Chapter 11 Flexible Budgets and Overhead Analysis
True/False Questions
1. 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: 1 Level: Easy
2. 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: 1 Level: Easy
3. 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: 1 Level: Medium
4. Fixed costs should not be included in a flexible budget because they do not change
when the level of activity changes.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
5. 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: 2 Level: Medium
6. 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: 3 Level: Easy
7. 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: 4 Level: Medium
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-5
Chapter 11 Flexible Budgets and Overhead Analysis
8. 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; 6 Level: Medium
9. 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: 5
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: 5
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: 5
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: 5
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: 6 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: 6
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: 6
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: 1 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: 1 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: 1 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: 1 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: 6 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: 6 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: 6 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: 6 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: 6 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: 6 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: 6 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: 1 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: 1 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: 1 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
30. Sharifi Hospital bases its budgets on patient-visits. The hospital's static budget for
October appears below:
Budgeted number of patient-visits ............
8,500
Budgeted variable overhead costs:
Supplies (@$4.70 per patient-visit)........ $ 39,950
Laundry (@$7.80 per patient-visit) ........
66,300
Total variable overhead cost...................... 106,250
Budgeted fixed overhead costs:
Wages and salaries .................................
50,150
Occupancy costs .....................................
84,150
Total fixed overhead cost .......................... 134,300
Total budgeted overhead cost .................... $240,550
The total overhead cost at an activity level of 9,200 patient-visits per month should be:
A) $260,360
B) $250,070
C) $249,300
D) $240,550
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Budgeted number of patient-visits: 8,500
Cost Formula
(per patientvisit)
Activity
(in patient
visits):
9,200
$ 4.70
7.80
$12.50
$ 43,240
71,760
115,000
Overhead Costs
Variable overhead costs:
Supplies ..................................................
Laundry ..................................................
Total variable overhead cost......................
Fixed overhead costs:
Wages and salaries .................................
Occupancy costs .....................................
Total fixed overhead cost ..........................
Total overhead cost ...................................
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
50,150
84,150
134,300
$249,300
11-15
Chapter 11 Flexible Budgets and Overhead Analysis
31. Ostler Hotel bases its budgets on guest-days. The hotel's static budget for April
appears below:
Budgeted number of guest-days ................
8,700
Budgeted variable overhead costs:
Supplies (@$7.00 per guest-day) ........... $ 60,900
Laundry (@$3.80 per guest-day) ...........
33,060
Total variable overhead cost......................
93,960
Budgeted fixed overhead costs:
Wages and salaries .................................
80,910
Occupancy costs .....................................
38,280
Total fixed overhead cost .......................... 119,190
Total budgeted overhead cost .................... $213,150
The total overhead cost at an activity level of 9,700 guest-days per month should be:
A) $213,150
B) $237,650
C) $223,950
D) $224,920
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Budgeted number of guest-days: 8,700
Overhead Costs
Variable overhead costs:
Supplies ..................................................
Laundry ..................................................
Total variable overhead cost......................
Fixed overhead costs:
Wages and salaries .................................
Occupancy costs .....................................
Total fixed overhead cost ..........................
Total overhead cost ...................................
11-16
Cost Formula
(per guestday)
Activity
(in guestdays):
9,700
$ 7.00
3.80
$10.80
$ 67,900
36,860
104,760
80,910
38,280
119,190
$223,950
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
32. Riggs Enterprise's flexible budget cost formula for indirect materials, a variable cost,
is $0.45 per unit of output. If the company's performance report for last month shows a
$90 favorable variance for indirect materials and if 8,700 units of output were
produced last month, then the actual costs incurred for indirect materials for the month
must have been:
A) $4,005
B) $3,915
C) $3,825
D) $3,735
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Variable overhead spending variance = AH × (AR − SR) = 90 F
8,700 × (AR − 0.45) = -90
(8,700 × AR) − 3,915 = -90
(8,700 × AR) = 3,825
AR = 3,825 ÷ 8,700 = $0.4396
Actual indirect labor costs = 8,700 × $0.4396 = $3,825
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-17
Chapter 11 Flexible Budgets and Overhead Analysis
33. Chmielewski Medical Clinic measures its activity in terms of patient-visits. Last
month, the budgeted level of activity was 1,560 patient-visits and the actual level of
activity was 1,530 patient-visits. The clinic's director budgets for variable overhead
costs of $1.10 per patient-visit and fixed overhead costs of $19,900 per month. The
actual variable overhead cost last month was $1,400 and the actual fixed overhead cost
was $21,720. In the clinic's flexible budget performance report for last month, what
would have been the variance for the total overhead cost?
A) $33 F
B) $1,504 U
C) $1,537 U
D) $283 F
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Budgeted number of patient-visits: 1,560
Actual number of patient-visits: 1,530
Variable overhead costs.......
Fixed overhead costs ...........
11-18
Cost
Formula
(per
patientvisit)
$1.10
Actual
Costs
Incurred
for 1,530
patientvisits
$1,400
$21,720
Budget
Based on
1,530
patientvisits
$1,683
$19,900
Variance
$ 283 F
1,820 U
$1,537 U
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
34. Rodriques Tile Installation Corporation measures its activity in terms of square feet of
tile installed. Last month, the budgeted level of activity was 1,630 square feet and the
actual level of activity was 1,720 square feet. The company's owner budgets for
supply costs, a variable overhead cost, at $3.40 per square foot. The actual supply cost
last month was $6,750. In the company's flexible budget performance report for last
month, what would have been the variance for supply costs?
A) $353 U
B) $306 U
C) $902 U
D) $1,208 U
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Budgeted number of square feet: 1,720
Actual number of square feet: 1,630
Cost
Formula
(per
square
foot)
Variable overhead costs
(Supply costs) ............................
$3.40
Actual
Costs
Incurred
for 1,720
square
feet
$6,750
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Budget
Based on
1,720
square feet Variance
$5,848
$902 U
11-19
Chapter 11 Flexible Budgets and Overhead Analysis
35. Rodabaugh Natural Dying Corporation measures its activity in terms of skeins of yarn
dyed. Last month, the budgeted level of activity was 15,900 skeins and the actual level
of activity was 16,100 skeins. The company's owner budgets for dye costs, a variable
overhead cost, at $0.87 per skein. The actual dye cost last month was $14,800. In the
company's flexible budget performance report for last month, what would have been
the variance for dye costs?
A) $967 U
B) $174 U
C) $184 U
D) $793 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Budgeted number of skeins: 15,900
Actual number of skeins: 16,100
Variable overhead costs (Dye
costs) .................................
11-20
Cost
Formula
(per
skein)
Actual
Costs
Incurred
for
16,100
skeins
Budget
Based on
16,100
skeins
Variance
$0.87
$14,800
$14,007
$793 U
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
36. Andress Footwear Corporation's flexible budget cost formula for supplies, a variable
overhead cost, is $2.17 per unit of output. The company's flexible budget performance
report for last month showed a $4,531 unfavorable variance for supplies. During that
month, 19,700 units were produced. Budgeted activity for the month had been 19,400
units. The actual costs incurred for indirect materials must have been closest to:
A) $2.17
B) $2.63
C) $2.67
D) $2.40
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Hard
Solution:
Budgeted number of units produced: 19,400
Actual number of units produced: 19,700
Cost
Formula
(per unit
produced)
Variable overhead costs
(Supplies) .............................
Actual
Costs
Incurred
for
19,700
units
produced
$2.17
X
Budget
Based on
19,700
units
produced
$42,749
Variance
$4,531 U
Actual costs − Budgeted costs = Supplies variance
X − $42,749 = $4,531
X = $47,280
Per unit cost = Total actual costs ÷ Number of units produced
Per unit cost = $47,280 ÷ 19,700 = $2.40
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-21
Chapter 11 Flexible Budgets and Overhead Analysis
37. Ocker Corporation's flexible budget performance report for last month shows that
actual indirect materials cost, a variable overhead cost, was $28,420 and that the
variance for indirect materials cost was $3,828 unfavorable. During that month, the
company worked 11,600 machine-hours. Budgeted activity for the month had been
11,300 machine-hours. The cost formula per machine-hour for indirect materials cost
must have been closest to:
A) $2.85
B) $2.18
C) $2.78
D) $2.12
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Hard
Solution:
Budgeted number of machine-hours: 11,300
Actual number of machine-hours: 11,600
Variable overhead costs
(Indirect materials) ...........
Cost
Formula
(per
MH)
Actual
Costs
Incurred
for
11,600
machinehours
Budget
Based on
11,600
machinehours
Variance
Y
$28,420
X
$3,828 U
Actual costs − Budgeted costs = Indirect materials variance
$28,420 − X = $3,828
X = $24,592
Y = Per machine-hour cost =
Per machine-hour cost = Actual cost ÷ 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 Corporation has a standard cost system in which it applies manufacturing
overhead to products on the basis of standard machine-hours (MHs). The company has
provided the following data for the most recent month:
Budgeted level of activity.................................................
Actual level of activity .....................................................
Cost formula for variable manufacturing overhead cost ..
Budgeted fixed manufacturing overhead cost ..................
Actual total variable manufacturing overhead .................
Actual total fixed manufacturing overhead ......................
9,700 MHs
9,900 MHs
$6.30 per MH
$49,000
$60,390
$47,000
What was the variable overhead spending variance for the month?
A) $2,000 favorable
B) $720 favorable
C) $1,260 unfavorable
D) $1,980 favorable
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Actual rate =
Actual total variable manufacturing overhead ÷ Actual machine-hours
Actual rate = $60,390 ÷ 9,900 = $6.10
Variable overhead spending variance = AH × (AR − SR)
9,900 × ($6.10 − $6.30) = 9,900 × (-$0.20) = $1,980 F
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-23
Chapter 11 Flexible Budgets and Overhead Analysis
39. Teall Corporation has a standard cost system in which it applies manufacturing
overhead to products on the basis of standard machine-hours (MHs). The company has
provided the following data for the most recent month:
Budgeted level of activity..................................................
8,500 MHs
Actual level of activity ......................................................
8,600 MHs
Cost formula for variable manufacturing overhead cost ...
$5.70 per MH
Budgeted fixed manufacturing overhead cost ................... $50,000
Actual total variable manufacturing overhead .................. $51,600
Actual total fixed manufacturing overhead ....................... $54,000
What was the fixed overhead budget variance for the month?
A) $4,000 unfavorable
B) $4,000 favorable
C) $570 favorable
D) $570 unfavorable
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost
= $54,000 − $50,000 = $4,000 U
11-24
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
40. Alapai Corporation has a standard cost system in which it applies manufacturing
overhead to products on the basis of standard machine-hours (MHs). The company has
provided the following data for the most recent month:
Budgeted level of activity.................................................
Actual level of activity .....................................................
Cost formula for variable manufacturing overhead cost ..
Budgeted fixed manufacturing overhead cost ..................
Actual total variable manufacturing overhead .................
Actual total fixed manufacturing overhead ......................
7,000 MHs
7,200 MHs
$9.40 per MH
$40,000
$66,960
$37,000
What was the total of the variable overhead spending and fixed overhead budget
variances for the month?
A) $3,720 favorable
B) $2,280 unfavorable
C) $1,840 favorable
D) $1,880 unfavorable
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Actual rate =
Actual total variable manufacturing overhead ÷ Actual machine-hours =
$66,960 ÷ 7,200 = $9.30
Variable overhead spending variance = AH × (AR − SR)
= 7,200 × ($9.30 − $9.40)
= 7,200 × (−$0.10) = $720 F
Fixed overhead budget variance
= Actual fixed overhead costs − Budgeted fixed overhead cost
= $37,000 − $40,000 = $3,000 F
Total overhead variance = $720 F + $3,000 F = $3,720 F
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-25
Chapter 11 Flexible Budgets and Overhead Analysis
41. Bartoletti Fabrication Corporation has a standard cost system in which it applies
manufacturing overhead to products on the basis of standard machine-hours (MHs).
