Question 1

Wattis Manufacturing has established the following master flexible budget:
 $\begin{array}{r}
\text { Production in Units }\ 
\begin{array}{|l|r|r|r|}
\hline & \underline{100,00} & \underline{150,000} & 200,000 \
\hline \text { Variable expenses: } & & & \
\hline \text { Raw materials } & \$ 220,000 & 330,000 & 440,000 \
\hline \text { Direct labour } & 240,000 & 360,000 & 480,000 \
\hline \text { Manufacturing overhead } & 180,00 & 270,000 & 360,000 \
\hline \text { Selling and administrative } & \underline{100,00} & \underline{150,000} & \underline{200,000} \
\hline \text { Total variable expenses } & \$ 740,000 & \$ 1,110,000 & \$ 1,480,000 \
\hline\
\hline \text { Fixed expenses: } & & & \
\hline \text { Manufacturing overhead } & \$ 337,500 & \$ 337,500 & \$ 337,500 \
\hline \text { Selling and administrative } & \underline{250,000} & \underline{250,000} & \underline{250,000} \
\hline \text { Total fixed expenses } & \$ 587,500 & \$ 587,500 & \$ 587,500 \
\hline & & & \
\hline \text { Total expenses } & \$ 1,327,500 & \$ 1,697,000 & \$ 2,067,500 \
\hline
\end{array}\end{array}$ 
Manufacturing overhead is applied on the basis of machine hours.At standard,each unit of product requires one machine hour to complete.
Required:
a)The denominator activity level is 150,000 units.What are the predetermined variable and fixed manufacturing overhead rates?
b)Actual data for the year were as follows:
 $\begin{array}{|l|r|}
\hline \text { Answer: } & \$ 211,680 \
\text { Actual variable manufacturing overhead cost } & \
\hline \text { Actual fixed manufacturing overhead cost } & \$ 343,000 \
\hline \text { Actual machine hours incurred } & 126,000 \
\hline \text { Units produced } & 120,000 \
\hline
\end{array}$

Accepted Answer

The answer of Wattis Manufacturing has established the following master...

Question 2

(Appendix 10A)Pictou Company uses two raw materials,X and Y,in the manufacture of its only product: Gizmo.Both materials are very close substitutes.The standard proportions for the manufacture of a unit of Gizmo are 6 units of X and 4 units of Y.The unit standard prices of X and Y are $16 and $20,respectively.During the month of August,the company used 3,000 units of X and 1,800 units of Y to produce 460 units of Gizmo.
Required:
a)Calculate the following variances for raw materials X and Y:
(i)Quantity variances.
(ii)Mix variances.
(iii)Yield variances
b)Suppose you are made aware that the assistant production manager recommended the departure from the standard mix.Should the assistant manager be commended? Explain

Accepted Answer

The answer of (Appendix 10A)Pictou Company uses two raw materials,X...

Question 3

Standards can be either theoretical ("impossible dream")or practical (attainable all the time or only part of the time).Theoretically either can be used as the framework for the budgeting process.
Required:
a)What is the major distinction,if any,between a standard amount and a budgeted amount?
b)Which standard,theoretical or practical,provides the better benchmark for evaluating subsequent performance in a budgeting system? Explain.

Accepted Answer

The answer of Standards can be either theoretical ("impossible dream")or...

Question 4

The following standards for variable manufacturing overhead have been established for a company that makes only one product:
 $$\begin{array} { | l | r | } 
\hline \text { Standard hours per unit of output } & 6.9 \text { hours } \
\hline \text { Standard variable overhead rate } & \$ 15.80 \text { per hour } \
\hline
\end{array}$$ 
The following data pertain to operations for the last month:
 $\begin{array}{|l|r|}
\hline \text { Actual hours } & 6,100 \text { hours } \
\hline \text { Actual total variable overhead cost } & \$ 97,600 \
\hline \text { Actual output } & 800 \text { units } \
\hline
\end{array}$ 
Required:
a)What was the variable overhead spending variance for the month?
b)What was the variable overhead efficiency variance for the month?

Accepted Answer

The answer of The following standards for variable manufacturing overhead...

