Assignment Material

Questions

  1. 8-1. How do managers plan for variable overhead costs?
  2. 8-2. How does planning of fixed overhead costs differ from planning of variable overhead costs?
  3. 8-3. How does standard costing differ from actual costing?
  4. 8-4. What are the steps in developing a budgeted variable overhead cost-allocation rate?
  5. 8-5. What are the factors that affect the spending variance for variable manufacturing overhead?
  6. 8-6. Assume variable manufacturing overhead is allocated using machine-hours. Give three possible reasons for a favorable variable overhead efficiency variance.
  7. 8-7. Describe the difference between a direct materials efficiency variance and a variable manufacturing overhead efficiency variance.
  8. 8-8. What are the steps in developing a budgeted fixed overhead rate?
  9. 8-9. Why is the flexible-budget variance the same amount as the spending variance for fixed manufacturing overhead?
  10. 8-10. Explain how the analysis of fixed manufacturing overhead costs differs for (a) planning and control and (b) inventory costing for financial reporting.
  11. 8-11. Provide one caveat that will affect whether a production-volume variance is a good measure of the economic cost of unused capacity.
  12. 8-12. “The production-volume variance should always be written off to Cost of Goods Sold.” Do you agree? Explain.
  13. 8-13. What are the variances in a 4-variance analysis?
  14. 8-14. “Overhead variances are interdependent rather than independent.” Give an example.
  15. 8-15. How can flexible-budget variance analysis be used to control costs of activity areas?

Multiple-Choice Questions

In partnership with Becker professional education
  1. 8-16. Each of the following statements is correct regarding overhead variances except
    1. a. Actual overhead greater than applied overhead is unfavorable.
    2. b. The efficiency overhead variance ignores the standard variable overhead rate.
    3. c. Variable overhead rates are not a factor in the production-volume variance calculation.
    4. d. Favorable spending and efficiency variances imply that the flexible budget variance must be favorable.
  2. 8-17. Steed Co. budgets production of 150,000 units in the next year. Steed’s chief financial officer expects that each unit will take 8 hours to produce at an hourly wage rate of $10 per hour. If factory (manufacturing) overhead is applied on the basis of direct labor hours at $6 per hour, the budget for factory (manufacturing) overhead will total
    1. a. $7,200,000
    2. b. $12,000,000
    3. c. $9,000,000
    4. d. $19,200,000
  3. 8-18. As part of her annual review of her company’s budgets versus actuals, Mary Gerard isolates unfavorable variances with the hope of getting a better understanding of what caused them and how to avoid them next year. The variable overhead efficiency variance (with direct labor-hours as the cost-allocation base) was the most unfavorable over the previous year, which Gerard will specifically be able to trace to
    1. a. Actual variable overhead costs below allocated variable overhead costs.
    2. b. Actual production units below budgeted production units.
    3. c. Standard direct labor-hours below actual direct labor-hours.
    4. d. The standard variable overhead rate below the actual variable overhead rate.
  4. 8-19. Culpepper Corporation had the following inventories at the beginning and end of January:
A table shows inventories for Culpepper Corporation at the beginning and end of January.
The table depicts finished goods, work in process, and direct materials inventories for January 1 and January 31. The details of the table are as follows:
  1. Finished goods
    • January 1: 125,000 dollars
    • January 31: 117,000 dollars
  2. Work in process
    • January 1: 235,000 dollars
    • January 31: 251,000 dollars
  3. Direct materials
    • January 1: 134,000 dollars
    • January 31: 124,000 dollars
  1. The following additional manufacturing data were available for the month of January.
A table shows additional manufacturing information for January for Culpepper Corporation
The table depicts additional manufacturing information for January for Culpepper Corporation. The details of the table are as follows:
  1. Direct materials purchased: 189,000 dollars
  2. Transportation in: 3,000 dollars
  3. Direct manufacturing labor: 400,000
  4. Actual factory (manufacturing) overhead: 175,000
  1. Culpepper Corporation applies factory (manufacturing) overhead at a rate of 40% of direct manufacturing labor cost, and any overallocated or underallocated factory overhead is deferred until the end of the year.
  2. Culpepper’s balance in its factory overhead control account at the end of January was
    1. 1. $15,000 overallocated.
    2. 2. $15,000 underallocated.
    3. 3. $5,000 underallocated.
    4. 4. $5,000 overallocated.
  3. 8-20. Fordham Corporation produces a single product. The standard costs for one unit of its Concourse product are as follows:
<p>A table shows standard costs for one unit of its Concourse product</p>

The table depicts standard costs for one unit of its Concourse product. The details of the table are as follows:

  1. Direct materials, 6 pounds at 0.50 dollars per pound: 3 dollars

  2. Direct manufacturing labor, 2 hours at 10 dollars per hour: 20 dollars

  3. Variable manufacturing overhead, 2 hours at 5 dollars per hour: 10 dollars

  4. Total: 33 dollars

  1. During November Year 2, 4,000 units of Concourse were produced. The costs associated with November operations were as follows:
A table shows November operations costs for Culpepper Corporation.
The table depicts November operations costs for Culpepper Corporation. The details of the table are as follows:
  1. Material purchased, 36,000 pounds at 0.60 dollars per pound: 21,600 dollars
  2. Material used in production (28,000 pounds)
  3. Direct manufacturing labor, 8,200 hours at 9.75 dollars per hour: 79,950 dollars
  4. Variable manufacturing overhead incurred: 41,820 dollars
  1. What is the variable overhead efficiency variance for Concourse for November Year 2?
    1. 1. $2,000 favorable
    2. 2. $2,000 unfavorable
    3. 3. $1,000 favorable
    4. 4. $1,000 unfavorable

©2016 DeVry/Becker Educational Development Corp. All Rights Reserved.