The company's cost formula for variable manufacturing overhead is $4.60 per MH.
The company had budgeted its fixed manufacturing overhead cost at $65,000 for the
month. During the month, the actual total variable manufacturing overhead was
$22,080 and the actual total fixed manufacturing overhead was $63,000. The actual
level of activity for the period was 4,600 MHs. What was the total of the variable
overhead spending and fixed overhead budget variances for the month?
A) $1,080 unfavorable
B) $1,080 favorable
C) $920 unfavorable
D) $920 favorable
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Actual rate = Actual variable manufacturing overhead ÷ Actual machine-hours
= $22,080 ÷ 4,600 = $4.80
Variable overhead spending variance = AH × (AR − SR)
= 4,600 × ($4.80 − $4.60)
= 4,600 × $0.20 = $920 U
Fixed overhead budget variance
= Actual fixed overhead costs − Budgeted fixed overhead cost
= $63,000 − $65,000 = $2,000 F
Total overhead variance = $920 U + $2,000 F = $1,080 F
11-26
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
42. Amirault Manufacturing Corporation has a standard cost system in which it applies
manufacturing overhead to products on the basis of standard machine-hours (MHs).
The company's cost formula for variable manufacturing overhead is $4.00 per MH.
During the month, the actual total variable manufacturing overhead was $18,040 and
the actual level of activity for the period was 4,100 MHs. What was the variable
overhead spending variance for the month?
A) $410 favorable
B) $1,640 unfavorable
C) $1,640 favorable
D) $410 unfavorable
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Actual rate = Actual variable manufacturing overhead ÷ Actual machine-hours
= $18,040 ÷ 4,100 = $4.40
Variable overhead spending variance = AH × (AR − SR)
= 4,100 × ($4.40 − $4.00) = 4,100 × $0.40 = $1,640 U
43. Goolden Electronics Corporation has a standard cost system in which it applies
manufacturing overhead to products on the basis of standard machine-hours (MHs).
The company had budgeted its fixed manufacturing overhead cost at $58,000 for the
month and its level of activity at 2,500 MHs. The actual total fixed manufacturing
overhead was $61,200 for the month and the actual level of activity was 2,600 MHs.
What was the fixed overhead budget variance for the month to the nearest dollar?
A) $880 unfavorable
B) $880 favorable
C) $3,200 favorable
D) $3,200 unfavorable
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Fixed overhead budget variance
= Actual fixed overhead cost − Budgeted fixed overhead cost
= $61,200 − $58,000 = $3,200 U
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-27
Chapter 11 Flexible Budgets and Overhead Analysis
44. Wadding Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. For the most recent month, the company based its budget on
3,600 machine-hours. Budgeted and actual overhead costs for the month appear
below:
Original
Budget
Based
on 3,600
Machine Actual
-Hours
Costs
Variable overhead costs:
Supplies ......................................
$11,160 $11,830
Indirect labor ..............................
26,280 27,970
Fixed overhead costs:
Supervision .................................
19,700 19,340
Utilities .......................................
5,900
5,770
Factory depreciation ...................
6,900
7,210
Total overhead cost .......................
$69,940 $72,120
The company actually worked 3,900 machine-hours during the month. The standard
hours allowed for the actual output were 3,890 machine-hours for the month. What
was the overall variable overhead efficiency variance for the month?
A) $760 favorable
B) $104 unfavorable
C) $180 favorable
D) $656 favorable
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Hard
11-28
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
Solution:
Variable
overhead costs
Supplies ...................................
$11,160
Indirect labor ...........................
$26,280
Machinehours
3,600
3,600
Per machinehour
$3.10
$7.30
Budgeted machine-hours: 3,600
Actual machine-hours: 3,900
Standard machine-hours allowed: 3,890
Cost
Formula
(per
MH)
Overhead Costs
Variable overhead costs:
Supplies.....................
Indirect labor .............
$ 3.10
7.30
$10.40
(1)
Budget
Based on
3,900
MHs
(AH ×
SR)
(2)
Budget
Based on
3,890 MHs
(SH × SR)
$12,090 *
28,470 **
$40,560
$12,059
$28,397
(1) − (2)
Efficiency
Variance
$ 31 U
73 U
$104 U
*3,900 machine-hours × $3.10 per machine-hour = $12,090
**3,900 machine-hours × $7.30 per machine-hour = $28,470
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-29
Chapter 11 Flexible Budgets and Overhead Analysis
45. Mongar Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. Budgeted and actual overhead costs for the most recent
month appear below:
Original Budget Actual Costs
Variable overhead costs:
Supplies ......................................
Indirect labor ..............................
Total variable overhead cost..........
$ 7,980
29,820
$37,800
$ 8,230
29,610
$37,840
The original budget was based on 4,200 machine-hours. The company actually worked
4,350 machine-hours during the month and the standard hours allowed for the actual
output were 4,190 machine-hours. What was the overall variable overhead efficiency
variance for the month?
A) $130 unfavorable
B) $950 favorable
C) $1,310 favorable
D) $1,440 unfavorable
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium
11-30
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
Solution:
Supplies .................
Indirect labor .........
Variable
overhead costs
$7,980
$29,820
Machinehours
4,200
4,200
Per machinehour
$1.90
$7.10
Budgeted machine-hours: 4,200
Actual machine-hours: 4,350
Standard machine-hours allowed: 4,190
Cost
Formula
(per MH)
Variable overhead costs:
Supplies ....................
Indirect labor ............
$1.90
$7.10
(1)
Budget
Based
on 4,350
MHs
(AH ×
SR)
(2)
Budget
Based on
4,190 MHs
(SH × SR)
$8,265 *
$30,885 **
$7,961
$29,749
(1) − (2)
Efficiency
Variance
$ 304 U
1,136 U
$1,440 U
*4,350 machine-hours × $1.90 per machine-hour = $8,265
**4,350 machine-hours × $7.10 per machine-hour = $30,885
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-31
Chapter 11 Flexible Budgets and Overhead Analysis
46. Pleiss Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. The company's cost formula for variable overhead cost is
$2.40 per machine-hour. The actual variable overhead cost for the month was $5,240.
The original budget for the month was based on 2,100 machine-hours. The company
actually worked 2,270 machine-hours during the month. The standard hours allowed
for the actual output of the month totaled 2,280 machine-hours. What was the variable
overhead efficiency variance for the month?
A) $24 favorable
B) $232 favorable
C) $208 favorable
D) $432 unfavorable
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
Budgeted machine-hours: 2,100
Actual machine-hours: 2,270
Standard machine-hours allowed: 2,280
Variable overhead costs
11-32
Cost
Formula
(per MH)
$2.40
(1)
Budget
Based on
2,270 MHs
(AH × SR)
$5,448
(2)
Budget
Based on
2,280 MHs
(SH × SR)
$5,472
(1) − (2)
Efficiency
Variance
$24 F
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
47. Pyrdum Corporation produces metal telephone poles. In the most recent month, the
company budgeted production of 3,500 poles. Actual production was 3,800 poles.
According to standards, each pole requires 4.6 machine-hours. The actual machinehours for the month were 17,800 machine-hours. The budgeted indirect labor is $5.40
per machine-hour. The actual indirect labor cost for the month was $96,712. The
variable overhead efficiency variance for indirect labor is:
A) $2,320 U
B) $1,728 F
C) $2,320 F
D) $1,728 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
Standard hours = Actual production in units × Standard machine-hours per unit
= 3,800 × 4.6 = 17,480
Variable overhead efficiency variance = SR × (AH − SH)
= $5.40 × (17,800 − 17,480) = $5.40 × 320 = $1,728 U
48. Hermansen Corporation produces large commercial doors for warehouses and other
facilities. In the most recent month, the company budgeted production of 5,100 doors.
Actual production was 5,400 doors. According to standards, each door requires 3.8
machine-hours. The actual machine-hours for the month were 20,880 machine-hours.
The budgeted supplies cost is $7.90 per machine-hour. The actual supplies cost for the
month was $152,063. The variable overhead efficiency variance for supplies cost is:
A) $10,045 F
B) $10,045 U
C) $2,844 F
D) $2,844 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
Standard hours = Actual production in units × Standard machine-hours per unit
= 5,400 × 3.8 = 20,520
Variable overhead efficiency variance = SR × (AH − SH)
= $7.90 × (20,880 − 20,520) = $7.90 × 360 = $2,844 U
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-33
Chapter 11 Flexible Budgets and Overhead Analysis
49. The following data have been provided by Moretta Corporation, a company that
produces forklift trucks:
Budgeted production .................................
Standard machine-hours per truck .............
Budgeted supplies cost ..............................
Actual production ......................................
Actual machine-hours................................
Actual supplies cost (total) ........................
3,400
2.9
$1.50
3,800
10,930
$17,496
trucks
machine-hours
per machine-hour
trucks
machine-hours
The variable overhead efficiency variance for supplies cost is:
A) $135 U
B) $135 F
C) $966 U
D) $966 F
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
Standard hours = Actual production in units × Standard machine-hours per unit
= 3,800 × 2.9 = 11,020
Variable overhead efficiency variance = SR × (AH − SH)
= $1.50 × (10,930 − 11,020) = $1.50 × (-$90) = $135 F
11-34
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
50. Ronda Manufacturing Company uses a standard cost system with machine-hours as
the activity base for overhead. Last year, Ronda incurred $840,000 of fixed
manufacturing overhead and generated a $42,000 favorable fixed overhead budget
variance. The following data relate to last year's operations:
Denominator activity level in machine-hours ................
Standard machine-hours allowed for actual output ........
Actual number of machine-hours incurred .....................
21,000
20,000
22,050
What amount of total fixed manufacturing overhead cost did Ronda apply to
production last year?
A) $837,900
B) $840,000
C) $926,100
D) $972,405
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5; 6 Level: Hard
Solution:
Predetermined overhead rate =
$882,000 ÷ 21,000 denominator machine-hours = $42 per machine-hour
Fixed overhead applied to production =
20,000 standard hours × $42 per machine-hour = $840,000
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-35
Chapter 11 Flexible Budgets and Overhead Analysis
51. Blue Company's standards call for 2,500 direct labor-hours to produce 1,000 units.
During May only 900 units were produced and the company worked 2,400 direct
labor-hours. The standard hours allowed for May production would be:
A) 2,500 hours
B) 2,400 hours
C) 2,250 hours
D) 1,800 hours
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Standard direct labor-hours per unit = 2,500 direct labor-hours ÷ 1,000 units
= 2.5 direct labor-hours per unit
Standard hours allowed = 2.5 direct labor hours per unit × 900 units
= 2,250 hours
52. Diehl Company uses a standard cost system in which it applies manufacturing
overhead to units of product on the basis of standard direct labor-hours. The
company's total applied factory overhead was $315,000 last year when the company
used 32,000 direct labor-hours as the denominator activity. If the variable factory
overhead rate was $8 per direct labor-hour, and if 30,000 standard labor-hours were
allowed for the output of the year, then the total budgeted fixed factory overhead for
the year must have been:
A) $60,000
B) $80,000
C) $90,000
D) $100,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Hard
Solution:
Predetermined overhead rate = $315,000 ÷ 30,000 DLHs = $10.50 per DLH
Fixed portion of predetermined overhead rate
= Total predetermined overhead rate − Variable overhead rate
= $10.50 per DLH − $8.00 per DLH = $2.50 per DLH
Budgeted fixed overhead = 32,000 DLHs × $2.50 per DLH = $80,000
11-36
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
53. The Marlow Company uses a standard cost system and applies manufacturing
overhead to products on the basis of standard direct labor-hours. The denominator
activity is set at 40,000 direct labor-hours per year. Budgeted fixed manufacturing
overhead cost is $40,000 per year, and 0.5 direct labor-hours are required to
manufacture one unit. The standard cost card would indicate fixed manufacturing
overhead cost per unit to be:
A) $1.00
B) $2.00
C) $1.50
D) $0.50
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
Solution:
Actual units produced = Total direct labor-hours ÷ Standard direct labor-hours per unit
= 40,000 ÷ 0.5 = 80,000 units
Fixed manufacturing overhead cost per unit = $40,000 ÷ 80,000 units = $0.50 per unit
54. Bakos Corporation's abbreviated flexible budget for two levels of activity appears
below:
Cost Formula
(per machineActivity
hour)
(in machine-hours)
2,800
2,900
Total variable overhead cost.......