Question 5

(Appendix 10C)Yukon Company expressed the total expenses (Y)component of its master budget for March with the cost formula Y = $100,000 + $40 * X,where X represents the expected number of units of its only product to be manufactured and sold.The budgeted average selling price per unit was $65 for budgeted sales volume 5,000 units based on an estimated industry volume of 50,000 units.Reported actual results for February were as follows:
 $\begin{array}{|l|r|}
\hline \text { Sales } & \text { 5,400 units* } \
\hline & \
\hline \text { Sales revenue } & \$ 324,000 \
\hline \text { Less variable costs } & 194,400 \
\hline \text { Contribution margin } & \$ 129,600 \
\hline \text { Less fixed expenses } & 102,000 \
\hline \text { Operating income } & \$ 27,600 \
\hline
\end{array}$ 
*Actual industry sales volume was 60,000 units.
Required:
a)Calculate the flexible budget variance and analyze it into sales price variance and cost/expense variance(s).
b)Calculate the sales volume variance and analyze it into market-size (industry volume)variance and market-share variance.
c)On the basis of your analysis in parts (a)and (b),would you recommend a bonus be paid to the sales manager? Why or why not?

Accepted Answer

The answer of (Appendix 10C)Yukon Company expressed the total expenses...

Question 6

Direct labour hour is often assumed as the sole cost driver in analyzing the total variable overhead cost variance into spending and efficiency variances.
Required:
a)Will direct labour cost ever be a better cost driver of variable overhead costs than direct labour hour? Explain
b)How is the standard variable overhead rate different from the standard labour rate in variance analysis? Explain.

Accepted Answer

The answer of Direct labour hour is often assumed as...

Question 7

Warner Manufacturing has established the following master flexible budget for the current year:
 $\begin{array}{r}
\text { Production in Units }\ 
\begin{array}{|l|r|r|r|}
\hline & \underline{80,000} & \underline{120,000} & \underline{160,000} \
\hline \text { Variable expenses: } & & & \
\hline \text { Raw materials } & \$ 152,000 & 228,000 & 304,000 \
\hline \text { Direct labour } & 160,000 & 240,000 & 320,000 \
\hline \text { Manufacturing overhead } & \underline{120,00} & \underline{180,00} & \underline{240,000} \
\hline \text { Total variable expenses } & \$ 432,000 & \$ 648,000 & \$ 864,000 \
\hline\
\hline \text { Fixed expenses: } & & & \
\hline \text { Manufacturing overhead } & \$ 300,000 & \$ 300,000 & \$ 300,000 \
\hline \text { Selling and administrative } & \underline{192,000} & \underline{192,000} & \underline{192,000} \
\hline \text { Total fixed expenses } & \$ 492,000 & \$ 492,000 & \$ 492,000 \
\hline & & & \
\hline \text { Total expenses } & \$ 924,000 & \$ 1,140,000 & \$ 1,356,000 \
\hline 
\end{array}
\end{array}$
 
Manufacturing overhead is applied on the basis of machine hours.At standard,each unit of product requires one machine hour to complete.
Required:
a)The denominator activity level is 120,000 units.What are the predetermined variable and fixed manufacturing overhead rates?
b)Actual data for the year were as follows:
 $$\begin{array} { | l | r | } 
\hline \text { Answer: } & \$ 159,500 \
 \text { Actual variable manufacturing overhead cost } & \
\hline \text { Actual fixed manfacturing overhead cost } & \$ 305,000 \
\hline \text { Actual machine hours incurred } & 110,000 \
\hline \text { Units produced } & 105,000 \
\hline
\end{array}$$

Accepted Answer

The answer of Warner Manufacturing has established the following master...

Question 8

Flick Company uses a standard cost system.Manufacturing overhead is applied to units of product on the basis of direct labour hours.The company's total budgeted variable and fixed manufacturing overhead costs at the denominator level of activity are $20,000 for variable overhead and $30,000 for fixed overhead.The predetermined overhead rate,including both fixed and variable components,is $2.50 per direct labour hour.The standards call for two direct labour hours per unit of output produced.Last year,the company produced 11,500 units of product and worked 22,000 direct labour hours.Actual costs were $22,500 for variable overhead and $31,000 for fixed overhead.
Required:
a)What is the denominator level of activity?
b)What were the standard hours allowed for the output last year?
c)What was the variable overhead spending variance?
d)What was the variable overhead efficiency variance?
e)What was the fixed overhead budget variance?
f)What was the fixed overhead volume variance?

Accepted Answer

The answer of Flick Company uses a standard cost system.Manufacturing...