Exercises

  1. 8-21. VARIABLE MANUFACTURING OVERHEAD, VARIANCE ANALYSIS. Esquire Clothing is a manufacturer of designer suits. The cost of each suit is the sum of three variable costs (direct material costs, direct manufacturing labor costs, and manufacturing overhead costs) and one fixed-cost category (manufacturing overhead costs). Variable manufacturing overhead cost is allocated to each suit on the basis of budgeted direct manufacturing labor-hours per suit. For June 2020, each suit is budgeted to take 4 labor-hours. Budgeted variable manufacturing overhead cost per labor-hour is $12. The budgeted number of suits to be manufactured in June 2020 is 1,040.
  2. Actual variable manufacturing overhead costs in June 2020 were $52,164 for 1,080 suits started and completed. There were no beginning or ending inventories of suits. Actual direct manufacturing labor-hours for June were 4,536.
    1. Required
    2. 1. Compute the flexible-budget variance, the spending variance, and the efficiency variance for variable manufacturing overhead.
    3. 2. Comment on the results.
  3. 8-22. FIXED MANUFACTURING OVERHEAD, VARIANCE ANALYSIS (CONTINUATION OF 8-21). Esquire Clothing allocates fixed manufacturing overhead to each suit using budgeted direct manufacturing labor-hours per suit. Data pertaining to fixed manufacturing overhead costs for June 2020 are budgeted, $62,400, and actual, $63,916.
    1. Required
    2. 1. Compute the spending variance for fixed manufacturing overhead. Comment on the results.
    3. 2. Compute the production-volume variance for June 2020. What inferences can Esquire Clothing draw from this variance?
  4. 8-23. VARIABLE MANUFACTURING OVERHEAD VARIANCE ANALYSIS. The Sourdough Bread Company bakes baguettes for distribution to upscale grocery stores. The company has two direct-cost categories: direct materials and direct manufacturing labor. Variable manufacturing overhead is allocated to products on the basis of standard direct manufacturing labor-hours. Following are some budget data for the Sourdough Bread Company:
<p>A table shows budget data for the Sourdough Bread Company</p>

The table depicts budget data for the Sourdough Bread Company. The details of the table are as follows:

  1. Direct manufacturing labor use: 0.02 hours per baguette

  2. Variable manufacturing overhead: 10.00 dollars per direct manufacturing labor-hour

  1. The Sourdough Bread Company provides the following additional data for the year ended December 31, 2020:
<p>A table shows additional data for the Sourdough Bread Company for the year ended December 31, 2020</p>

The table depicts additional data for the Sourdough Bread Company for the year ended December 31, 2020. The details of the table are as follows:

  1. Planned (budgeted) output: 3,100,000 baguettes

  2. Actual production: 2,600,000 baguettes

  3. Direct manufacturing labor: 46,800 hours

  4. Actual variable manufacturing overhead: 617,760 dollars

    1. Required
    2. 1. What is the denominator level used for allocating variable manufacturing overhead? (That is, for how many direct manufacturing labor-hours is Sourdough Bread budgeting?)
    3. 2. Prepare a variance analysis of variable manufacturing overhead. Use Exhibit 8-4 for reference.
    4. 3. Discuss the variances you have calculated and give possible explanations for them.
  2. 8-24. FIXED MANUFACTURING OVERHEAD VARIANCE ANALYSIS (CONTINUATION OF 8-23). The Sourdough Bread Company also allocates fixed manufacturing overhead to products on the basis of standard direct manufacturing labor-hours. For 2020, fixed manufacturing overhead was budgeted at $3.00 per direct manufacturing labor-hour. Actual fixed manufacturing overhead incurred during the year was $294,000.
    1. Required
    2. 1. Prepare a variance analysis of fixed manufacturing overhead cost. Use Exhibit 8-4 as a guide.
    3. 2. Is fixed overhead underallocated or overallocated? By what amount?
    4. 3. Comment on your results. Discuss the variances and explain what may be driving them.
  3. 8-25. MANUFACTURING OVERHEAD, VARIANCE ANALYSIS. The Revolutions Corporation is a manufacturer of centrifuges. Fixed and variable manufacturing overheads are allocated to each centrifuge using budgeted assembly-hours. Budgeted assembly time is 2 hours per unit. The following table shows the budgeted amounts and actual results related to overhead for June 2020.
A table shows budgeted amounts and actual results related to overhead for June 2020 for Revolutions Corporation

The table depicts actual results and static-budget amounts for number of centrifuges assembled and sold, hours of assembly time, variable manufacturing overhead cost per hour of assembly time, variable manufacturing overhead costs, and fixed manufacturing overhead costs. The details of the table are as follows:

1. Number of centrifuges assembled and sold

2. Hours of assembly time

3. Variable manufacturing overhead cost per hour of assembly time

4. Variable manufacturing overhead costs

5. Fixed manufacturing overhead costs

    1. Required
    2. 1. Prepare an analysis of all variable manufacturing overhead and fixed manufacturing overhead variances using the columnar approach in Exhibit 8-4.
    3. 2. Prepare journal entries for Revolutions’ June 2020 variable and fixed manufacturing overhead costs and variances; write off these variances to Cost of Goods Sold for the quarter ending June 30, 2020.
    4. 3. How does the planning and control of variable manufacturing overhead costs differ from the planning and control of fixed manufacturing overhead costs?
  2. 8-26. 4-VARIANCE ANALYSIS, FILL IN THE BLANKS. Tytler, Inc., produces chemicals for large biotech companies. It has the following data for manufacturing overhead costs during August 2020:
table shows manufacturing overhead cost data for Tytler, Inc. for August 2020.
The table depicts variable and fixed costs for actual costs incurred, costs allocated to products, flexible budget, and actual input times budgeted rate. The details of the table are as follows:
  1. Actual costs incurred
    • Variable: 33,500 dollars
    • Fixed: 16,000 dollars
  2. Costs allocated to products
    • Variable: 30,000 dollars
    • Fixed: 14,200 dollars
  3. Flexible budget
    • Variable: Not applicable
    • Fixed: 15,000 dollars
  4. Actual input times budgeted rate
    • Variable: 32,200 dollars
    • Fixed: Not applicable
  1. Fill in the blanks. Use F for favorable and U for unfavorable:
A table is shown for the student to fill in with variable and fixed costs.
A table is shown for the student to fill in with variable and fixed costs. The details of the table are as follows:
  1. Spending variance
    • Variable
    • Fixed
  2. Efficiency variance
    • Variable
    • Fixed
  3. Production-volume variance
    • Variable
    • Fixed
  4. Flexible-budget variance
    • Variable
    • Fixed
  5. Underallocated (overallocated) manufacturing overhead
    • Variable
    • Fixed
  1. 8-27. STRAIGHTFORWARD 4-VARIANCE OVERHEAD ANALYSIS. The Ramirez Company uses standard costing in its manufacturing plant for auto parts. The standard cost of a particular auto part, based on a denominator level of 4,000 output units per year, included 5 machine-hours of variable manufacturing overhead at $7 per hour and 5 machine-hours of fixed manufacturing overhead at $14 per hour. Actual output produced was 4,200 units. Variable manufacturing overhead incurred was $170,000. Fixed manufacturing overhead incurred was $303,000. Actual machine-hours were 22,000.
    1. Required
    2. 1. Prepare an analysis of all variable manufacturing overhead and fixed manufacturing overhead variances, using the 4-variance analysis in Exhibit 8-4.
    3. 2. Prepare journal entries using the 4-variance analysis.
    4. 3. Describe how individual fixed manufacturing overhead items are controlled from day to day.
    5. 4. Discuss possible causes of the fixed manufacturing overhead variances.
  2. 8-28 STRAIGHTFORWARD COVERAGE OF MANUFACTURING OVERHEAD, STANDARD-COSTING SYSTEM. The Brazil division of an American telecommunications company uses standard costing for its machine-paced production of telephone equipment. Data regarding production during June are as follows:
    1. Required
    2. 1. Prepare an analysis of all manufacturing overhead variances. Use the 4-variance analysis framework illustrated in Exhibit 8-4.
    3. 2. Prepare journal entries for manufacturing overhead costs and their variances.
    4. 3. Describe how individual variable manufacturing overhead items are controlled from day to day.
    5. 4. Discuss possible causes of the variable manufacturing overhead variances.
  2. 8-29. OVERHEAD VARIANCES, SERVICE SECTOR. Family Meals Now (FMN) operates a meal home-delivery service. It has agreements with 20 restaurants to pick up and deliver meals to customers who place orders on FMN’s website. FMN allocates variable and fixed overhead costs on the basis of delivery time. FMN’s owner, Thomas Stewart, obtains the following information for May 2020 overhead costs:
A table shows May 2020 overhead costs for Family Meals Now