$8.80
$ 24,640 $ 25,520
Total fixed overhead cost ...........
100,688 100,688
Total overhead cost ....................
$125,328 $126,208
If the denominator level of activity is 2,800 machine-hours, the variable element in the
predetermined overhead rate would be:
A) $44.76
B) $35.96
C) $43.52
D) $8.80
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Variable element = Total variable overhead cost ÷ Actual machine-hours
= $24,640 ÷ 2,800 machine-hours = $8.80 per machine-hour
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-37
Chapter 11 Flexible Budgets and Overhead Analysis
55. Recht Corporation's summary flexible budget for two levels of activity appears below:
Cost Formula
(per machinehour)
Total variable overhead cost.......
Total fixed overhead cost ...........
Total overhead cost ....................
$9.30
Activity
(in machine-hours)
1,200
1,300
$ 11,160 $ 12,090
17,940
17,940
$29,100 $30,030
If the denominator level of activity is 1,200 machine-hours, the fixed element in the
predetermined overhead rate would be:
A) $14.95
B) $930.00
C) $24.25
D) $9.30
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Fixed element = Total fixed overhead ÷ Actual machine-hours
= $17,940 ÷ 1,200 machine-hours = $14.95 per machine-hour
11-38
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
56. Billa Corporation's abbreviated flexible budget for two levels of activity appears
below:
Cost Formula
(per machineActivity
hour)
(in machine-hours)
4,600
4,700
Total variable overhead cost.......
$11.70
$ 53,820 $ 54,990
Total fixed overhead cost ...........
341,596 341,596
Total overhead cost ....................
$395,416 $396,586
If the denominator level of activity is 4,700 machine-hours, the predetermined
overhead rate would be:
A) $11.70
B) $72.68
C) $84.38
D) $1,170.00
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Predetermined overhead rate = Total overhead cost ÷ Actual machine-hours
= $396,586 ÷ 4,700 machine-hours = $84.38 per machine-hour
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-39
Chapter 11 Flexible Budgets and Overhead Analysis
57. At the beginning of last year, Monze Corporation budgeted $600,000 of fixed
manufacturing overhead and chose a denominator level of activity of 100,000 direct
labor-hours. At the end of the year, Monze's fixed overhead budget variance was
$8,000 unfavorable. Its fixed overhead volume variance was $21,000 favorable.
Actual direct labor-hours for the year were 96,000. What was Monze's actual fixed
overhead for last year?
A) $563,000
B) $579,000
C) $608,000
D) $592,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Hard
Solution:
Fixed overhead budget variance
= Actual fixed overhead cost − Budgeted fixed overhead cost
= Actual fixed overhead cost − $600,000 = $8,000 U
Actual fixed overhead = $8,000 + $600,000 = $608,000
11-40
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
58. Mclellan Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. Budgeted and actual overhead costs for the month appear
below:
Original Budget Actual Costs
Variable overhead costs:
Supplies ......................................
Indirect labor ..............................
Fixed overhead costs:
Supervision .................................
Utilities .......................................
Factory depreciation ...................
Total overhead cost .......................
$ 9,760
42,090
$10,200
43,720
14,500
5,200
7,400
$78,950
14,350
4,740
7,510
$80,520
The company based its original budget on 6,100 machine-hours. The company
actually worked 6,480 machine-hours during the month. The standard hours allowed
for the actual output of the month totaled 6,370 machine-hours. What was the overall
fixed overhead budget variance for the month?
A) $500 favorable
B) $500 unfavorable
C) $1,570 favorable
D) $1,570 unfavorable
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost
= ($14,350 + $4,740 + $7,510) − ($14,500 + $5,200 + $7,400)
= $26,600 − $27,100 = $500 F
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-41
Chapter 11 Flexible Budgets and Overhead Analysis
59. Songster Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. Budgeted and actual overhead costs for the most recent
month appear below:
Original Budget Actual Costs
Fixed overhead costs:
Supervision .....................
Utilities ...........................
Factory depreciation .......
Total overhead cost ...........
$14,100
5,300
7,200
$26,600
$13,650
5,060
7,470
$26,180
The company based its original budget on 3,500 machine-hours. The company
actually worked 3,700 machine-hours during the month. The standard hours allowed
for the actual output of the month totaled 3,820 machine-hours. What was the overall
fixed overhead budget variance for the month?
A) $2,432 favorable
B) $2,432 unfavorable
C) $420 favorable
D) $420 unfavorable
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost
= $26,180 − $26,600 = $420 F
11-42
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
60. Maertz Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. The budgeted fixed overhead cost for the most recent month
was $10,890 and the actual fixed overhead cost for the month was $10,540. The
company based its original budget on 3,300 machine-hours. The standard hours
allowed for the actual output of the month totaled 3,240 machine-hours. What was the
overall fixed overhead budget variance for the month?
A) $198 unfavorable
B) $350 unfavorable
C) $198 favorable
D) $350 favorable
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost
= $10,540 − $10,890 = $350 F
61. Lossing Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. Budgeted and actual overhead costs for the most recent
month appear below:
Original Budget Actual Costs
Variable overhead costs:
Supplies ......................................
$11,220
$10,670
Indirect labor ..............................
8,670
8,030
Fixed overhead costs:
Supervision .................................
5,610
5,940
Utilities .......................................
8,160
7,990
Factory depreciation ...................
39,780
39,950
Total overhead cost .......................
$73,440
$72,580
The company based its original budget on 5,100 machine-hours. The company
actually worked 4,800 machine-hours during the month. The standard hours allowed
for the actual output of the month totaled 4,980 machine-hours. What was the overall
fixed overhead volume variance for the month?
A) $3,150 unfavorable
B) $3,150 favorable
C) $1,260 unfavorable
D) $1,260 favorable
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Hard
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-43
Chapter 11 Flexible Budgets and Overhead Analysis
Solution:
Fixed portion of predetermined overhead rate
= Total budgeted fixed overhead ÷ Budgeted machine-hours
= ($5,610 + $8,160 + $39,780) ÷ 5,100 MHs
= $53,550 ÷ 5,100 MHs = $10.50 per MH
Volume variance = $10.50 per MH × (5,100 MHs − 4,980 MHs)
= $10.50 per MH × 120 MHs = $1,260 U
62. Hoag Corporation applies manufacturing overhead to products on the basis of standard
machine-hours. Budgeted and actual fixed overhead costs for the most recent month
appear below:
Original Budget Actual Costs
Fixed overhead costs:
Supervision .................................
Utilities .......................................
Factory depreciation ...................
Total fixed overhead cost ..............
$ 9,880
4,160
21,320
$35,360
$ 9,970
4,440
21,190
$35,600
The company based its original budget on 2,600 machine-hours. The company
actually worked 2,280 machine-hours during the month. The standard hours allowed
for the actual output of the month totaled 2,080 machine-hours. What was the overall
fixed overhead volume variance for the month?
A) $4,352 favorable
B) $4,352 unfavorable
C) $7,072 unfavorable
D) $7,072 favorable
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Predetermined overhead rate = Total overhead ÷ Budgeted hours
= $35,360 ÷ 2,600 MHs = $13.60 per MH
Volume variance = $13.60 per MH × (2,600 MHs − 2,080 MHs)
= $13.60 per MH × 520 MHs = $7,072 U
11-44
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
63. Merone Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. The company bases its predetermined overhead rate on 2,300
machine-hours. The company's total budgeted fixed manufacturing overhead is
$5,060. In the most recent month, the total actual fixed manufacturing overhead was
$4,660. The company actually worked 2,200 machine-hours during the month. The
standard hours allowed for the actual output of the month totaled 2,320 machinehours. What was the overall fixed overhead volume variance for the month?
A) $220 unfavorable
B) $400 favorable
C) $44 favorable
D) $220 favorable
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Predetermined overhead rate = Total overhead ÷ Budgeted hours
= $5,060 ÷ 2,300 MHs = $2.20 per MH
Volume variance = $2.20 per MH × (2,300 MHs − 2,320 MHs)
= $2.20 per MH × 20 MHs = $44 F
64. Rodarta Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. The company's predetermined overhead rate for fixed
manufacturing overhead is $1.20 per machine-hour and the denominator level of
activity is 6,600 machine-hours. In the most recent month, the total actual fixed
manufacturing overhead was $8,340 and the company actually worked 6,400 machinehours during the month. The standard hours allowed for the actual output of the month
totaled 6,480 machine-hours. What was the overall fixed overhead volume variance
for the month?
A) $240 favorable
B) $144 unfavorable
C) $240 unfavorable
D) $96 favorable
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Volume variance = $1.20 per MH × (6,600 MHs − 6,480 MHs)
= $1.20 per MH × 120 MHs = $144 U
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-45
Chapter 11 Flexible Budgets and Overhead Analysis
Use the following to answer questions 65-67:
Capelli Hospital bases its budgets on patient-visits. The hospital's static budget for August
appears below:
Budgeted number of patient-visits ............
Budgeted variable overhead costs:
Supplies (@$5.00 per patient-visit) .......
Laundry (@$7.30 per patient-visit)........
Total variable overhead cost .....................
Budgeted fixed overhead costs:
Wages and salaries .................................
Occupancy costs .....................................
Total fixed overhead cost ..........................
Total budgeted overhead cost....................
8,300
$ 41,500
60,590
102,090
60,590
73,040
133,630
$235,720
65. The total variable overhead cost at an activity level of 9,300 patient-visits per month
should be:
A) $114,390
B) $149,730
C) $102,090
D) $133,630
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Budgeted number of patient-visits: 8,300
Cost Formula
(per patientvisit)
Variable overhead costs:
Supplies ..................................................
Laundry ..................................................
Total variable overhead cost......................
11-46
$ 5.00
7.30
$12.30
Activity
(in patientvisits):
9,300
$ 46,500
67,890
$114,390
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
66. The total fixed overhead cost at an activity level of 9,600 patient-visits per month
should be:
A) $133,630
B) $154,560
C) $235,720
D) $272,640
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Budgeted number of patient-visits: 9,600
Activity
(in patientvisits):
9,300
Fixed overhead costs:
Wages and salaries .................................
Occupancy costs .....................................
Total fixed overhead cost ..........................
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
$ 60,590
73,040
$133,630
11-47
Chapter 11 Flexible Budgets and Overhead Analysis
67. The total overhead cost at an activity level of 9,400 patient-visits per month should be:
A) $235,720
B) $249,250
C) $266,960
D) $250,640
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Budgeted number of patient-visits: 8,300
Cost Formula
(per patientvisit)
Activity (in
patient
visits): 9,400
$ 5.00
7.30
$12.30
$ 47,000
68,620
115,620
Overhead Costs
Variable overhead costs:
Supplies ..................................................
Laundry ..................................................
Total variable overhead cost......................
Fixed overhead costs:
Wages and salaries .................................
Occupancy costs .....................................
Total fixed overhead cost ..........................
Total overhead cost ...................................
60,590
73,040
133,630
$249,250
Use the following to answer questions 68-70:
Mandalay Hotel bases its budgets on guest-days. The hotel's static budget for August appears
below:
Budgeted number of guest-days ................
Budgeted variable overhead costs:
Supplies (@$9.60 per guest-day) ...........
Laundry (@$9.40 per guest-day) ...........
Total variable overhead cost .....................
Budgeted fixed overhead costs:
Wages and salaries .................................
Occupancy costs .....................................
Total fixed overhead cost ..........................
Total budgeted overhead cost....................
11-48
4,300
$ 41,280
40,420
81,700
57,190
52,030
109,220
$190,920
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
68. The total variable overhead cost at an activity level of 5,000 guest-days per month
should be:
A) $127,000
B) $109,220
C) $95,000
D) $81,700
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Budgeted number of guest-days: 4,300
Cost Formula
(per guestdays)
Variable overhead costs:
Supplies ..................................................
Laundry ..................................................
Total variable overhead cost......................
$ 9.60
9.40
$19.00
Activity (in
guest-days):
5,000
$48,000
47,000
$95,000
69. The total fixed overhead cost at an activity level of 5,500 guest-days per month should
be:
A) $139,700
B) $190,920
C) $244,200
D) $109,220
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Budgeted number of guest-days: 4,300
Activity (in
guest-days):
5,500
Fixed overhead costs:
Wages and salaries .................................
Occupancy costs .....................................
Total fixed overhead cost ..........................
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
$ 57,190
52,030
$109,220
11-49
Chapter 11 Flexible Budgets and Overhead Analysis
70. The total overhead cost at an activity level of 5,200 guest-days per month should be:
A) $208,020
B) $230,880
C) $209,940
D) $190,920
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Budgeted number of guest-days: 4,300
Cost Formula
(per guestdays)
Overhead Costs
Variable overhead costs:
Supplies ..................................................
Laundry ..................................................
Total variable overhead cost......................
Fixed overhead costs:
Wages and salaries .................................
Occupancy costs .....................................
Total fixed overhead cost ..........................
Total overhead cost ...................................
11-50
$ 9.60
9.40
$19.00
Activity (in
guest-days):
5,200
$ 49,920
48,880
98,800
57,190
52,030
109,220
$208,020
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
Use the following to answer questions 71-73:
Isadore Hospital bases its budgets on patient-visits. The hospital's static budget for July
appears below:
Budgeted number of patient-visits ............
Budgeted variable overhead costs:
Supplies (@ $4.60 per patient-visit) ......
Laundry (@ $7.20 per patient-visit).......
Total variable overhead cost .....................
Budgeted fixed overhead costs:
Salaries ...................................................
Occupancy costs .....................................
Total fixed overhead cost ..........................
Total budgeted overhead cost....................
7,700
46,200
67,760
113,960
$204,820
Actual results for the month were:
Actual number of patient-visits ..............
Supplies ..................................................
Laundry ..................................................
Salaries ...................................................
Occupancy costs .....................................
7,800
$38,250
$61,240
$46,190
$65,650
$ 35,420
55,440
90,860
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-51
Chapter 11 Flexible Budgets and Overhead Analysis
71. The variance for supplies costs in the flexible budget performance report for the month
is:
A) $2,370 U
B) $2,370 F
C) $2,830 F
D) $2,830 U
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Budgeted number of patient-visits: 7,700
Actual number of patient-visits: 7,800
Variable overhead
costs (Supplies) .......
11-52
Cost
Formula
(per patientvisit)
Actual
Costs
Incurred
for 7,800
patientvisits
Budget
Based on
7,800
patientvisits
Variance
$4.60
$38,250
$35,880
$2,370 U
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
72. The variance for laundry costs in the flexible budget performance report for the month
is:
A) $5,080 F
B) $5,080 U
C) $5,800 U
D) $5,800 F
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Budgeted number of patient-visits: 7,700
Actual number of patient-visits: 7,800
Variable overhead
costs (Laundry) ..
Cost
Formula
(per patientvisit)
Actual Costs
Incurred for
7,800
patient-visits
Budget
Based on
7,800
patient-visits
Variance
$7.20
$61,240
$56,160
$5,080 U
73. The variance for occupancy costs in the flexible budget performance report for the
month is:
A) $2,110 U
B) $2,990 U
C) $2,990 F
D) $2,110 F
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Budgeted number of patient-visits: 7,700
Actual number of patient-visits: 7,800
Fixed overhead costs (Occupancy costs)
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Actual Costs
Incurred for
7,800
patient-visits
$65,650
Budget
Based on
7,800
patient-visits
$67,760
Variance
$2,110 F
11-53
Chapter 11 Flexible Budgets and Overhead Analysis
Use the following to answer questions 74-76:
Moncrief Corporation bases its budgets on machine-hours. The company's static budget for
July appears below:
Budgeted number of machine-hours .........
Budgeted variable overhead costs:
Supplies (@ $8.60 per machine-hour) ...
Power (@ $8.80 per machine-hour) .......
Total variable overhead cost .....................
Budgeted fixed overhead costs:
Salaries ...................................................
Equipment depreciation .........................
Total fixed overhead cost ..........................
Total budgeted overhead cost....................
11,300
9,900
21,200
$38,600
Actual results for the month were:
Actual number of machine-hours ...........
Supplies ..................................................
Power .....................................................
Salaries ...................................................
Equipment depreciation .........................
1,200
$10,290
$10,860
$11,690
$9,990
11-54
1,000
$ 8,600
8,800
17,400
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
74. The variance for supplies costs in the flexible budget performance report for the month
should be:
A) $30 F
B) $1,690 F
C) $1,690 U
D) $30 U
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Budgeted number of machine-hours: 1,000
Actual number of machine-hours: 1,200
Cost
Formula
(per
machinehour)
Variable overhead
costs (Supplies) ..........................
$8.60
Actual Costs
Incurred for
1,200
machinehours
Budget
Based on
1,200
machinehours
Variance
$10,290
$10,320
$30 F
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-55
Chapter 11 Flexible Budgets and Overhead Analysis
75. The variance for power costs in the flexible budget performance report for the month
should be:
A) $2,060 F
B) $2,060 U
C) $300 F
D) $300 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Budgeted number of machine-hours: 1,000
Actual number of machine-hours: 1,200
Cost
Formula
(per
machinehour)
Variable overhead
costs (Power)..............................
$8.80
11-56
Actual Costs
Incurred for
1,200
machinehours
Budget
Based on
1,200
machinehours
Variance
$10,860
$10,560
$300 U
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
76. The variance for equipment depreciation in the flexible budget performance report for
the month should be:
A) $1,890 U
B) $90 F
C) $90 U
D) $1,890 F
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Budgeted number of machine-hours: 1,000
Actual number of machine-hours: 1,200
Fixed overhead costs
(Equipment depreciation) ......
Actual Costs
Incurred for
1,200
machinehours
Budget
Based on
1,200
machinehours
Variance
$9,990
$9,900
$90 U
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-57
Chapter 11 Flexible Budgets and Overhead Analysis
Use the following to answer questions 77-79:
Medlar Corporation's static budget for June appears below. The company bases its budgets on
machine-hours.
Budgeted number of machine-hours .........
Budgeted variable overhead costs:
Supplies (@ $2.20 per machine-hour) ...
Power (@ $3.80 per machine-hour) .......
Total variable overhead cost .....................
Budgeted fixed overhead costs:
Salaries ...................................................
Equipment depreciation .........................
Total fixed overhead cost ..........................
Total budgeted overhead cost....................
8,900
$ 19,580
33,820
53,400
26,700
39,160
65,860
$119,260
In June, the actual number of machine-hours was 9,300, the actual supplies cost was $19,760,
the actual power cost was $35,720, the actual salaries cost was $27,130, and the actual
equipment depreciation was $39,430.
77. The variance for supplies cost in the flexible budget performance report for the month
should be:
A) $180 U
B) $700 U
C) $700 F
D) $180 F
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
11-58
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
Solution:
Budgeted number of machine-hours: 8,900
Actual number of machine-hours: 9,300
Variable overhead
costs (Supplies) ....
Cost
Formula
(per
machinehour)
Actual
Costs
Incurred for
9,300
machinehours
Budget
Based on
9,300
machinehours
Variance
$2.20
$19,760
$20,460
$700 F
78. The variance for power cost in the flexible budget performance report for the month
should be:
A) $1,900 F
B) $1,900 U
C) $380 U
D) $380 F
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Budgeted number of machine-hours: 8,900
Actual number of machine-hours: 9,300
Cost
Formula
(per
machinehour)
Variable overhead costs
(Power) ....................................... $3.80
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Actual Costs
Incurred for
9,300
machinehours
Budget
Based on
9,300
machinehours
Variance
$35,720
$35,340
$380 U
11-59
Chapter 11 Flexible Budgets and Overhead Analysis
79. The variance for equipment depreciation in the flexible budget performance report for
the month should be:
A) $1,490 F
B) $1,490 U
C) $270 U
D) $270 F
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Budgeted number of machine-hours: 8,900
Actual number of machine-hours: 9,300
Fixed overhead costs (Equipment
depreciation)............................
Actual Costs
Incurred for
9,300
machinehours
Budget
Based on
9,300
machinehours
Variance
$39,430
$39,160
$270 U
Use the following to answer questions 80-85:
A manufacturing company has a standard costing system based on standard direct labor-hours
(DLHs) as the measure of activity. Data from the company's flexible budget for
manufacturing overhead are given below:
Denominator level of activity................................
Overhead costs at the denominator activity level:
Variable overhead cost .......................................
Fixed overhead cost ...........................................
1,000 DLHs
$3,800
$14,250
The following data pertain to operations for the most recent period:
Actual hours ..........................................................
Standard hours allowed for the actual output ........
Actual total variable overhead cost .......................
Actual total fixed overhead cost ............................
11-60
1,200 DLHs
885 DLHs
$4,380
$12,450
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
80. What is the predetermined overhead rate to the nearest cent?
A) $14.03
B) $16.83
C) $15.04
D) $18.05
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
Solution:
Predetermined overhead rate = Total overhead ÷ Denominator level of activity
= ($3,800 + $14,250) ÷ 1,000 DLHs
= $18,050 ÷ 1,000 DLHs = $18.05 per DLH
81. How much overhead was applied to products during the period to the nearest dollar?
A) $18,050
B) $16,830
C) $15,974
D) $21,660
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
Solution:
Predetermined overhead rate = Total overhead ÷ Denominator level of activity
= ($3,800 + $14,250) ÷ 1,000 DLHs
= $18,050 ÷ 1,000 DLHs = $18.05 per DLH
Applied overhead = 885 DLHs × $18.05 per DLH = $15,974
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-61
Chapter 11 Flexible Budgets and Overhead Analysis
82. What was the variable overhead spending variance for the period to the nearest dollar?
A) $180 U
B) $180 F
C) $580 U
D) $580 F
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Budgeted direct-labor hours: 1,100
Actual direct-labor hours: 1,200
Standard direct-labor hours allowed: 800
Cost
Formula
(per
DLH)
Variable overhead
costs ......................
$3.80
*
Actual
Costs
Incurred
1,200
DLHs
Budget
Based on
1,200
DLHs
Spending
Variance
$4,380
$4,560
$180 F
* $3,800 ÷ 1,000 DLHs = $3.80 per DLH
11-62
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
83. What was the variable overhead efficiency variance for the period to the nearest
dollar?
A) $133 U
B) $580 U
C) $1,150 U
D) $1,197 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium
Solution:
Budgeted direct-labor hours: 1,000
Actual direct-labor hours: 1,200
Standard direct-labor hours allowed: 885
Cost
Formula
(per
DLH)
Variable overhead
costs ......................