Question 9

Tracton Corporation uses a standard costing system in which manufacturing overhead costs are applied to products on the basis of machine time.
Required:
a)Several numbers and labels have been omitted from the analysis of fixed overhead below.Supply the missing numbers and labels.
 $\begin{array}{|l|l|l} 
\hline & \text { Flexible Budget Fixed } & \text { Fixed Overhead Cost } \
\text { Answer: } & \text { Overhead Cost } & \text { Applied to Work in } \
\text { Actual Fixed Overhead } & & \text { Process 302,100 MH x } \
\text { Cost } & & \$ 1.08\
\hline ?&?&?\
\hline\underline{\quad\quad}&\underline{\quad\quad}&\underline{\quad\quad}\
\hline& \text { Budget variance,}&?\
\hline& \text { $ \$ 1,880 \mathrm{U} $}&?\
\hline& \text { Total variance, $ \$ 388 \mathrm{~F} $}\ 
\hline
\end{array}$  
b)Suppose that 6 minutes of machine time is standard per unit of production.How many units were actually produced in the situation above?
c)Again suppose that 6 minutes of machine time is standard per unit of production.How many units of production were assumed when the predetermined application rate for fixed overhead was established?

Accepted Answer

The answer of Tracton Corporation uses a standard costing system...

Question 10

Sucher Company uses a standard cost system in which manufacturing overhead costs are applied to units of product on the basis of machine hours.The company's condensed flexible budget for manufacturing overhead is given below:
 $\begin{array}{|l|r|r|r|r|}\hline &\text { Per Machine Hour }&&\text { Machine Hours }\
\hline & & 20,000 & \underline{25,000} & \underline{30,000} \
\hline \text { Variable overhead costs } & \$ 3 & \$ 60,000 & \$ 75,000 & \$ 90,000 \
\hline \text { Fixed overhead costs } & & \underline{300,000} & \underline{300,000} & \underline{300,000} \
\hline \text { Total overhead costs } & & \$ 360,000 & \$ 375,000 & \$ 390,000 \
\hline
\end{array}$ 
The denominator level of activity is 30,000 machine hours.Standards call for 2.5 machine hours per unit of output.Actual activity and manufacturing overhead costs for the year are given below:
 $\begin{array}{|l|r|}
\hline \text { Units produced } & 12,800 \text { units } \
\hline \text { Machine hours used } & 31,600 \text { machine hours } \
\hline \text { Overhead costs incurred: } & \
\hline \text { Variable costs } & \$ 96,000  \
\hline \text { Fixed costs } &\$ 297,000 \
\hline
\end{array}$ 
Required:
a)What are the standard hours allowed for the output?
b)What was the variable overhead spending variance?
c)What was the variable overhead efficiency variance?
d)What was the fixed overhead budget variance?
e)What was the fixed overhead volume variance?
f)(Appendix 10B)Prepare a journal entry to record the variable overhead costs incurred and applied,including the results of the variance analysis.
g)(Appendix 10B)Prepare a journal entry to record the fixed overhead costs incurred and applied,including the results of the variance analysis.

Accepted Answer

The answer of Sucher Company uses a standard cost system...

Question 11

(Appendix 10C)Iraj Company retails two grades of Persian carpets: Grade X and Grade Y.The carpets are sold by rolls.The following is a summary of the company's activities for last year:
 $$\begin{array} { | l | r | r | r | } 
\hline & \text { Grade X } & \text { Grade Y } & \text { Total } \
\hline \text { Sales in rolls: } & & & \
\hline \text { Budget } & 1,600 & 400 & 2,000 \
\hline \text { Actual } & 1,980 & 220 & 2,200 \
\hline \text { Contribution margin per roll: } & & & \
\hline \text { Budget } & \$ 800 & \$ 2,000 & \
\hline \text { Actual } & \$ 700 & \$ 2,500 & \
\hline \text { Market volume in rolls: } & & & \
\hline \text { Forecast } & & & 10,000 \
\hline \text { Actual } & & & 13,750 \
\hline \begin{array} { l } 
\text { Required: } \
\text { Arswer: }
\end{array} & & & \
& & & \
\hline
\end{array}$$ 
Required:
a)Assume the two grades of carpet are close substitutes.Calculate the sales volume variance for each grade of carpet and analyze each into a sales mix variance and a sales quantity variance.
b)Analyze the sum of the sales quantity variance into its two components: market volume variance and market share variance.
c)Comment on the appropriateness of the assumption of close substitution between the two grades of carpet.Comment also on the effect,if any,on the analysis in part a)above if this assumption is considered inappropriate.

Accepted Answer

The answer of (Appendix 10C)Iraj Company retails two grades of...

Question 12

(Appendix 10B)Nova Corporation produces a single product and uses a standard cost system to help control costs.Overhead is applied to production on the basis of machine hours.According to the company's flexible budget,the following overhead costs should be incurred at an activity level of 18,000 machine hours (the denominator activity level chosen for the current year):
 $$\begin{array} { | l | r | } 
\hline \text { Variable Overhead Costs } & \$ 45,000 \
\hline \text { Fixed Overhead Costs } & \$ 108,000 \
\hline \text { Total Overhead Costs } & \$ 153,000 \
\hline
\end{array}$$ 
During the current year,the following operating results were recorded:
 $\begin{array}{|l|r|}
\hline \text { Actual Machine Hours Worked } & 15,000 \
\hline \text { Standard Machine Hours Allowed } & 16,000 \
\hline \text { Actual Variable Overhead Cost Incurred } & \$ 38,000 \
\hline \text { Actual Fixed Overhead Cost Incurred } & \$ 107,100 \
\hline
\end{array}$ 
At the end of the year,the company's Manufacturing Overhead account showed total debits for actual overhead costs of $145,100 and total credits for overhead actually applied of $136,000.The difference ($9,100)represents underapplied overhead,the cause of which management would like to know.
Required:
a)Compute the predetermined overhead rate that would have been used during the year,showing separately the variable and fixed components of the rate.
b)Show how the $136,000 of "Applied Costs" was computed.
c)Analyze the $9,100 underapplied overhead figure in terms of the variable overhead spending and efficiency variances and the fixed overhead budget and volume variances.
d)(Appendix 10B)Prepare a journal entry to record the variable overhead costs incurred and applied,including the results of the variance analysis.
e)(Appendix 10B)Prepare a journal entry to record the fixed overhead costs incurred and applied,including the results of the variance analysis.

Accepted Answer

The answer of (Appendix 10B)Nova Corporation produces a single product...

Question 13

(Appendix 10B)The following is the standard cost card for X Company's only product:
 $\begin{array}{|l|r|}
\hline \text { Direct materials, } 4 \text { metres at } \$ 4.00 & \$ 16.00 \
\hline \text { Direct labour, } 5 \text { hours at } \$ 10.00 & \$ 15.00 \
\hline \text { Variable overhead, } 1.5 \text { hours at } \$ 3.00 & \$ 4.50 \
\hline \text { Fixed overhead, } 1.5 \text { hours at } \$ 7.00 & \$ 10.50 \
\hline \text { Standard cost per unit } & \$ 46.00 \
\hline
\end{array}$ 
The company manufactured and sold 18,000 units of product during the year.A total of 70,200 metres of material was purchased during the year at cost of $4.20 per metre.All of this material was used to manufacture the 18,000 units.The company records showed no beginning or ending inventories for the year.
The company worked 29,250 direct labour hours during the year at a cost of $9.75 per hour.Overhead cost is applied to products on the basis of direct labour hours.The denominator activity level (direct labour hours)was 22,500 hours.Budgeted fixed overhead costs as shown on the flexible budget were $157,500,while actual fixed overhead costs were $156,000.Actual variable overhead costs were $90,000.
Required:
a)Compute the direct materials price and quantity variances for the year.
b)Compute the direct labour rate and efficiency variances for the year.
c)Compute the variable overhead spending and efficiency variances for the year.
d)Compute the fixed overhead budget and volume variances for the year.
e)(Appendix 10B)Prepare a journal entry to record the variable overhead costs incurred and applied,including the results of the variance analysis.
f)(Appendix 10B)Prepare a journal entry to record the fixed overhead costs incurred and applied,including the results of the variance analysis.

Accepted Answer

The answer of (Appendix 10B)The following is the standard cost...

Question 14

You have just been hired as the controller of the Eastern Division of Global Manufacturing.Performance records for last year are incomplete,with only the following data available:
 $\begin{array}{|l|r|}
\hline \text { Variable Overhead Rate } & \$ 3.00 \text { per direct labour hour } \
\hline \text { Budgeted Fixed Overhead } & \$ 84,800 \
\hline \text { Total Actual Overhead Cost } & \$ 262,500 \
\hline \text { Fixed overhead Budget Variance } & \$ 7,200 \text { unfavourable } \
\hline \text { Variable Overhead Efficiency Variance } & \$ 15,000 \text { unfavourable } \
\hline \text { Actual Direct Labour Hours Worked } & 55,000 \text { direct labour hours } \
\hline \text { Denominator Activity Level } & 53,000 \text { direct labour hours } \
\hline \text { Standard Hours per Unit } & 2 \text { direct labour hours } \
\hline
\end{array}$ 
Required:
Prepare a complete analysis of manufacturing overhead for the past year.Indicate actual,standard,and denominator activity levels; variable overhead spending and efficiency variances; and fixed overhead budget and volume variances.

Accepted Answer

The answer of You have just been hired as the...

Quiz 10: Standard Costs and Overhead Analysis