The table depicts actual results and static-budget amounts for output units, hours per delivery, hours of delivery time, variable overhead cost per hour of delivery time, variable overhead costs, and fixed overhead costs. The details of the table are as follows:

1. Output units

2. Hours per delivery

3. Hours of delivery time

4. Variable overhead cost per hour of delivery time

5. Variable overhead costs

6. Fixed overhead costs

    1. Required
    2. 1. Compute spending and efficiency variances for FMN’s variable overhead costs in May 2020.
    3. 2. Compute the spending variance and production-volume variance for FMN’s fixed overhead costs in May 2020.
    4. 3. Comment on FMN’s overhead variances and suggest how Thomas Stewart might manage FMN’s variable overhead costs differently from its fixed overhead costs.
  2. 8-30. TOTAL OVERHEAD, 3-VARIANCE ANALYSIS, WORKING BACKWARD. Stained Glass, Inc., makes jewelry boxes out of scrap stained glass material. Budget and actual information for July 2020, follows first for direct manufacturing labor and then for manufacturing overhead costs.
A table shows direct manufacturing labor costs for July 2020 for Stained Glass, Inc.
The table depicts direct manufacturing labor costs for July 2020 for Stained Glass, Inc. The details of the table are as follows:
  1. Actual direct manufacturing labor costs: 178,125 dollars
  2. Direct manufacturing labor efficiency variance: 7,500 U dollars
  3. Direct manufacturing labor flexible-budget variance: 1,875 F dollars
  4. Budgeted price of direct manufacturing labor: 15 dollars per hour
A table shows manufacturing overhead costs for July 2020 for Stained Glass, Inc.
The table depicts manufacturing overhead costs for July 2020 for Stained Glass, Inc. The details of the table are as follows:
  1. Total actual manufacturing overhead costs: 133,000 dollars
  2. Budgeted variable manufacturing overhead rate: 7 dollars per direct manufacturing labor-hour
  3. Budgeted fixed manufacturing overhead rate: 5 dollars per direct manufacturing labor-hour
  4. Budgeted fixed manufacturing overhead costs: 44,000 dollars
    1. Required
    2. 1. For July 2020, calculate (a) the direct manufacturing labor price variance, (b) the actual number of direct manufacturing labor-hours used, (c) the flexible-budget amount for direct manufacturing labor, and (d) the direct manufacturing labor-hours allowed for the actual output produced.
    3. 2. Calculate the spending and efficiency variances for total overhead.
    4. 3. Describe how individual variable overhead items are controlled from day to day. Also, describe how individual fixed overhead items are controlled.
  2. 8-31. PRODUCTION-VOLUME VARIANCE ANALYSIS AND SALES-VOLUME VARIANCE. Chart Hills Company makes customized golf shirts for sale to golf courses. Each shirt requires 3 direct manufacturing labor-hours to produce because of the customized logo for each golf course. Chart Hills uses direct manufacturing labor-hours to allocate the overhead cost to production. Fixed overhead costs, including rent, depreciation, supervisory salaries, and other production expenses, are budgeted at $28,500 per month. The facility currently used is large enough to produce 5,000 shirts per month.
  3. During March, Chart Hills produced 4,200 shirts and actual fixed costs were $28,000.
    1. Required
    2. 1. Calculate the fixed overhead spending variance and indicate whether it is favorable (F) or unfavorable (U).
    3. 2. If Chart Hills uses direct manufacturing labor-hours available at capacity to calculate the budgeted fixed overhead rate, what is the production-volume variance? Indicate whether it is favorable (F) or unfavorable (U).
    4. 3. An unfavorable production-volume variance could be interpreted as the economic cost of unused capacity. Why would Chart Hills be willing to incur this cost?
    5. 4. Chart Hills’ budgeted variable cost per unit is $18, and it expects to sell its shirts for $35 apiece. Compute the sales-volume variance and reconcile it with the production-volume variance calculated in requirement 2. What does each concept measure?
  4. 8-32. OVERHEAD VARIANCES, SERVICE SETTING. Jones Equity Company offers financial services to its clients. Recently, Jones has experienced rapid growth and has increased both its client base and the variety of services it offers. The company is becoming concerned about its rising costs, however, particularly related to technology overhead.
  5. Jones’ measure of output is the number of client interactions in a given period. After some study, Jones determines that its variable and fixed technology overhead costs are both driven by CPU units of processing time for client interactions.
  6. The technology budget for Jones for the first quarter of 2020 was as follows:
<p>A table shows the technology budget for Jones for the first quarter of 2020</p>

The table depicts the technology budget for Jones for the first quarter of 2020. The details of the table are as follows:

  1. Client interactions: 13,000

  2. CPU units per client interaction: 0.4

  3. Fixed overhead costs: 16,120 dollars

  4. Variable overhead rate: 2.20 dollars per CPU unit

  1. The actual results for the first quarter of 2020 are given below:
A table shows actual results for Jones Equity Company for the first quarter of 2020.
The table depicts actual results for Jones Equity Company for the first quarter of 2020. The details of the table are as follows:
  1. Client interactions: 14,200
  2. Fixed overhead costs: 15,900 dollars
  3. Variable overhead costs: 12,000 dollars
  4. CPU units used: 5,700
    1. Required
    2. 1. Calculate the variable overhead spending and efficiency variances, and indicate whether each is favorable (F) or unfavorable (U).
    3. 2. Calculate the fixed overhead spending and production-volume variances, and indicate whether each is favorable (F) or unfavorable (U).
    4. 3. Comment on Jones Equity’s overhead variances. In your view, is the firm right to be worried about its control over technology spending?
  2. 8-33. IDENTIFYING FAVORABLE AND UNFAVORABLE VARIANCES. Tred-America, Inc., manufactures tires for large auto companies. It uses standard costing and allocates variable and fixed manufacturing overhead based on machine-hours. For each independent scenario given, indicate whether each of the manufacturing variances will be favorable or unfavorable or, in case of insufficient information, indicate “CBD” (cannot be determined).
A table is given for the student to indicate if each manufacturing variance will be favorable or unfavorable given an independent scenario.
The table is given for the student to indicate if each manufacturing variance will be favorable or unfavorable given an independent scenario. The details of the table are as follows:
  1. Scenario: Production output is 8% more than budgeted, and actual fixed manufacturing overhead costs are 7% less than budgeted
    • Variable overhead spending variance
    • Variable overhead efficiency variance
    • Fixed overhead spending variance
    • Fixed overhead production-volume variance
  2. Scenario: Production output is 11% more than budgeted, and actual machine-hours are 5% less than budgeted
    • Variable overhead spending variance
    • Variable overhead efficiency variance
    • Fixed overhead spending variance
    • Fixed overhead production-volume variance
  3. Scenario: Production output is 15% less than budgeted
    • Variable overhead spending variance
    • Variable overhead efficiency variance
    • Fixed overhead spending variance
    • Fixed overhead production-volume variance
  4. Scenario: Actual machine-hours are 18% greater than flexible-budget machine-hours
    • Variable overhead spending variance
    • Variable overhead efficiency variance
    • Fixed overhead spending variance
    • Fixed overhead production-volume variance
  5. Scenario: Relative to the flexible budget, actual machine-hours are 10% greater, and actual variable manufacturing overhead costs are 15% less
    • Variable overhead spending variance
    • Variable overhead efficiency variance
    • Fixed overhead spending variance
    • Fixed overhead production-volume variance
  1. 8-34. FLEXIBLE-BUDGET VARIANCES, REVIEW OF CHAPTERS 7 AND 8. Eric Williams is a cost accountant and business analyst for Diamond Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct-cost categories: direct materials and direct manufacturing labor. Williams feels that manufacturing overhead is most closely related to material usage. Therefore, DDC allocates manufacturing overhead to production based upon pounds of materials used.
  2. At the beginning of 2020, DDC budgeted annual production of 420,000 doorknobs and adopted the following standards for each doorknob:
<p>A table shows standards for each doorknob manufactured by Diamond Design Company</p>

The table depicts input and cost per doorknob for direct materials (brass), direct manufacturing labor, variable manufacturing overhead, fixed manufacturing overhead, and standard cost per doorknob. The details of the table are as follows:

  1. Direct materials (brass)

    • Input: 0.3 pound at 10 dollars per pound
    • Cost per doorknob: 3.00 dollars

  2. Direct manufacturing labor

    • Input: 1.2 hours at 17 dollars per hour
    • Cost per doorknob: 20.40 dollars

  3. Manufacturing overhead, variable

    • Input: 5 dollars per pound times 0.3 pound
    • Cost per doorknob: 1.50 dollars
  4. Manufacturing overhead, fixed
    • Input: 15 dollars per pound times 0.3 pound
    • Cost per doorknob: 4.50 dollars
  5. Standard cost per doorknob: 29.40 dollars
  1. Actual results for April 2020 are as follows:
<p>A table shows actual results for April 2020 for Diamond Design Company</p>

The table depicts actual results for April 2020 for Diamond Design Company. The details of the table are as follows:

1. Production: 29,000 doorknobs

2. Direct materials purchased: 12,400 pounds at 11 dollars per pound

3. Direct materials used: 8,500 pounds

4. Direct manufacturing labor: 29,200 hours for 671,600 dollars

5. Variable manufacturing overhead: 65,100 dollars

6. Fixed manufacturing overhead: 158,000 dollars

    1. Required
    2. 1. For the month of April, compute the following variances, indicating whether each is favorable (F) or unfavorable (U):
      1. a. Direct materials price variance (based on purchases)
      2. b. Direct materials efficiency variance
      3. c. Direct manufacturing labor price variance
      4. d. Direct manufacturing labor efficiency variance
      5. e. Variable manufacturing overhead spending variance
      6. f. Variable manufacturing overhead efficiency variance
      7. g. Production-volume variance
      8. h. Fixed manufacturing overhead spending variance
    3. 2. Can Williams use any of the variances to help explain any of the other variances? Give examples.

Problems

  1. 8-35. COMPREHENSIVE VARIANCE ANALYSIS. Cooking Whiz manufactures premium food processors. The following are some manufacturing overhead data for Cooking Whiz for the year ended December 31, 2020:
<p>A table shows manufacturing overhead data for Cooking Whiz for the year ended December 31, 2020</p>

The table depicts actual results, flexible budget, and allocated amount for variable and fixed manufacturing overhead. The details of the table are as follows:

  1. Variable manufacturing overhead

    • Actual results: 71,808 dollars
    • Flexible budget: 80,640 dollars
    • Allocated amount: 80,640 dollars

  2. Fixed manufacturing overhead

    • Actual results: 360,672 dollars
    • Flexible budget: 351,360 dollars
    • Allocated amount: 368,640 dollars
  1. Budgeted number of output units: 915
  2. Planned allocation rate: 2 machine-hours per unit
  3. Actual number of machine-hours used: 1,632
  4. Static-budget variable manufacturing overhead costs: $76,860
  5. Required
  6. Compute the following quantities (you should be able to do so in the prescribed order):
    1. 1. Budgeted number of machine-hours planned
    2. 2. Budgeted fixed manufacturing overhead costs per machine-hour
    3. 3. Budgeted variable manufacturing overhead costs per machine-hour
    4. 4. Budgeted number of machine-hours allowed for actual output produced
    5. 5. Actual number of output units
    6. 6. Actual number of machine-hours used per output unit
  7. 8-36. JOURNAL ENTRIES (CONTINUATION OF 8-35).
    1. Required
    2. 1. Prepare journal entries for variable and fixed manufacturing overhead (you will need to calculate the various variances to accomplish this).
    3. 2. Overhead variances are written off to the Cost of Goods Sold (COGS) account at the end of the fiscal year. Show how COGS is adjusted through journal entries.
  8. 8-37. GRAPHS AND OVERHEAD VARIANCES. Best Around, Inc., is a manufacturer of vacuums and uses standard costing. Manufacturing overhead (both variable and fixed) is allocated to products on the basis of budgeted machine-hours. In 2020, budgeted fixed manufacturing overhead cost was $17,000,000. Budgeted variable manufacturing overhead was $10 per machine-hour. The denominator level was 1,000,000 machine-hours.
    1. Required
    2. 1. Prepare a graph for fixed manufacturing overhead. The graph should display how Best Around, Inc.’s fixed manufacturing overhead costs will be depicted for the purposes of (a) planning and control and (b) inventory costing.
    3. 2. Suppose that 1,125,000 machine-hours were allowed for actual output produced in 2020, but 1,200,000 actual machine-hours were used. Actual manufacturing overhead was $12,075,000, variable, and $17,100,000, fixed. Compute (a) the variable manufacturing overhead spending and efficiency variances and (b) the fixed manufacturing overhead spending and production-volume variances. Use the columnar presentation illustrated in Exhibit 8-4.
    4. 3. What is the amount of the under- or overallocated variable manufacturing overhead and the under- or overallocated fixed manufacturing overhead? Why are the flexible-budget variance and the under- or overallocated overhead amount always the same for variable manufacturing overhead but rarely the same for fixed manufacturing overhead?
    5. 4. Suppose the denominator level was 1,700,000 rather than 1,000,000 machine-hours. What variances in requirement 2 would be affected? Recompute them.
  9. 8-38. OVERHEAD VARIANCE, MISSING INFORMATION. Consider the following two situations—cases A and B—independently. Data refer to operations for April 2020. For each situation, assume standard costing. Also assume the use of a flexible budget for control of variable and fixed manufacturing overhead based on machine-hours.
<p>A table shows operations data for April 2020 for Case A and Case B</p>
aFor standard machine-hours allowed for actual output produced.

The table depicts operations data for April 2020 for Case A and Case B. The details of the table are as follows:

1. Fixed manufacturing overhead incurred

2. Variable manufacturing overhead incurred

3. Denominator level in machine-hours

4. Standard machine-hours allowed for actual output achieved

5. Fixed manufacturing overhead (per standard machine-hour)

Flexible-budget data:

6. Variable manufacturing overhead (per standard machine-hour)

7. Budgeted fixed manufacturing overhead

8. Budgeted variable manufacturing overhead (For standard machine-hours allowed for actual output produced.)

9. Total budgeted manufacturing overhead (For standard machine-hours allowed for actual output produced.)

Additional data:

10. Standard variable manufacturing overhead allocated

11. Standard fixed manufacturing overhead allocated

12. Production-volume variance

13. Variable manufacturing overhead spending variance

14. Variable manufacturing overhead efficiency variance

15. Fixed manufacturing overhead spending variance

16. Actual machine-hours used

  1. Required
  2. Fill in the blanks under each case. [HINT: Prepare a worksheet similar to that in Exhibit 8-4. Fill in the knowns and then solve for the unknowns.]
  3. 8-39. FLEXIBLE BUDGETS, 4-VARIANCE ANALYSIS. (CMA, adapted) Grant Manufacturing uses standard costing. It allocates manufacturing overhead (both variable and fixed) to products on the basis of standard direct manufacturing labor-hours (DMLH). Grant develops its manufacturing overhead rate from the current annual budget. The manufacturing overhead budget for 2020 is based on budgeted output of 576,000 units, requiring 2,304,000 DMLH. The company is able to schedule production uniformly throughout the year.
  4. A total of 46,000 output units requiring 193,200 DMLH was produced during August 2020. Manufacturing overhead (MOH) costs incurred for August amounted to $329,100. The actual costs, compared with the annual budget and 1/12 of the annual budget, are as follows:
<p>A table shows the annual manufacturing overhead budget for 2020</p>

The table depicts variable manufacturing overhead (indirect manufacturing labor and supplies), fixed manufacturing overhead (supervision, utilities, and depreciation), and total in terms of total amount, per output unit, per direct manufacturing labor-hour input unit, monthly manufacturing overhead budget for August 2020, and actual manufacturing overhead costs for August 2020. The details of the table are as follows:

  1. Variable manufacturing overhead, indirect manufacturing labor

    • Total amount: 921,600 dollars
    • Per output unit: 1.60 dollars
    • Per direct manufacturing labor-hour input unit: 0.40 dollars
    • Monthly manufacturing overhead budget for August 2020: 76,800 dollars
    • Actual manufacturing overhead costs for August 2020: 76,800 dollars

  2. Variable manufacturing overhead, supplies

    • Total amount: 576,000 dollars
    • Per output unit: 1.00 dollars
    • Per direct manufacturing labor-hour input unit: 0.25 dollar
    • Monthly manufacturing overhead budget for August 2020: 48,000 dollars
    • Actual manufacturing overhead costs for August 2020: 89,400 dollars

  3. Fixed manufacturing overhead, supervision

    • Total amount: 691,200 dollars
    • Per output unit: 1.20 dollars
    • Per direct manufacturing labor-hour input unit: 0.30 dollar
    • Monthly manufacturing overhead budget for August 2020: 57,600 dollars
    • Actual manufacturing overhead costs for August 2020: 47,100 dollars
  4. Fixed manufacturing overhead, utilities
    • Total amount: 345,600 dollars
    • Per output unit: 0.60 dollar
    • Per direct manufacturing labor-hour input unit: 0.15 dollar
    • Monthly manufacturing overhead budget for August 2020: 28,800 dollars
    • Actual manufacturing overhead costs for August 2020: 39,900 dollars
  5.  Fixed manufacturing overhead, depreciation
    • Total amount: 806,400 dollars
    • Per output unit: 1.40 dollars
    • Per direct manufacturing labor-hour input unit: 0.35 dollar
    • Monthly manufacturing overhead budget for August 2020: 67,200 dollars
    • Actual manufacturing overhead costs for August 2020: 75,900 dollars
  6. Total
    • Total amount: 3,340,800 dollars
    • Per output unit: 5.80 dollars
    • Per direct manufacturing labor-hour input unit: 1.45 dollars
    • Monthly manufacturing overhead budget for August 2020: 278,400 dollars
    • Actual manufacturing overhead costs for August 2020: 329,100 dollars
  1. Required
  2. Calculate the following amounts for Grant Manufacturing for August 2020:
    1. 1. Total manufacturing overhead costs allocated
    2. 2. Variable manufacturing overhead spending variance
    3. 3. Fixed manufacturing overhead spending variance
    4. 4. Variable manufacturing overhead efficiency variance
    5. 5. Production-volume variance
  3. Be sure to identify each variance as favorable (F) or unfavorable (U).
  4. 8-40. ACTIVITY-BASED COSTING, BATCH-LEVEL VARIANCE ANALYSIS. Audrina’s Fleet Feet, Inc., produces dance shoes for stores all over the world. While the pairs of shoes are boxed individually, they are crated and shipped in batches. The shipping department records both variable direct batch-level costs and fixed batch-level overhead costs. The following information pertains to shipping department costs for 2020.
A table shows information pertaining to 2020 shipping department costs for Audrina’s Fleet Feet, Inc.
The table depicts static-budget amounts and actual results for five different records for the shipping department. The details of the table are as follows:
  1. Pairs of shoes shipped
    • Static-budget amounts: 225,000
    • Actual results: 180,000
  2. Average number of pairs of shoes per crate
    • Static-budget amounts: 15
    • Actual results: 10
  3. Packing hours per crate
    • Static-budget amounts: 0.9 hours
    • Actual results: 1.1 hours
  4. Variable direct cost per hour
    • Static-budget amounts: 18 dollars
    • Actual results: 16 dollars
  5. Fixed overhead cost
    • Static-budget amounts: 54,000 dollars
    • Actual results: 56,500 dollars
  1. Required
    1. 1. What is the static budget number of crates for 2020?
    2. 2. What is the flexible budget number of crates for 2020?
    3. 3. What is the actual number of crates shipped in 2020?
    4. 4. Assuming fixed overhead is allocated using crate-packing hours, what is the predetermined fixed overhead allocation rate?
    5. 5. For variable direct batch-level costs, compute the price and efficiency variances.
    6. 6. For fixed overhead costs, compute the spending and the production-volume variances.
  2. 8-41. OVERHEAD VARIANCES AND SALES-VOLUME VARIANCE. Johns Manufacturing Company manufactures and sells rolling suitcases. After several years of increased sales, Johns experiences a drop in sales in 2020 from increased competition. Johns uses machine-hours as the cost-allocation base for variable and fixed manufacturing costs. Budgeted and actual costs for 2020 are as follows:
A table shows information pertaining to 2020 budgeted and actual costs for Johns Manufacturing Company.
The table depicts actual results and static-budget amounts for eight metrics related to manufacturing costs. The details of the table are as follows:
  1. Suitcases produced and sold
    • Actual results: 120,000
    • Static-budget amounts: 150,000
  2. Selling price
    • Actual results: 72 dollars
    • Static-budget amounts: 80 dollars
  3. Machine-hours
    • Actual results: 310,000
    • Static-budget amounts: 375,000
  4. Variable direct materials costs
    • Actual results: 20 dollars per unit
    • Static-budget amounts: 20 dollars per unit
  5. Variable direct manufacturing labor costs
    • Actual results: 18 dollars per unit
    • Static-budget amounts: 18 dollars per unit
  6. Variable overhead cost per machine-hour
    • Actual results: None
    • Static-budget amounts: 1.80 dollars per machine-hour
  7. Variable overhead costs
    • Actual results: 527,000 dollars
    • Static-budget amounts: None
  8. Fixed overhead costs
    • Actual results: 532,400 dollars
    • Static-budget amounts: 525,000 dollars
    1. Required
    2. 1. Calculate the variable overhead and fixed overhead variances (spending, efficiency, spending, and volume).
    3. 2. Create a chart like that in Exhibit 7-2 showing Flexible Budget Variances and Sales-Volume Variances for revenues, costs, contribution margin, and operating income.
    4. 3. Calculate the operating income based on budgeted profit per suitcase.
    5. 4. Reconcile the budgeted operating income from requirement 3 to the actual operating income from your chart in requirement 2.
    6. 5. Calculate the operating income volume variance and show how the sales-volume variance is composed of the production-volume variance and the operating income volume variance.
  2. 8-42. ACTIVITY-BASED COSTING, BATCH-LEVEL VARIANCE ANALYSIS. The Cotton Shop (TCS) specializes in making fraternity and sorority tote bags for the college market. TCS produces bags in batch sizes of 100. For rush orders, TCS will produce smaller batches for an additional charge of $180 per setup.
  3. Budgeted and actual costs for the production process for 2020 are as follows:
<p>A table shows budgeted and actual costs for The Cotton Shop production process for 2020</p>

The table depicts static-budget amounts and actual results for number of bags produced, average number of bags per setup, hours to set up machines, direct variable cost per setup-hour, and total fixed setup overhead costs. The details of the table are as follows:

1. Number of bags produced

2. Average number of bags per setup

3. Hours to set up machines

4. Direct variable cost per setup-hour

5. Total fixed setup overhead costs

    1. Required
    2. 1. What is the static budget number of setups for 2020?
    3. 2. What is the flexible-budget number of setups for 2020?
    4. 3. What is the actual number of setups in 2020?
    5. 4. Assuming fixed setup overhead costs are allocated using setup-hours, what is the predetermined fixed setup overhead allocation rate?
    6. 5. Does TCS’s charge of $180 cover the budgeted direct variable cost of an order? The budgeted total cost?
    7. 6. For direct variable setup costs, compute the price and efficiency variances.
    8. 7. For fixed setup overhead costs, compute the spending and the production-volume variances.
    9. 8. What qualitative factors should TCS consider before accepting or rejecting a special order?
  2. 8-43. COMPREHENSIVE REVIEW OF CHAPTERS 7 AND 8, WORKING BACKWARD FROM GIVEN VARIANCES. The Gallo Company uses a flexible budget and standard costs to aid planning and control of its machining manufacturing operations. Its costing system for manufacturing has two direct-cost categories (direct materials and direct manufacturing labor—both variable) and two overhead-cost categories (variable manufacturing overhead and fixed manufacturing overhead, both allocated using direct manufacturing labor-hours).
  3. At the 50,000 budgeted direct manufacturing labor-hour level for August, budgeted direct manufacturing labor is $1,250,000, budgeted variable manufacturing overhead is $500,000, and budgeted fixed manufacturing overhead is $1,000,000.
  4. The following actual results are for August:
<p>A table shows actual results for August for Gallo Company</p>

The table depicts actual results for August for Gallo Company. The details of the table are as follows:

1. Direct materials price variance (based on purchases): 179,300 dollars F

2. Direct materials efficiency variance: 75,900 dollars U

3. Direct manufacturing labor costs incurred: 535,500 dollars

4. Variable manufacturing overhead flexible-budget variance: 10,400 dollars U

5. Variable manufacturing overhead efficiency variance: 18,100 dollars U

6. Fixed manufacturing overhead incurred: 957,550 dollars

  1. The standard cost per pound of direct materials is $11.50. The standard allowance is 6 pounds of direct materials for each unit of product. During August, 20,000 units of product were produced. There was no beginning inventory of direct materials. There was no beginning or ending work in process. In August, the direct materials price variance was $1.10 per pound.
  2. In July, labor unrest caused a major slowdown in the pace of production, resulting in an unfavorable direct manufacturing labor efficiency variance of $40,000. There was no direct manufacturing labor price variance. Labor unrest persisted into August. Some workers quit. Their replacements had to be hired at higher wage rates, which had to be extended to all workers. The actual average wage rate in August exceeded the standard average wage rate by $0.50 per hour.
    1. Required
    2. 1. Compute the following for August:
      1. a. Total pounds of direct materials purchased
      2. b. Total number of pounds of excess direct materials used
      3. c. Variable manufacturing overhead spending variance
      4. d. Total number of actual direct manufacturing labor-hours used
      5. e. Total number of standard direct manufacturing labor-hours allowed for the units produced
      6. f. Production-volume variance
    3. 2. Describe how Gallo’s control of variable manufacturing overhead items differs from its control of fixed manufacturing overhead items.
  3. 8-44. REVIEW OF CHAPTERS 7 AND 8, 3-VARIANCE ANALYSIS. (CPA, adapted) The Beal Manufacturing Company’s costing system has two direct-cost categories: direct materials and direct manufacturing labor. Manufacturing overhead (both variable and fixed) is allocated to products on the basis of standard direct manufacturing labor-hours (DMLH). At the beginning of 2020, Beal adopted the following standards for its manufacturing costs:
<p>A table shows standards for manufacturing costs for Beal Manufacturing Company</p>

The table depicts input and cost per output unit for direct materials, direct manufacturing labor, manufacturing overhead, variable, manufacturing overhead, fixed, and standard manufacturing cost per output unit. The details of the table are as follows:

1. Direct materials

2. Direct manufacturing labor

3. Manufacturing overhead, variable

4. Manufacturing overhead, fixed

5. Standard manufacturing cost per output unit: 152.00 dollars

  1. The denominator level for total manufacturing overhead per month in 2020 is 37,000 direct manufacturing labor-hours. Beal’s budget for January 2020 was based on this denominator level. The records for January indicated the following:
<p>A table shows the records for January for Beal Manufacturing Company</p>

The table depicts the records for January for Beal Manufacturing Company. The details of the table are as follows:

1. Direct materials purchased: 40,300 pounds at 3.80 dollars per pound

2. Direct materials used: 37,300 pounds

3. Direct manufacturing labor: 31,400 hours at 16.25 dollars per hour

4. Total actual manufacturing overhead (variable and fixed): 650,000 dollars

5. Actual production: 7,600 output units

    1. Required
    2. 1. Prepare a schedule of total standard manufacturing costs for the 7,600 output units in January 2020.
    3. 2. For the month of January 2020, compute the following variances, indicating whether each is favorable (F) or unfavorable (U):
      1. a. Direct materials price variance, based on purchases
      2. b. Direct materials efficiency variance
      3. c. Direct manufacturing labor price variance
      4. d. Direct manufacturing labor efficiency variance
      5. e. Total manufacturing overhead spending variance
      6. f. Variable manufacturing overhead efficiency variance
      7. g. Production-volume variance
  2. 8-45. NONFINANCIAL VARIANCES. Kathy’s Kettle Potato Chips produces gourmet chips distributed to chain sub shops throughout California. To ensure that their chips are of the highest quality and have taste appeal, Kathy has a rigorous inspection process. For quality control purposes, Kathy has a standard based on the number of pounds of chips inspected per hour and the number of pounds that pass or fail the inspection.
  3. Kathy expects that for every 1,000 pounds of chips produced, 200 pounds of chips will be inspected. Inspection of 200 pounds of chips should take 1 hour. Kathy also expects that 1% of the chips inspected will fail the inspection. During the month of May, Kathy produced 113,000 pounds of chips and inspected 22,300 pounds of chips in 120 hours. Of the 22,300 pounds of chips inspected, 215 pounds of chips failed to pass the inspection.
    1. Required
    2. 1. Compute two variances that help determine whether the time spent on inspections was more or less than expected. (Follow a format similar to the one used for the variable overhead spending and efficiency variances, but without prices.)
    3. 2. Compute two variances that can be used to evaluate the percentage of the chips that fail the inspection.
  4. 8-46. OVERHEAD VARIANCES, SERVICE SECTOR, WORKING BACKWARD. NWI is a service provider that offers computing resources measured in RAM (random-access memory)-hours to handle enterprise-wide applications. Information about variable overhead costs for March 2020 are as follows:
<p>A table shows information about variable overhead costs for March 2020 for NWI</p>

The table depicts information about variable overhead costs for March 2020 for NWI. The details of the table are as follows:

1. Budgeted variable overhead rate: 6 dollars per RAM-hour

2. Flexible budget RAM-hours for actual services provided: 14,850 RAM-hours

3. Actual RAM-hours for actual services provided: 15,000 RAM hours

4. Variable overhead spending variance: 500 dollars F

  1. Information about fixed overhead costs for March 2020 are as follows:
<p>A table shows information about fixed overhead costs for March 2020 for NWI</p>

The table depicts information about fixed overhead costs for March 2020 for NWI. The details of the table are as follows:

1. Actual fixed overhead costs: 30,375 dollars

2. Fixed overhead spending variance: 1,575 dollars U

3. Budgeted hours (denominator level) for fixed overhead costs: 18,000 RAM-hours

    1. Required
    2. 1. For variable overhead costs in March 2020, prepare an exhibit like Exhibit 8-1 and fill in the following (a) the flexible budget in column 3 (budgeted RAM-hours allowed for actual services provided), (b) actual RAM-hours used for the services provided times the budgeted variable overhead rate in column 2, (c) use the variable overhead spending variance, to calculate actual variable costs in column 1, (d) calculate the variable overhead efficiency variance, and (e) calculate the variable overhead flexible-budget variance. (f) Will variable overhead be over- or underallocated? By how much?
    3. 2. For fixed overhead costs in March 2020, prepare an exhibit like Exhibit 8-2 and complete the following: (a) use the fixed overhead spending variance to calculate the flexible budget in column 2, (b) calculate the budgeted fixed overhead allocation rate, (c) calculate the allocated amount of fixed overhead in column 3, (d) calculate the production-volume variance for fixed overhead costs, and (e) calculate the fixed overhead flexible budget variance. (f) Will fixed overhead be over- or underallocated? By how much?
  2. 8-47. DIRECT-COST AND OVERHEAD VARIANCES, INCOME STATEMENT. The Manzano Company started business on January 1, 2020. The company adopted a standard costing system for the production of backpacks. Manzano chose direct manufacturing labor as the allocation base for overhead. Budgeted and actual costs for 2020 are as follows:
<p>A table shows budgeted and actual costs for Manzano Company for 2020</p>

The table depicts actual results and static-budget amounts for backpacks produced, backpacks sold, selling price, direct material fabric per backpack, price per yard of fabric, direct material fabric used in yards, variable direct materials costs, direct manufacturing labor-hours per backpack, direct manufacturing labor wage rate, direct manufacturing labor-hours used, direct manufacturing labor costs, and fixed manufacturing overhead costs. The details of the table are as follows:

1. Backpacks produced

2. Backpacks sold

3. Selling price

4. Direct material fabric per backpack

5. Price per yard of fabric

6. Direct material fabric used in yards

7. Variable direct materials costs

8. Direct manufacturing labor-hours per backpack

9. Direct manufacturing labor wage rate

10. Direct manufacturing labor-hours used

11. Direct manufacturing labor costs

12. Fixed manufacturing overhead costs

    1. Required
    2. 1. Calculate the following variances for 2020, and indicate whether each is favorable (F) or unfavorable (U):
      1. a. Direct materials efficiency variance
      2. b. Direct materials price variance
      3. c. Direct manufacturing labor efficiency variance
      4. d. Direct manufacturing labor price variance
      5. e. Fixed overhead flexible-budget variance
      6. f. Fixed overhead production-volume variance
      7. g. Calculate the total variances for the period representing the amounts by which costs are overallocated or underallocated for the year.
    3. 2. (a) Calculate standard production cost per backpack; (b) Calculate Manzano Company’s gross margin for 2020 based on selling 144,000 backpacks, after prorating the total variance calculated in requirement 1-g between cost of goods sold and finished goods inventory. Manzano has no direct materials or work-in-process inventory.
  2. 8-48. OVERHEAD VARIANCES, ETHICS. Butler Company uses standard costing. The company has a manufacturing plant in Portland, Oregon. Firm management has always used variance analysis as a performance measure for the plant.
  3. John Mack has just been hired as a new controller for Butler Company. John is good friends with the Portland plant manager and wants him to get a favorable review. To help him out, John underestimates production, and budgets annual output of 800,000 units for 2020. His explanation for this is that the economy is slowing and sales are likely to decrease. Budgeted and actual costs for 2020 are as follows:
A table shows 2020 budgeted and actual costs for Butler Company for 2020.
The table depicts actual results and static-budget amounts for six metrics related to manufacturing costs. The details of the table are as follows:
  1. Units produced and sold
    • Actual results: 1,000,000
    • Static-budget amounts: 800,000
  2. Direct manufacturing labor-hours per unit
    • Actual results: None
    • Static-budget amounts: 0.5 labor-hour
  3. Direct manufacturing labor-hours
    • Actual results: 510,000
    • Static-budget amounts: None
  4. Variable overhead rate
    • Actual results: 3.50 dollars per labor-hour
    • Static-budget amounts: None
  5. Variable overhead costs
    • Actual results: 1,800,000 dollars
    • Static-budget amounts: None
  6. Fixed overhead costs
    • Actual results: 1,240,000 dollars
    • Static-budget amounts: 1,200,000 dollars
    1. Required
    2. 1. Compute the budgeted fixed cost per labor-hour for the fixed overhead.
    3. 2. Compute the variable overhead spending variance and the variable overhead efficiency variance.
    4. 3. Compute the fixed overhead spending and volume variances.
    5. 4. Compute the budgeted fixed cost per labor-hour for the fixed overhead if John Mack had estimated production more realistically at the expected sales level of 1,000,000 units.
    6. 5. Summarize the fixed overhead variance based on both the projected level of production of 800,000 units and 1,000,000 units.
    7. 6. Did John Mack’s attempt to make his friend, the plant manager, look better work? Why or why not?
    8. 7. What do you think of John Mack’s behavior overall?