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

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Question 61

Multiple Choice

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A deviation from standard that occurs during operations as a result of operator errors is an example of a(n) :

A) Random error.
B) Prediction error.
C) Implementation error.
D) Modeling error.
E) Accounting error.

F) C) and D)
G) A) and B)

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Question 62

Multiple Choice

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As long as the organization is making good progress toward achieving an ideal standard,its management may not need to:

A) Modify its standards.
B) Curtail spending on variable costs.
C) Curtail spending on fixed costs.
D) Take any corrective action if the variance for the period is large.
E) Take any corrective action,even if the variance for the period is rather substantial in amount.

F) C) and D)
G) A) and E)

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Question 63

Multiple Choice

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Gerhan Company's flexible budget for the units actually manufactured in May shows $15,640 of total factory overhead;this output level represents 70% of available capacity.During May the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH) ,based on a denominator volume level of 6,120 DLHs,which represents 90% of available capacity.The company spent 5,000 DLHs and incurred $16,500 of total factory overhead cost during May,including $6,800 for fixed factory overhead.What is the fixed factory overhead spending variance for December?

If there is a 90 percent chance that an observed variance is random,the cost of conducting an investigation is $1,000,the cost to correct a variance if the investigation reveals a nonrandom cause,and the amount of loss a company expects to incur if it does not investigate a variance that had a nonrandom cause is $30,000,what is the expected cost of not investigating the variance?

Causes of random variances are beyond the control of management,and are most often found in:

If inventories in a business using a standard cost system are insignificant,the firm would be justified (in a practical sense) by disposing of variances each year:

It can be argued that manufacturing overhead analysis under an ABC system is more informative or useful to management because of the associated richness of the analysis and therefore increased potential for cost control.Of particular interest under an ABC system is the flexible-budget analysis that can be performed when there is a standard batch size for production activity. Required: Explain how the conventional analysis of overhead variances through the use of flexible budgets can be expanded when production is characterized by a standard batch size.Focus specifically on the analysis of batch-related costs,for example,production-related set-up costs. Discuss separately the analysis of fixed setup-related costs and variable setup-related manufacturing support costs.

Finding a single cost driver that changes in the same proportion as variable factory overhead costs is:

Redtop Co.uses a standard cost system and flexible budgets.The following flexible budget was prepared at the 80% operating level for the year:

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

The fixed factory overhead application rate (for product-costing purposes) is equal to:

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

The following information is available from Thinnews Co. ,a company that uses machine hours to apply factory overhead: The variable overhead spending variance is:

Megan,Inc.uses the following standard costs per unit for one of its products: Direct labor (2 hrs @ $5/hr) $10.Overhead (2 hrs @ $2.50/hr) 5.The flexible budget for overhead is $120,000 plus $1 per direct labor hour (DLH) .Actual data for the month show total overhead costs of $225,000,total fixed overhead of $123,000,85,000 hours worked,and 40,000 units produced.The variable factory overhead efficiency variance is:

Gerhan Company's flexible budget for the units actually manufactured in May shows $15,640 of total factory overhead;this output level represents 70% of available capacity.During May the company applied overhead to production at the rate of $3.00 per direct labor hour (DLH) ,based on a denominator volume level of 6,120 DLHs,which represents 90% of available capacity.The company spent 5,000 DLHs and incurred $16,500 of total factory overhead cost during May,including $6,800 for fixed factory overhead. What is the factory overhead efficiency variance for May,under the assumption that the company uses a two-variance breakdown (decomposition) of the total overhead variance?

Xero Company's standard factory overhead rate is $3.75 per direct labor hour (DLH) ,calculated at 90% capacity = 900 standard DLHs.In December,the company operated at 80% of capacity,or 800 standard DLHs.Budgeted factory overhead at 80% of capacity is $3,150,of which $1,350 is fixed overhead.For December,the actual factory overhead cost was $3,800 for 840 actual DLHs,of which $1,300 was for fixed factory overhead.Assuming the use of a two-way breakdown (decomposition) of the total overhead variance,what is the factory overhead efficiency variance for December?

Xero Company's standard factory overhead rate is $3.75 per direct labor hour (DLH) ,calculated at 90% capacity = 900 standard DLHs.In December,the company operated at 80% of capacity,or 800 standard DLHs.Budgeted factory overhead at 80% of capacity is $3,150,of which $1,350 is fixed overhead.For December,the actual factory overhead cost was $3,800 for 840 actual DLHs,of which $1,300 was for fixed factory overhead.If the company uses a two-way breakdown (decomposition) of the total overhead variance,what is the total factory overhead flexible-budget variance for December?

In firms using activity-based costing (ABC) ,budgeted total factory overhead varies with changes in:

A deviation from standard because of an inaccurate estimation of the amounts of variables used in the standard-setting process is an example of a(n) :

The production-volume variance should generally not be calculated and reported for control purposes because,unless interpreted properly,it can: