhead Analysis 38 Viger