$3.80
*
Budget
Based on
1,200
DLHs
Budget
Based on
885 DLHs
Efficiency
Variance
$4,560
$3,363
$1,197 U
*$3,800 ÷ 1,000 = $3.80
84. What was the fixed overhead budget variance for the period to the nearest dollar?
A) $1,800 F
B) $3,268 F
C) $161 U
D) $4,650 U
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Fixed overhead budget variance
= Actual fixed overhead cost − Budgeted fixed overhead cost
= $12,450 − $14,250 = $1,800 F
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-63
Chapter 11 Flexible Budgets and Overhead Analysis
85. What was the fixed overhead volume variance for the period to the nearest dollar?
A) $4,489 U
B) $1,618 U
C) $2,850 F
D) $1,639 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Fixed portion of predetermined overhead rate
= $14,250 ÷ 1,000 DLHs = $14.25 per DLH
Volume variance = Fixed portion of predetermined overhead rate × (Denominator
hours − Standard hours allowed)
= $14.25 per DLH × (1,000 DLHs − 885 DLHs)
= $14.25 per DLH × 115 DLHs = $1,639 U
Use the following to answer questions 86-88:
Azzurra Company manufactures computer chips used in aircraft and automobiles.
Manufacturing overhead at Azzurra is applied to production on the basis of standard machinehours.
86. Which overhead variance(s) at Azzurra would be affected in a favorable manner if
more computer chips are produced during the year than originally budgeted?
A) variable overhead spending variance
B) variable overhead efficiency variance
C) fixed overhead budget variance
D) fixed overhead volume variance
E) none of the above would be affected favorably
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3; 4; 6 Level: Medium
11-64
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
87. Which overhead variance(s) at Azzurra would be affected in an unfavorable manner if
some indirect materials were “inadvertently” taken home by a few of the indirect
laborers?
A) variable overhead spending variance
B) variable overhead efficiency variance
C) fixed overhead budget variance
D) fixed overhead volume variance
E) none of the above would be affected unfavorably
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3; 4; 6 Level: Medium
88. Which overhead variance(s) at Azzurra would be affected in an unfavorable manner if
fire and theft insurance rates increase by 25% unexpectedly during the period?
A) variable overhead spending variance
B) variable overhead efficiency variance
C) fixed overhead budget variance
D) fixed overhead volume variance
E) both C and D above
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3; 4; 6 Level: Medium
Use the following to answer questions 89-90:
Single Company has a standard cost system in which manufacturing overhead is applied to
units of product on the basis of standard direct labor-hours. The company has provided the
following data concerning its manufacturing overhead costs for last year:
Standard direct labor-hours allowed for the output........
Actual direct labor-hours worked ...................................
Denominator activity ......................................................
Actual variable factory overhead cost ............................
Variable overhead rate ...................................................
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
32,000
33,000
30,000
$166,000
$5
hours
hours
hours
per hour
11-65
Chapter 11 Flexible Budgets and Overhead Analysis
89. Given these data, the variable overhead spending variance for the year would be:
A) $1,000 U
B) $6,000 U
C) $1,000 F
D) $16,000 U
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3; 4 Level: Medium
Solution:
Budgeted direct-labor hours: 30,000
Actual direct-labor hours: 33,000
Standard direct-labor hours allowed: 32,000
Actual
Costs
Incurred
33,000
DLHs
$166,000
Cost
Formula
(per DLH)
Variable overhead costs.................
$5.00
Budget
Based on
33,000
DLHs
$165,000
Spending
Variance
$1,000 U
90. The variable overhead efficiency variance would be:
A) $10,000 U
B) $5,000 F
C) $15,000 U
D) $5,000 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3; 4 Level: Easy
Solution:
Budgeted direct-labor hours: 30,000
Actual direct-labor hours: 33,000
Standard direct-labor hours allowed: 32,000
Variable overhead costs .................
11-66
Cost
Formula
(per DLH)
$5.00
Budget
Based on
33,000
DLHs
$165,000
Budget
Based on
32,000
DLHs
$160,000
Efficiency
Variance
$5,000 U
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
Use the following to answer questions 91-92:
A manufacturing company that has only one product has established the following standards
for its variable manufacturing overhead. The company uses machine-hours as its measure of
activity.
Standard hours per unit of output ..............
Standard variable overhead rate ................
2.7 machine-hours
$19.40 per machine-hour
The following data pertain to operations for the last month:
Actual hours ..............................................
Actual total variable overhead cost ...........
Actual output .............................................
4,500 machine-hours
$88,425
1,500 units
91. What is the variable overhead spending variance for the month?
A) $9,855 U
B) $1,125 F
C) $1,125 U
D) $9,855 F
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3; 4 Level: Medium
Solution:
Actual machine-hours: 4,500
Standard machine-hours: 4,050*
Variable overhead costs
Cost
Formula
(per MH)
$19.40
Actual
Costs
Incurred
4,500 MHs
$88,425
Budget
Based on
4,500 MHs
$87,300
Spending
Variance
$1,125 U
*1,500 units × 2.7 machine-hours per unit = 4,050 machine-hours
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-67
Chapter 11 Flexible Budgets and Overhead Analysis
92. What is the variable overhead efficiency variance for the month?
A) $8,842 U
B) $1,013 F
C) $8,843 F
D) $8,730 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3; 4 Level: Medium
Solution:
Actual machine-hours: 4,500
Standard machine-hours: 4,050*
Variable overhead costs
Cost
Formula
(per MH)
$19.40
Budget
Based on
4,500 MHs
$87,300
Budget
Based on
4,050 MHs
$78,570
Efficiency
Variance
$8,730 U
*1,500 units × 2.7 machine-hours per unit = 4,050 machine-hours
Use the following to answer questions 93-95:
Crispy Company manufactures smoke detectors and has developed the following flexible
budget for its overhead costs. Manufacturing overhead at Crispy is applied to production on
the basis of standard direct labor-hours:
Direct labor-hours .............
Detectors produced ............
Variable overhead cost ......
Fixed overhead cost...........
56,000
70,000
84,000
40,000
50,000
60,000
$252,000 $315,000 $378,000
$672,000 $672,000 $672,000
Crispy was expecting to produce 40,000 detectors last year. The actual results for the year
were as follows:
Number of detectors produced ......
Direct labor-hours incurred ...........
Variable overhead cost ..................
Fixed overhead cost.......................
11-68
43,200
62,640
$278,748
$714,000
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
93. What was Crispy's variable overhead spending variance?
A) $3,132 favorable
B) $9,720 unfavorable
C) $13,608 unfavorable
D) $115,884 favorable
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Variable overhead costs..
Cost
Formula
(per
DLH)
$4.50
Actual
Costs
Incurred
62,640
DLHs
* $278,748
Budget
Based on
62,640
DLHs
$281,880
Spending
Variance
$3,132 F
*$252,000 ÷ 56,000 DLHs = $4.50 per DLH
94. What was Crispy's fixed overhead budget variance?
A) $11,760 favorable
B) $37,680 favorable
C) $42,000 unfavorable
D) $53,760 favorable
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Fixed overhead budget variance
= Actual fixed overhead cost − Budgeted fixed overhead cost
= $714,000 − $672,000 = $42,000 U
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-69
Chapter 11 Flexible Budgets and Overhead Analysis
95. What total amount of manufacturing overhead cost (variable and fixed) did Crispy
apply to the 43,200 detectors produced?
A) $712,800
B) $924,000
C) $997,920
D) $1,033,560
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Hard
Solution:
Predetermined overhead rate = Total overhead ÷ Per detector
= ($252,000 + $672,000) ÷ 40,000 detectors
= $924,000 ÷ 40,000 detectors = $23.10 per detector
Applied overhead = 43,200 detectors × $23.10 per detector = $997,920
Use the following to answer questions 96-97:
Dagle Corporation has provided the following data for a recent month:.
Budgeted production ...................................
Actual production ........................................
Standard machine-hours per motor .............
Budgeted machine-hours (5.1 × 4,700) .......
Standard machine-hours allowed for the
actual output (5.1 × 4,800).......................
Actual machine-hours .................................
4,700
4,800
5.1
23,970
motors
motors
machine-hours
machine-hours
24,480 machine-hours
24,740 machine-hours
Budgeted variable overhead cost per machine-hour:
Indirect labor ............................................
$6.30 per machine-hour
Power .......................................................
$2.20 per machine-hour
Actual total variable overhead costs:
Indirect labor ............................................ $151,506
Power ....................................................... $56,700
11-70
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
96. The variable overhead spending variance for indirect labor is:
A) $4,356 U
B) $2,718 F
C) $4,356 F
D) $1,638 U
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Budgeted machine-hours: 23,970
Actual machine-hours: 24,740
Standard machine-hours allowed: 24,480
Variable overhead costs (Indirect
labor) .........................
Cost
Formula
(per MH)
Actual
Costs
Incurred
24,740
MHs
Budget
Based on
24,740
MHs
Spending
Variance
$6.30
$151,506
$155,862
$4,356 F
Cost
Formula
(per MH)
Actual
Costs
Incurred
24,740
MHs
Budget
Based on
24,740
MHs
Spending
Variance
$2.20
$56,700
$54,428
$2,272 U
97. The variable overhead spending variance for power is:
A) $2,844 U
B) $2,844 F
C) $572 U
D) $2,272 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Budgeted machine-hours: 23,970
Actual machine-hours: 24,740
Standard machine-hours allowed: 24,480
Variable overhead costs (Power)
..................................
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-71
Chapter 11 Flexible Budgets and Overhead Analysis
Use the following to answer questions 98-99:
The following data have been provided by Furr Corporation:
Budgeted production .................................
Standard machine-hours per motor ...........
Standard indirect labor ..............................
Standard power..........................................
Actual production ......................................
Actual machine-hours (total).....................
Actual indirect labor (total) .......................
Actual power (total) ..................................
7,000
8.6
$7.10
$1.40
motors
machine-hours
per machine-hour
per machine-hour
7,300 motors
62,140 machine-hours
$408,340
$94,989
98. The variable overhead spending variance for indirect labor is:
A) $32,854 F
B) $32,854 U
C) $37,398 F
D) $4,544 F
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Actual machine-hours: 62,140
Standard machine-hours: 60,200
Variable overhead costs (Indirect
labor) ........................
11-72
Cost
Formula
(per MH)
Actual
Costs
Incurred
62,140
MHs
Budget
Based on
62,140
MHs
Spending
Variance
$7.10
$408,340
$441,194
$32,854 F
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
99. The variable overhead spending variance for power is:
A) $7,097 U
B) $7,097 F
C) $896 F
D) $7,993 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Actual machine-hours: 62,140
Variable overhead costs (Power)
..................................
Cost
Formula
(per MH)
Actual
Costs
Incurred
62,140
MHs
Budget
Based on
62,140
MHs
Spending
Variance
$1.40
$94,989
$86,996
$7,993 U
Use the following to answer questions 100-101:
Macchi Corporation has provided the following data for a recent period:
Budgeted production .................................
Actual production ......................................
Standard machine-hours per unit ..............
Budgeted machine-hours (3.1 × 2,200) .....
Standard machine-hours allowed for the
actual output (3.1 × 2,500).....................
Actual machine-hours ...............................
2,200
2,500
3.1
6,820
units
units
machine-hours
machine-hours
7,750 machine-hours
8,030 machine-hours
Budgeted variable overhead cost per machine-hour:
Lubricants ..............
$2.00 per machine-hour
Supplies .....................................................
$2.60 per machine-hour
Actual total variable overhead costs:
Lubricants ..................................................
$15,858
Supplies .....................................................
$20,392
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-73
Chapter 11 Flexible Budgets and Overhead Analysis
100. The variable overhead spending variance for lubricants is:
A) $202 F
B) $358 U
C) $202 U
D) $560 U
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Budgeted machine-hours: 6,820
Actual machine-hours: 8,030
Standard machine-hours allowed: 7,750
Variable overhead costs
(Lubricants) ..............
Cost
Formula
(per MH)
Actual
Costs
Incurred
8,030 MHs
Budget
Based on
8,030 MHs
Spending
Variance
$2.00
$15,858
$16,060
$202 F
101. The variable overhead spending variance for supplies is:
A) $486 F
B) $242 F
C) $242 U
D) $728 U
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Budgeted machine-hours: 6,820
Actual machine-hours: 8,030
Standard machine-hours allowed: 7,750
Variable overhead costs (Supplies)
...................................
11-74
Cost
Formula
(per MH)
Actual
Costs
Incurred
8,030 MHs
Budget
Based on
8,030 MHs
Spending
Variance
$2.60
$20,392
$20,878
$486 F
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
Use the following to answer questions 102-103:
The following data have been provided by Liggett Corporation:
Budgeted production .....................
Standard machine-hours per unit ..
Standard lubricants ........................
Standard supplies ..........................
Actual production ..........................
Actual machine-hours (total).........
Actual lubricants (total) .................
Actual supplies (total) ...................
7,400
6.6
$3.50
$2.00
units
machine-hours
per machine-hour
per machine-hour
7,600 units
49,840 machine-hours
$179,821
$98,933
102. The variable overhead spending variance for lubricants is:
A) $1,120 F
B) $5,381 F
C) $4,261 U
D) $5,381 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Actual machine-hours: 49,840
Variable overhead costs
(Lubricants) ..............
Cost
Formula
(per MH)
Actual
Costs
Incurred
49,840
MHs
Budget
Based on
49,840
MHs
Spending
Variance
$3.50
$179,821
$174,440
$5,381 U
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-75
Chapter 11 Flexible Budgets and Overhead Analysis
103. The variable overhead spending variance for supplies is:
A) $640 F
B) $1,387 F
C) $1,387 U
D) $747 F
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Actual machine-hours: 49,840
Variable overhead costs (Supplies)
..................................
Cost
Formula
(per MH)
Actual
Costs
Incurred
49,840
MHs
Budget
Based on
49,840
MHs
Spending
Variance
$2.00
$98,933
$99,680
$747 F
Use the following to answer questions 104-105:
Byers Corporation, which produces cellular transmission towers, has provided the following
data:
Budgeted production .................................
Actual production ......................................
Standard machine-hours per tower ............
Budgeted machine-hours (6.8 × 2,500) .....
Standard machine-hours allowed for the
actual output (6.8 × 2,800).....................
Actual machine-hours ...............................
2,500
2,800
6.8
17,000
towers
towers
machine-hours
machine-hours
19,040 machine-hours
18,380 machine-hours
Budgeted variable overhead cost per machine-hour:
Indirect labor .........
$7.40 per machine-hour
Power.....................
$1.40 per machine-hour
Actual total variable overhead costs:
Indirect labor ......... $139,660
Power.....................
$26,212
11-76
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
104. The variable overhead efficiency variance for indirect labor is:
A) $4,884 U
B) $4,884 F
C) $1,236 F
D) $1,236 U
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
Budgeted machine-hours: 17,000
Actual machine-hours: 18,380
Standard machine-hours allowed: 19,040
Variable overhead costs (Indirect
labor) ........................
Cost
Formula
(per MH)
Budget
Based on
18,380
MHs
Budget
Based on
19,040
MHs
Efficiency
Variance
$7.40
$136,012
$140,896
$4,884 F
105. The variable overhead efficiency variance for power is:
A) $444 F
B) $444 U
C) $480 U
D) $924 F
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
Budgeted machine-hours: 17,000
Actual machine-hours: 18,380
Standard machine-hours allowed: 19,040
Variable overhead costs (Power)
..................................
Cost
Formula
(per MH)
Budget
Based on
18,380
MHs
Budget
Based on
19,040
MHs
Efficiency
Variance
$1.40
$25,732
$26,656
$924 F
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-77
Chapter 11 Flexible Budgets and Overhead Analysis
Use the following to answer questions 106-107:
Czlapinski Corporation, which produces highway lighting poles, has provided the following
data:
Budgeted production .................................
Standard machine-hours per pole ..............
Budgeted indirect labor .............................
Budgeted supplies .....................................
Actual production ......................................
Actual machine-hours ...............................
Actual indirect labor (total) .......................
Actual supplies (total) ...............................
1,000
6.4
$2.90
$1.50
poles
machine-hours
per machine-hour
per machine-hour
1,300 poles
7,920 machine-hours
$23,210
$13,297
106. The variable overhead efficiency variance for indirect labor is:
A) $918 F
B) $1,160 F
C) $918 U
D) $1,160 U
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
Actual machine-hours: 7,920
Standard machine-hours: 8,320*
Variable overhead costs (Indirect
labor) ........................
Cost
Formula
(per MH)
Budget
Based on
7,920 MHs
Budget
Based on
8,320 MHs
Efficiency
Variance
$2.90
$22,968
$24,128
$1,160 F
*1,300 poles × 6.4 machine-hours per pole = 8,320 machine-hours
11-78
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
107. The variable overhead efficiency variance for supplies is:
A) $817 F
B) $1,417 U
C) $600 F
D) $817 U
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
Actual machine-hours: 7,920
Standard machine-hours: 8,320*
Variable overhead costs (Supplies)
...................................
Cost
Formula
(per MH)
Budget
Based on
7,920 MHs
Budget
Based on
8,320 MHs
Efficiency
Variance
$1.50
$11,880
$12,480
$600 F
*1,300 poles × 6.4 machine-hours per pole = 8,320 standard machine-hours
Use the following to answer questions 108-109:
Quickle Corporation, which produces commercial windows, has provided the following data:
Budgeted production .................................
Actual production ......................................
Standard machine-hours per window ........
Budgeted machine-hours (7.0 × 1,000) .....
Standard machine-hours allowed for the
actual output (7.0 × 1,200).....................
Actual machine-hours ...............................
1,000
1,200
7.0
7,000
windows
windows
machine-hours
machine-hours
8,400 machine-hours
7,750 machine-hours
Budgeted variable overhead cost per machine-hour:
Supplies ......................
$8.40 per machine-hour
Actual total variable overhead costs:
Supplies ...................... $68,595
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-79
Chapter 11 Flexible Budgets and Overhead Analysis
108. The variable overhead spending variance for supplies is:
A) $3,495 F
B) $1,965 U
C) $3,495 U
D) $1,965 F
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
Budgeted machine-hours: 7,000
Actual machine-hours: 7,750
Standard machine-hours allowed: 8,400
Variable overhead costs (Supplies)
..................................
Cost
Formula
(per MH)
Actual
Costs
Incurred
7,750 MHs
Budget
Based on
7,750 MHs
Spending
Variance
$8.40
$68,595
$65,100
$3,495 U
109. The variable overhead efficiency variance for supplies is:
A) $5,460 U
B) $1,965 F
C) $5,460 F
D) $1,965 U
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
Budgeted machine-hours: 7,000
Actual machine-hours: 7,750
Standard machine-hours allowed: 8,400
Variable overhead costs (Supplies)
..................................
11-80
Cost
Formula
(per MH)
Budget
Based on
7,750 MHs
Budget
Based on
8,400 MHs
Efficiency
Variance
$8.40
$65,100
$70,560
$5,460 F
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
Use the following to answer questions 110-111:
Geschke Corporation, which produces commercial safes, has provided the following data:
Budgeted production .....................
Standard machine-hours per safe ..
Standard supplies cost ...................
Actual production ..........................
Actual machine-hours ...................
Actual supplies cost.......................
8,500
9.1
$1.70
8,700
79,100
$123,642
safes
machine-hours
per machine-hour
safes
machine-hours
110. The variable overhead spending variance for supplies is:
A) $10,828 F
B) $10,947 U
C) $10,828 U
D) $10,947 F
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
Actual machine-hours: 79,100
Standard machine-hours: 79,170*
Variable overhead costs (Supplies)
..................................
Cost
Formula
(per MH)
Actual
Costs
Incurred
79,100
MHs
Budget
Based on
79,100
MHs
Spending
Variance
$1.70
$123,642
$134,470
$10,828 F
*8,700 safes × 9.1 machine-hours = 79,170 standard machine-hours
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-81
Chapter 11 Flexible Budgets and Overhead Analysis
111. The variable overhead efficiency variance for supplies is:
A) $10,947 F
B) $119 U
C) $10,947 U
D) $119 F
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
Solution:
Actual machine-hours: 79,100
Standard machine-hours: 79,170*
Variable overhead costs (Supplies)
..................................
Cost
Formula
(per MH)
Budget
Based on
79,100
MHs
Budget
Based on
79,170
MHs
Efficiency
Variance
$1.70
$134,470
$134,589
$119 F
*8,700 safes × 9.1 machine-hours = 79,170 standard machine-hours
Use the following to answer questions 112-113:
Bagley Company has a standard cost system in which manufacturing overhead is applied to
units of product on the basis of standard machine-hours. The company has provided the
following data concerning its manufacturing overhead costs for last year:
Actual total overhead cost .........................
Budgeted fixed overhead cost ...................
Variable overhead rate ..............................
Fixed overhead rate ...................................
Standard hours allowed for the output ......
11-82
$260,000
$180,000
$2 per hour
$6 per hour
32,000 hours
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
112. The volume variance for the year was:
A) $12,000 F
B) $4,000 F
C) $4,000 U
D) $16,000 U
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Fixed overhead rate = Budgeted fixed overhead cost ÷ Denominator activity level
= $6 per hour = $180,000 ÷ Denominator activity level
Denominator activity level × $6 per hour = $180,000
Denominator activity level = $180,000 ÷ $6 per hour = 30,000 hours
Volume variance = Fixed portion of predetermined overhead rate × (Denominator
hours − Standard hours allowed)
= $6 per hour × (30,000 hours − 32,000 hours)
= $6 per hours × 2,000 hours = $12,000 F
113. The denominator activity level used to compute predetermined overhead rates was:
A) 32,000 hours
B) 22,500 hours
C) 30,000 hours
D) it is impossible to determine from the data given
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
Solution:
Fixed overhead rate = Budgeted fixed overhead cost ÷ Denominator activity level
$6 per hour = $180,000 ÷ Denominator activity level
Denominator activity level × $6 per hour = $180,000
Denominator activity level = $180,000 ÷ $6 per hour = 30,000 hours
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-83
Chapter 11 Flexible Budgets and Overhead Analysis
Use the following to answer questions 114-117:
A furniture manufacturer has a standard costing system based on standard direct labor-hours
(DLHs) as the measure of activity. Data from the company's flexible budget for
manufacturing overhead are given below:
Denominator level of activity.........................................
Overhead costs at the denominator activity level:
Variable overhead cost ................................................
Fixed overhead cost ....................................................
8,500 DLHs
$19,550
$93,075
The following data pertain to operations for the most recent period:
Actual hours ...................................................................
Standard hours allowed for the actual output .................
Actual total variable overhead cost ................................
Actual total fixed overhead cost .....................................
8,600 DLHs
8,575 DLHs
$18,490
$91,225
114. What is the predetermined overhead rate to the nearest cent?
A) $12.91
B) $13.10
C) $12.76
D) $13.25
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
Solution:
Predetermined overhead rate = ($19,550 + $93,075) ÷ 8,500 DLHs
= $112,625 ÷ 8,500 DLHs = $13.25 per DLH
11-84
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
115. How much overhead was applied to products during the period to the nearest dollar?
A) $109,715
B) $112,625
C) $113,619
D) $113,950
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
Solution:
Predetermined overhead rate = ($19,550 + $93,075) ÷ 8,500 DLHs
= $112,625 ÷ 8,500 DLHs = $13.25 per DLH
Applied overhead = Standard hours allowed for actual output × Predetermined
overhead rate = 8,575 DLHs × $13.25 per DLH = $113,619
116. What was the fixed overhead budget variance for the period to the nearest dollar?
A) $265 F
B) $1,850 F
C) $2,671 U
D) $2,945 U
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost
= $91,225 − $93,075 = $1,850 F
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-85
Chapter 11 Flexible Budgets and Overhead Analysis
117. What was the fixed overhead volume variance for the period to the nearest dollar?
A) $274 U
B) $1,095 F
C) $798 F
D) $821 F
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Fixed portion of predetermined overhead rate =
Budgeted fixed overhead cost ÷ Denominator activity level
$93,075 ÷ 8,500 DLHs = $10.95 per DLH
Volume variance = Fixed portion of predetermined overhead rate × (Denominator
hours − Standard hours allowed)
= $10.95 per DLH × (8,500 DLHs − 8,575 DLHs)
= $10.95 per DLH × 75 DLHs = $821 F
Use the following to answer questions 118-121:
A manufacturer of playground equipment has a standard costing system based on standard
machine-hours (MHs) as the measure of activity. Data from the company's flexible budget for
manufacturing overhead are given below:
Denominator level of activity................................
Fixed overhead cost...............................................
8,800 MHs
$71,720
The following data pertain to operations for the most recent period:
Actual hours ..........................................................
Standard hours allowed for the actual output ........
Actual total fixed overhead cost ............................
11-86
8,500 MHs
8,556 MHs
$71,470
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
118. What is the predetermined fixed overhead rate to the nearest cent?
A) $8.41
B) $8.12
C) $8.15
D) $8.44
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
Solution:
Predetermined fixed overhead rate = $71,720 ÷ 8,800 MHs = $8.15 per MH
119. How much fixed overhead was applied to products during the period to the nearest
dollar?
A) $71,470
B) $69,275
C) $71,720
D) $69,731
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
Solution:
Predetermined fixed overhead rate = $71,720 ÷ 8,800 MHs = $8.15 per MH
Applied fixed overhead = 8,556 MHs × $8.15 per MH = $69,731
120. What was the fixed overhead budget variance for the period to the nearest dollar?
A) $1,739 F
B) $471 U
C) $250 F
D) $2,195 F
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost
= $71,470 − $71,720 = $250 F
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-87
Chapter 11 Flexible Budgets and Overhead Analysis
121. What was the fixed overhead volume variance for the period to the nearest dollar?
A) $2,038 U
B) $456 F
C) $2,445 U
D) $1,989 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Volume variance = Fixed portion of predetermined overhead rate × (Denominator
hours − Standard hours allowed)
= ($71,720 ÷ 8,800 MHs) × (8,800 MHs − 8,556 MHs)
= $8.15 per MH × 244 MHs = $1,989 U
Use the following to answer questions 122-123:
Rodriquez Manufacturing Company uses a standard cost system with machine-hours as the
activity base for overhead. Rodriquez used a denominator activity level of 15,000 machinehours last year. At this level, budgeted variable manufacturing overhead totaled $108,000 and
budgeted fixed manufacturing overhead totaled $378,000. During the year, 18,000 machinehours were actually incurred. The standard machine-hours allowed for actual output were
20,000. Total actual manufacturing overhead was $135,000 for variable overhead and
$394,200 for fixed overhead.
122. What was Rodriquez's fixed overhead budget variance?
A) $16,200 unfavorable
B) $59,400 favorable
C) $109,800 favorable
D) $126,000 unfavorable
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost
= $394,200 − $378,000 = $16,200 U
11-88
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
123. What is Rodriquez's total under- or overapplied overhead cost?
A) $21,600 underapplied
B) $43,200 underapplied
C) $54,000 overapplied
D) $118,800 overapplied
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Hard
Solution:
Predetermined overhead rate = ($108,000 + $378,000) ÷ 15,000 MHs
= $486,000 ÷ 15,000 MHs = $32.40 per MH
Applied overhead = 20,000 MHs × $32.40 per MH = $648,000
Actual overhead = $135,000 + $394,200 = $529,200
$648,000 − $529,200 = $118,800 overapplied
Use the following to answer questions 124-125:
A manufacturer of industrial equipment has a standard costing system based on standard
direct labor-hours (DLHs) as the measure of activity. Data from the company's flexible budget
for manufacturing overhead are given below:
Denominator level of activity.........................................
Overhead costs at the denominator activity level:
Variable overhead cost ................................................
Fixed overhead cost ....................................................
2,200 DLHs
$12,760
$29,810
The following data pertain to operations for the most recent period:
Actual hours ...................................................................
Standard hours allowed for the actual output .................
Actual total variable overhead cost ................................
Actual total fixed overhead cost .....................................
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
2,100 DLHs
2,108 DLHs
$12,390
$29,360
11-89
Chapter 11 Flexible Budgets and Overhead Analysis
124. What is the predetermined overhead rate to the nearest cent?
A) $18.98
B) $20.27
C) $19.88
D) $19.35
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
Solution:
Predetermined overhead rate = ($12,760 + $29,810) ÷ 2,200 DLHs = $19.35 per DLH
125. How much overhead was applied to products during the period to the nearest dollar?
A) $42,570
B) $40,790
C) $40,635
D) $41,750
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
Solution:
Predetermined overhead rate =
($12,760 + $29,810) ÷ 2,200 DLHs = $19.35 per DLH
Applied overhead = Standard hours for actual output × Predetermined overhead rate =
2,108 DLHs × $19.35 per DLH = $40,790
11-90
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
Use the following to answer questions 126-128:
Muscato 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 .................................
Occupancy costs ...................
Total fixed overhead cost ........
Total overhead cost .................
$ 9.70
9.30
$19.00
Activity (in machinehours)
7,500
7,600
$
72,750
69,750
142,500
$
73,720
70,680
144,400
672,600
672,600
769,500
769,500
1,442,100 1,442,100
$1,584,600 $1,586,500
126. If the denominator level of activity is 7,500 machine-hours, the variable element in the
predetermined overhead rate would be:
A) $208.75
B) $192.28
C) $211.28
D) $19.00
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Variable element = $142,500 ÷ 7,500 MHs = $19.00 per MH
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-91
Chapter 11 Flexible Budgets and Overhead Analysis
127. If the denominator level of activity is 7,500 machine-hours, the fixed element in the
predetermined overhead rate would be:
A) $192.28
B) $211.28
C) $19.00
D) $1,900.00
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Fixed element = $1,442,100 ÷ 7,500 MHs = $192.28 per MH
128. If the denominator level of activity is 7,600 machine-hours, the predetermined
overhead rate would be:
A) $1,900.00
B) $19.00
C) $189.75
D) $208.75
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Predetermined overhead rate = $1,586,500 ÷ 7,600 MHs = $208.75 per MH
11-92
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
Use the following to answer questions 129-131:
Keeran Corporation's flexible budget for two levels of activity appears below:
Cost
Formula
(per
machinehour)
Variable overhead costs:
Lubricants.............................
Power ...................................
Total variable overhead cost ...
Fixed overhead costs:
Depreciation .........................
Taxes ....................................
Total fixed overhead cost ........
Total overhead cost .................
$3.70
1.50
$5.20
Activity
(in machine-hours)
6,100
6,200
$ 22,570
9,150
31,720
$ 22,940
9,300
32,240
173,972
68,076
242,048
$273,768
173,972
68,076
242,048
$274,288
129. If the denominator level of activity is 6,100 machine-hours, the variable element in the
predetermined overhead rate would be:
A) $5.20
B) $44.24
C) $39.68
D) $44.88
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Variable element = $31,720 ÷ 6,100 MHs = $5.20 per MH
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-93
Chapter 11 Flexible Budgets and Overhead Analysis
130. If the denominator level of activity is 6,100 machine-hours, the fixed element in the
predetermined overhead rate would be:
A) $520.00
B) $39.68
C) $5.20
D) $44.88
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Fixed element = $242,048 ÷ 6,100 MHs = $39.68 per MH
131. If the denominator level of activity is 6,200 machine-hours, the predetermined
overhead rate would be:
A) $520.00
B) $5.20
C) $44.24
D) $39.04
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Predetermined overhead rate = $274,288 ÷ 6,200 MHs = $44.24 per MH
Use the following to answer questions 132-133:
Kasteron Corporation has a standard cost system in which manufacturing overhead is applied
to units of product on the basis of standard machine-hours. The company has provided the
following data concerning its manufacturing overhead costs for last year:
Actual machine-hours ...................................................
640 hours
Standard machine-hours allowed for the actual output .
650 hours
Denominator activity .....................................................
700 hours
Actual fixed overhead costs .......................................... $2,000
Budgeted fixed overhead costs...................................... $2,100
Predetermined overhead rate ($1 variable + $3 fixed) ..
$4 per hour
11-94
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
132. The fixed overhead budget variance would be:
A) $100 F
B) $300 F
C) $300 U
D) $200 F
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost
= $2,000 − $2,100 = $100 F
133. The volume variance would be:
A) $180 F
B) $240 F
C) $150 U
D) $200 U
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Volume variance = Fixed portion of predetermined overhead rate × (Denominator
hours − Standard hours allowed) = $3 per hour × (700 hours − 650 hours) = $3 per
hours × 50 hours = $150 U
Use the following to answer questions 134-135:
Asper Corporation has provided the following data for February.
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 ......................
7,700 machine-hours
$266,420
$34.60 per machine-hour
7,900 machine-hours
8,200 machine-hours
$259,960
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-95
Chapter 11 Flexible Budgets and Overhead Analysis
134. The budget variance for February is:
A) $6,460 F
B) $6,920 U
C) $6,460 U
D) $6,920 F
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost
= $259,960 − $266,420 = $6,460 F
135. The volume variance for February is:
A) $17,300 U
B) $17,300 F
C) $6,920 F
D) $6,920 U
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Volume variance = Fixed portion of predetermined overhead rate × (Denominator
hours − Standard hours allowed)
= $34.60 per MH × (7,700 MHs − 8,200 MHs)
= $34.60 per MH × 500 MHs = $17,300 F
Use the following to answer questions 136-137:
The following data for May has been provided by Mccawley Corporation.
Denominator level of activity........
Budgeted fixed overhead costs ......
Actual level of activity ..................
Standard machine-hours allowed
for the actual output ...................
Actual fixed overhead costs ..........
11-96
2,600 machine-hours
$53,820
2,700 machine-hours
2,800 machine-hours
$56,290
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
136. The budget variance for May is:
A) $2,070 U
B) $2,470 F
C) $2,070 F
D) $2,470 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost
= $56,290 − $53,820 = $2,470 U
137. The volume variance for May is:
A) $2,070 U
B) $4,140 U
C) $4,140 F
D) $2,070 F
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Volume variance = Fixed portion of predetermined overhead rate × (Denominator
hours − Standard hours allowed)
= ($53,820 ÷ 2,600 MHs) × (2,600 MHs − 2,800 MHs) =
= $20.70 per MH × 200 MHs = $4,140 F
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-97
Chapter 11 Flexible Budgets and Overhead Analysis
138. The following overhead data are for a department in a large company.
Actual
290
Activity level (in units)......
Variable costs:
Indirect materials ............
Power ..............................
Fixed costs:
Supervision .....................
Depreciation ...................
Static budget
280
$3,625
$2,648
$3,780
$2,576
$9,670
$4,210
$9,700
$4,200
Required:
Prepare a report that would be useful in assessing how well costs were controlled in
this department.
Ans:
Variable costs:
Indirect materials ....
Power......................
Total variable cost .....
Fixed costs:
Supervision .............
Depreciation ...........
Total fixed cost ..........
Total cost ...................
Flexible
budget
based on
actual
activity
Cost
formula
per unit
Actual
costs
incurred
$13.50
9.20
$22.70
$3,625
2,648
6,273
$3,915
2,668
6,583
$290 F
20 F
310 F
9,670
4,210
13,880
$20,153
9,700
4,200
13,900
$20,483
30 F
10 U
20 F
$330 F
Variance
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Measurement; Reporting LO: 1; 2 Level: Easy
11-98
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
139. You have been recently hired by Ritter Enterprises as an assistant manager. As your
first task, you have been asked to set up a flexible budgeting system for manufacturing
overhead. The major purpose of this system will be to prepare performance reports.
Required:
What three criteria should be used when selecting an activity base for constructing a
flexible budget? Why are these criteria important?
Ans: The three criteria and the reasons for their importance are:
1. There should be a causal relationship between the activity base and the
overhead costs in the flexible budget. If variations in the activity base do not
cause variations in the costs, then the performance report will have little value.
2. The activity base should not be expressed in dollars or other currency.
Activity bases stated in dollars are subject to price-level changes that may have
little to do with overhead costs. For example, an increase in the wage rate of
direct labor would cause a direct labor cost activity base to change even though
a proportionate change may not take place in the overhead costs themselves.
3. The activity base should be simple and easy to understand. If the activity base
is complex or difficult to understand, it will probably cause confusion and
misunderstanding rather than serve as a means of positive cost control.
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Measurement; Reporting LO: 1 Level: Easy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-99
Chapter 11 Flexible Budgets and Overhead Analysis
140. Elvin Hospital bases its budgets on patient-visits. The hospital's static budget for May
appears below:
Budgeted number of patient-visits ............
Budgeted variable overhead costs:
Supplies (@ $2.70 per patient-visit).......
Laundry (@ $3.00 per patient-visit) .......
Total variable overhead cost......................
Budgeted fixed overhead costs:
Wages and salaries .................................
Occupancy costs .....................................
Total fixed overhead cost ..........................
Total budgeted overhead cost ....................
5,100
$13,770
15,300
29,070
16,830
16,830
33,660
$62,730
Required:
Prepare a flexible budget for an activity level of 5,300 patient-visits per month.
Ans:
Cost Formula
(per patientvisit)
Variable overhead costs:
Supplies ...................................
Laundry ...................................
Total variable overhead cost ......
Fixed overhead costs:
Wages and salaries ..................
Occupancy costs ......................
Total fixed overhead cost ...........
Total overhead cost ....................
$2.70
3.00
$5.70
Flexible
Budget Based
on 5,300
Patient-Visits
$14,310
15,900
30,210
16,830
16,830
33,660
$63,870
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Measurement; Reporting LO: 1 Level: Easy
11-100
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
141. Wytch Corporation bases its budgets on machine-hours. The company's static budget
for February appears below:
Budgeted number of machine-hours .........
6,000
Budgeted variable overhead costs:
Supplies (@ $6.90 per machine-hour) ... $ 41,400
Power (@ $3.70 per machine-hour) .......
22,200
Total variable overhead cost......................
63,600
Budgeted fixed overhead costs:
Salaries ...................................................
51,600
Equipment depreciation..........................
26,400
Total fixed overhead cost ..........................
78,000
Total budgeted overhead cost .................... $141,600
Required:
Prepare a flexible budget in good form for an activity level of 6,400 machine-hours
per month.
Ans:
Cost Formula
Flexible Budget Based
(per machine-hour) on 6,400 Machine-Hours
Variable overhead costs:
Supplies .................................
Power.....................................
Total variable overhead cost ....
Fixed overhead costs:
Salaries ..................................
Equipment depreciation ........
Total fixed overhead cost .........
Total overhead cost ..................
$6.90
3.70
$10.60
$44,160
23,680
67,840
51,600
26,400
78,000
$145,840
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Measurement; Reporting LO: 1 Level: Easy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-101
Chapter 11 Flexible Budgets and Overhead Analysis
142. Lobato Hospital bases its budgets on patient-visits. The hospital's static budget for
September appears below:
Budgeted number of patient-visits ............
Budgeted variable overhead costs:
Supplies (@ $2.20 per patient-visit).......
Laundry (@ $1.10 per patient-visit) .......
Total variable overhead cost......................
Budgeted fixed overhead costs:
Salaries ...................................................
Occupancy costs .....................................
Total fixed overhead cost ..........................
Total budgeted overhead cost ....................
9,900
$21,780
10,890
32,670
28,710
10,890
39,600
$72,270
Actual results for the month were:
Actual number of patient-visits .................
Supplies .....................................................
Laundry .....................................................
Salaries ......................................................
Occupancy costs ........................................
10,000
$22,040
$10,640
$28,480
$11,360
Required:
Prepare a flexible budget performance report in good form.
11-102
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
Ans:
Variable overhead costs:
Supplies ..............................
Laundry ..............................
Total variable overhead cost .
Fixed overhead costs:
Salaries ...............................
Occupancy costs .................
Total fixed overhead cost ......
Total overhead cost ...............
Cost
Formula
(per
patientvisit)
Actual
Costs
Incurred
for 10,000
PatientVisits
Flexible
Budget
Based on
10,000
PatientVisits
Variances
$2.20
1.10
$3.30
$22,040
10,640
32,680
$22,000
11,000
33,000
$40 U
360 F
320 F
28,480
11,360
39,840
$72,520
28,710
10,890
39,600
$72,600
230 F
470 U
240 U
$80 F
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Measurement; Reporting LO: 2 Level: Easy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-103
Chapter 11 Flexible Budgets and Overhead Analysis
143. Weakly Corporation bases its budgets on machine-hours. The company's static budget
for September appears below:
Budgeted number of machine-hours .........
Budgeted variable overhead costs:
Power (@ $9.30 per machine-hour) .......
Supplies (@ $5.20 per machine-hour) ...
Total variable overhead cost......................
Budgeted fixed overhead costs:
Salaries ...................................................
Equipment depreciation..........................
Total fixed overhead cost ..........................
Total budgeted overhead cost ....................
6,000
$ 55,800
31,200
87,000
68,400
46,200
114,600
$201,600
Actual results for the month were:
Actual number of machine-hours ..............
Power .........................................................
Supplies .....................................................
Salaries ......................................................
Equipment depreciation .............................
6,400
$59,870
$34,960
$65,100
$44,610
Required:
Prepare a flexible budget performance report in good form.
11-104
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
Ans:
Variable overhead costs:
Power..................................
Supplies ..............................
Total variable overhead cost .
Fixed overhead costs:
Salaries ...............................
Equipment depreciation .....
Total fixed overhead cost ......
Total overhead cost ...............
Cost
Formula
(per
machine
-hour)
Actual
Costs
Incurred
for 6,400
MachineHours
Flexible
Budget
Based on
6,400
MachineHours
Variances
$9.30
5.20
$14.50
$59,870
34,960
94,830
$59,520
33,280
92,800
$350 U
1,680 U
2,030 U
65,100
44,610
109,710
$204,540
68,400
46,200
114,600
$207,400
3,300 F
1,590 F
4,890 F
$2,860 F
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Measurement; Reporting LO: 2 Level: Easy
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-105
Chapter 11 Flexible Budgets and Overhead Analysis
144. Cashaw Corporation, which produces only a single product, bases its budgets on units
produced. The company's static budget for September appears below:
Budgeted number of units produced .........
Budgeted variable overhead costs:
Power (@ $6.50 per unit) .......................
Supplies (@ $1.10 per unit) ...................
Total variable overhead cost......................
Budgeted fixed overhead costs:
Salaries ...................................................
Occupancy costs .....................................
Total fixed overhead cost ..........................
Total budgeted overhead cost ....................
4,200
$27,300
4,620
31,920
34,020
4,620
38,640
$70,560
Actual results for the month were:
Actual number of units produced ...............
Power .........................................................
Supplies ......................................................
Salaries .......................................................
Occupancy costs ........................................
4,500
$31,840
$4,730
$32,480
$4,800
Required:
Prepare a flexible budget performance report in good form.
Ans:
Variable overhead costs:
Power..................................
Supplies ..............................
Total variable overhead cost .
Fixed overhead costs:
Salaries ...............................
Occupancy costs .................
Total fixed overhead cost ......
Total overhead cost ...............
Cost
Formula
(per
unit)
Actual
Costs
Incurred
for 4,500
Units
Flexible
Budget
Based on
4,500
Units
Variances
$6.50
1.10
$7.60
$31,840
4,730
36,570
$29,250
4,950
34,200
$2,590 U
220 F
2,370 U
32,480
4,800
37,280
$73,850
34,020
4,620
38,640
$72,840
1,540 F
180 U
1,360 F
$1,010 U
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Measurement; Reporting LO: 2 Level: Easy
11-106
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
145. Flick Company uses a standard cost system in which manufacturing overhead is
applied to units of product on the basis of standard direct labor-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 labor-hour. The standards call for two direct labor-hours per unit of
output produced. Last year, the company produced 11,500 units of product and
worked 22,000 direct labor-hours. Actual costs were $22,500 for variable overhead
and $31,000 for fixed overhead.
Required:
a.
b.
c.
d.
e.
f.
What is the denominator level of activity?
What were the standard hours allowed for the output last year?
What was the variable overhead spending variance?
What was the variable overhead efficiency variance?
What was the fixed overhead budget variance?
What was the fixed overhead volume variance?
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-107
Chapter 11 Flexible Budgets and Overhead Analysis
Ans:
a. Total overhead at the denominator level of activity .......
÷ Predetermined overhead rate .......................................
= Denominator level of activity ......................................
b. Actual output ..............................
× Standard DLH per unit ............
= Standard DLHs allowed ..........
$50,000
$2.50/DLH
20,000 DLHs
11,500 units
2 DLH per unit
23,000 DLHs
c. Computation of variable overhead spending variance:
Spending variance = (AH × AR) − (AH × SR)
= ($22,500) − (22,000 × $1.00*) = $500 U
*$20,000 ÷ 20,000 DLHs = $1.00
d. Computation of variable overhead efficiency variance:
Spending variance = (AH × SR) − (SH × SR)
= (22,000 × $1.00) − (23,000* × $1.00) = $1,000 F
* 2 DLHs per unit × 11,500 units = 23,000 DLHs
e. Computation of the fixed overhead budget variance:
Budget variance = Actual fixed overhead − Budgeted Fixed overhead
= $31,000 − $30,000 = $1,000 U
f. Computation of the fixed overhead volume variance:
Volume variance = Fixed portion of predetermined overhead rate ×
(Denominator hours − Standard hours allowed)
= $1.50* (20,000 − 23,000) = $4,500 F
*$30,000 ÷ 20,000 DLH = $1.50 per DLH
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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
Chapter 11 Flexible Budgets and Overhead Analysis
146. Wattis Manufacturing has established the following master flexible budget:
Sales in units .....................................
Sales..................................................
Variable expenses:
Raw materials ................................
Direct labor ....................................
Variable manufacturing overhead .
Variable selling and administrative
Total variable expenses ....................
Contribution margin .........................
Fixed expenses:
Fixed manufacturing overhead ......
Fixed selling and administrative ...
Total fixed expenses .........................
Net operating income .......................
100,000
150,000
200,000
$1,500,000 $2,250,000 $3,000,000
220,000
240,000
180,000
100,000
740,000
760,000
330,000
360,000
270,000
150,000
1,110,000
1,140,000
440,000
480,000
360,000
200,000
1,480,000
1,520,000
337,500
250,000
587,500
$ 172,500
337,500
250,000
587,500
$ 552,500
337,500
250,000
587,500
$ 932,500
Manufacturing overhead is applied on the basis of standard 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:
Actual variable manufacturing overhead cost ................
Actual fixed manufacturing overhead cost .....................
Actual machine-hours incurred ......................................
Units produced and sold .................................................
$211,680
$343,000
126,000
120,000
Compute the variable overhead spending and efficiency variances and the fixed
overhead budget and volume variances for the year.
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition
11-109
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 × 1 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 × 1 hour per unit = 120,000 hours
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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
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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: 3 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:
Lubricants ......
Supplies .........
Cost Formula
(per machinehour)
$1.00
$1.60
Actual Costs
Incurred
14,220
Machine-Hours
$13,974
$23,558
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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
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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
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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
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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
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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
Variable overhead costs:
Power cost .......................
Cost
Formula
(per
machinehour)
$3.10
Variable overhead costs:
Power cost ........................
Total
Variance
(1) − (3)
$301 F
(1)
Actual
Costs
Incurred
15,860
MachineHours
$51,593
Spending
Variance
(1) − (2)
$2,427 U
AACSB: Analytic AICPA BB: Critical Thinking
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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
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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
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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
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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
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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
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11-124
AICPA FN: Reporting
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition