Question 1

McAllister Company's master budget for the year just completed was based on 100% capacity and included 40,000 machine hours and $240,000 total factory overhead. The budgeted fixed overhead at 75% of factory capacity would be $160,000 (and 30,000 machine hours). The company actually operated at 90% capacity for the year, and incurred $252,000 total factory overhead.
Required:
1. Determine the factory overhead flexible-budget variance for the year. Show calculations.
2. Calculate the factory overhead production volume variance for the year. Show calculations.

Accepted Answer

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Question 2

Bike Pedals manufactures bicycle seats. The company budgeted to manufacture 25,000 seats in April with 0.05 standard machine hours per seat. The total variable factory overhead was budgeted at $30,000 for the operation. During April the company manufactured 30,000 seats using 1,600 machine hours. It incurred $34,000 of variable factory overhead (VOH) costs.
Required: Determine each of the following variances. Show calculations.
1. Variable overhead spending variance.
2. Variable overhead efficiency variance.
3. Variable overhead flexible-budget variance.

Accepted Answer

The answer of Bike Pedals manufactures bicycle seats. The company...

Question 3

The Wentworth Company manufactures modular furniture for the home and uses a monthly variance system to control costs of the manufacturing departments. Edward Collins is the supervisor of the Assembly Department and is reviewing the monthly variance analysis for November, which showed a significant cost overrun (i.e., negative cost variance). Collins has gathered the following information to assist him in deciding whether or not to investigate the unfavorable cost variance for the Assembly Department:  Required: Recommend whether Wentworth Company should investigate the observed unfavorable cost variance. Support your answer by:
1. Preparing a payoff table for use in making the decision.
2. Computing the expected value of the cost of each of the two actions that management can take: investigate the variance, or do not investigate the variance. (Let p = the probability that the process is out of control, that is, the probability of a nonrandom variance, and (1 - p) = the probability that the process is in control, that is, that the observed variance is due to random causes.)

Accepted Answer

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Question 4

Bluetop Company uses standard costs. For the month of April, the firm budgeted $160,000 for total factory overhead based on 40,000 machine hours. The standard calls for 4 machine hours for each finished units. During April the firm used 39,000 machine hours to manufacture 9,500 units and incurred $159,000 in total factory overhead.
Required:
1. Determine the total amount of standard factory overhead cost charged to production in April.
2. Provide the correct journal entry to record the application of standard factory overhead costs to production. (Assume that the company uses a single overhead account, Manufacturing Overhead.)

Accepted Answer

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Question 5

As was the case with the material presented in text Chapter 14, the cost variances covered in Chapter 15 are directed at what might be called short-term financial control. These variances are calculated on the basis of standard costs and the use of flexible budgets. Periodic reports containing these variances are but a part of a larger and more comprehensive management accounting and control system.
Required: Explain some of the inherent limitations of short-term financial performance measures (such as standard cost variances) and how such measures might be supplemented to better meet the planning and control needs of management.

Accepted Answer

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Question 6

Ben Simon Corp. has the following information about its standards and production activity for the month of November:  Required: Calculate and show supporting calculations for each of the following variances:
1. Variable overhead flexible-budget variance.
2. Fixed overhead spending variance.
3. Fixed overhead production volume variance.

Accepted Answer

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Question 7

In terms of the variance-investigation decision, an "indifference probability," p, of 10%
A)Refers to the probability of a non-random (i.e., systematic variance) occurring.
B)Means that there is a 10% probability that management will make an incorrect decision.
C)Implies that if the probability of a nonrandom variance is less than 10% the variance should be investigated.
D)Implies a 90% probability of not taking corrective action after the variance is investigated.
E)Suggests that management a 90% probability that management would be indifferent between investigating and not investigating the variance.

Accepted Answer

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Question 8

What are the steps in establishing the standard application rate for variable factory overhead cost? Does the procedure differ for product-costing versus cost control purposes?

Accepted Answer

The answer of What are the steps in establishing the...

Question 9

What are the steps in determining the standard fixed factory overhead application rate? Does the procedure differ for product-costing versus cost-control purposes?

Accepted Answer

The answer of What are the steps in determining the...

Question 10

The Wentworth Company manufactures modular furniture for the home and uses a monthly variance system to control costs of the manufacturing departments. Edward Collins is the supervisor of the Assembly Department and is reviewing the monthly variance analysis for November, which showed a significant cost overrun (i.e., negative cost variance). Collins has gathered the following information to assist him in deciding whether or not to investigate the unfavorable cost variance for the Assembly Department:  Required: Collins is uncertain about the probability estimate of 90% for proper operation of the Assembly Department. Determine the probability estimate that would cause Collins to be indifferent between the two possible managerial actions: investigate or don't investigate the variance.

Accepted Answer

The answer of The Wentworth Company manufactures modular furniture for...

Question 11

In terms of the variance-investigation decision under uncertainty, which of the following items contains a cross-listing of costs associated with two states of nature (random vs. nonrandom variance) and management actions (investigate the variance vs. do not investigate the variance)?
A)Indifference probability chart.
B)Statistical control chart.
C)Run chart.
D)Variance control chart.
E)Payoff table.

Accepted Answer

A payoff table is a decision-making tool that shows the costs and benefits associated with different management actions and different states of nature. In this case, the states of nature are random and nonrandom variance, and the management actions are to investigate the variance or not. The payoff table would list the costs associated with each combination of state of nature and management action, allowing decision makers to determine the best course of action based on the expected value of each option. The other options listed do not provide a cross-listing of costs associated with different states of nature and management actions.

Question 12

Which of the following would not be considered a possible cause of a controllable (i.e., a systematic) variance?
A)Implementation error.
B)Random error.
C)Modeling error.
D)Prediction error.
E)Measurement error.

Accepted Answer

Random error is not considered a possible cause of a controllable (i.e., a systematic) variance because it is unpredictable and cannot be controlled. The other options (implementation error, modeling error, prediction error, and measurement error) are all possible sources of controllable variance that can be identified and addressed.

Question 13

ABN Corp. has the following information about its standards and production activity in May:  Required: Calculate and show calculations for each of the following variances:
1. Variable overhead flexible-budget (FB) variance.
2. Fixed overhead spending variance.
3. Fixed overhead production volume variance.
4. Provide and interpretation of each of the above variances.

Accepted Answer

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Question 14

Redtop Co. uses a standard cost system and flexible budgets. The following flexible budget was prepared at the 80% operating level for the year:  However, for purposes of calculating the fixed overhead application rate, the company defined the denominator volume as the 90% capacity level. The standard calls for four DLHs per unit manufactured. During the year, Redtop worked 33,600 DLHs to manufacture 8,500 units. The actual factory overhead was $12,000 greater than the flexible-budget amount for the units produced, of which $5,000 was due to fixed factory overhead.
Required: Calculate (and provide supporting details for) each of the following variances:
1. The standard variable overhead application rate.
2. The variable overhead efficiency variance.
3. The factory overhead spending variance.
4. The factory overhead production volume variance.
5. The variable overhead spending variance.
6. Provide an interpretation for each of the above variances you calculated

Accepted Answer

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Question 15

Carl Jones Company's master budget for the year just completed was based on 100% capacity and included 50,000 machine hours and $300,000 total factory overhead. (That is, the denominator volume, for purposes of calculating the fixed overhead application rate, is defined as 100% capacity.) Budgeted fixed overhead at 70% factory capacity is $200,000 (and 35,000 machine hours). The company operated at 80% capacity for the year, and incurred $275,000 total factory overhead.
Required:
1. Determine the factory overhead flexible-budget variance for the year just completed. Show calculations.
2. Calculate the factory overhead production volume variance for the year just completed. Show calculations.
3. In an essay, provide an interpretation of each of the two variances calculated above.

Accepted Answer

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Question 16

Dillard, Inc., has developed the following standard cost data based on a denominator volume of 60,000 direct labor hours (DLHs). Budgeted fixed overhead is $360,000 and budgeted variable overhead is $180,000 at this level of activity.  During the last period, the company used 48,000 DLHs to produce 128,000 units. It incurred the following manufacturing costs:  Required: Determine all variances for direct materials, direct labor, and factory overhead. Use a 4-variance breakdown (decomposition) of the total overhead variance for the period. Note: this problem requires knowledge from Chapter 14.

Accepted Answer

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Question 17

The term used to refer to persistent variances (i.e., those that are likely to recur until corrected) is
A)Systematic variance.
B)Random variance.
C)Standard cost variance.
D)Noncontrollable variance.
E)Flexible-budget variance.

Accepted Answer

Persistent variances are likely to recur until corrected, and are referred to as systematic variances. Random variances, on the other hand, are those that cannot be explained or predicted and do not have a consistent pattern. Standard cost variance is a specific type of variance related to comparing actual costs to the expected or standard costs. Noncontrollable variances refer to those that are outside of an individual's control, while flexible-budget variance relates to the variance between actual results and what would have been achieved if the flexible budget had been adhered to.

Question 18

Which of the following statements regarding the "expected value of perfect information" (EVPI) is not true?
A)It is useful for addressing the variance-investigation decision under uncertainty.
B)It can be used to measure manufacturing cycle efficiency (MCE).
C)It represents the maximum amount that a rational decision maker would be willing to pay for information that would reveal the correct decision/course of action to take.
D)It is the difference between the expected cost of a decision with perfect information and the expected cost of a decision without perfect information.
E)It requires for its calculation knowledge of the best course of action (decision) for each possible state of nature that could occur.

Accepted Answer

The expected value of perfect information (EVPI) is a concept in decision theory and is not used to measure manufacturing cycle efficiency (MCE). The EVPI represents the maximum amount that a rational decision maker would be willing to pay for information that would reveal the correct decision/course of action to take. The EVPI is calculated as the difference between the expected cost of a decision with perfect information and the expected cost of a decision without perfect information. It requires knowledge of the best course of action (decision) for each possible state of nature that could occur.

Question 19

Erie Co. uses machine hours to apply standard overhead cost to production. The following data pertain to October:  Required: Compute the following variances using machine hours as the activity variable used to assign standard overhead costs to production. Show calculations.
1. Variable overhead spending variance
2. Variable overhead efficiency variance
3. Fixed overhead spending variance
4. Fixed overhead production-volume variance

Accepted Answer

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Question 20

"Firms need to use the capacity of the equipment or division that is the 'bottleneck' of the manufacturing process as the denominator volume in setting the fixed overhead allocation rate. In cases where there is more than one 'bottleneck,' the denominator should be the smallest capacity among the bottleneck production processes."
Required:
1. What type of variance is related to this "denominator?" Explain.
2. Define the terms theoretical capacity, practical capacity, and budgeted capacity utilization. Of the three, which is considered most relevant for setting the predetermined overhead application rate for internal reporting purposes, particularly for fixed overhead costs? Explain

Accepted Answer

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Quiz 15: Operational Performance Measurement: Indirect-Cost Variances and Resource-Capacity Management

In terms of the variance-investigation decision, an "indifference probability," p, of 10%

What are the steps in establishing the standard application rate for variable factory overhead cost? Does the procedure differ for product-costing versus cost control purposes?

What are the steps in determining the standard fixed factory overhead application rate? Does the procedure differ for product-costing versus cost-control purposes?

In terms of the variance-investigation decision under uncertainty, which of the following items contains a cross-listing of costs associated with two states of nature (random vs. nonrandom variance) and management actions (investigate the variance vs. do not investigate the variance) ?

Which of the following would not be considered a possible cause of a controllable (i.e., a systematic) variance?

The term used to refer to persistent variances (i.e., those that are likely to recur until corrected) is

Which of the following statements regarding the "expected value of perfect information" (EVPI) is not true?