CH 11 Flexiblebudgetsandoverheadanalysis

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.

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.

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.

6. The overhead spending variance is not affected by excessive usage or waste of

overhead materials.

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.

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.

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 BB: Critical Thinking

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.

AICPA FN: Reporting LO: 5 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 BB: Critical Thinking

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 BB: Critical Thinking

13. There can be a volume variance for either variable manufacturing overhead or fixed
manufacturing overhead.

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.

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.

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
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

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

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

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

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

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.

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

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

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:
Total Cost
Indirect materials............... $7,800
Factory rent........................ $18,000
What would be the flexible budget amounts at an activity level of 12,000 machine-
hours if indirect materials is a variable cost and factory rent is a fixed cost?
Indirect Materials Factory Rent

A) $7,800 $14,400
B) $7,800 $18,000
C) $6,240 $14,400
D) $6,240 $18,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking

Solution:
Budgeted number of machine hours: 15,000

Activity
Cost Formula (in machine-hours):
(per machine-hour) 12,000
Variable costs:
Indirect materials.......... $0.52* $6,240
Fixed costs:
Factory rent................... $18,000
*$7,800 ÷ 15,000 MHs = $0.52 per MH

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...................................... $ 234
Laundry....................................... 315
Fixed overhead costs:
Utilities....................................... 220
Salaries and wages...................... 4,290
Depreciation............................... 2,680
Total overhead cost........................ $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

Solution:
Budgeted number of guests: 90

Activity
Cost Formula (in guests):
(per guest) 99
Overhead Costs
Supplies ($234 ÷ 90 guests)................... $2.60 $ 257.40
Laundry ($315 ÷ 90 guests).................... 3.50 346.50
Total variable overhead cost...................... $6.10 603.90
Utilities................................................... 220.00
Salaries and wages.................................. 4,290.00
Depreciation........................................... 2,680.00
Total fixed overhead cost.......................... 7,190.00
Total budgeted overhead cost.................... $7,793.90
29. Kerekes Manufacturing Corporation has prepared the following overhead budget for
next month.
Activity level................................. 2,500 machine-hours

Supplies...................................... $12,250
Indirect labor.............................. 22,000
Supervision................................. 15,500
Utilities....................................... 5,500
Depreciation............................... 6,500
Total overhead cost........................ $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

Solution:
Per
Budgeted variable Machine- machine-
overhead costs hours hour
Supplies................................. $12,250 2,500 $4.90
Indirect labor.......................... $22,000 2,500 $8.80
Budgeted number of machine-hours: 2,500

Activity
Cost Formula (in MHs):
(per MH) 2,400
Overhead Costs
Supplies.................................................. $ 4.90 $11,760
Indirect labor.......................................... 8.80 21,120
Total variable overhead cost...................... $13.70 13,880
Supervision............................................. 15,500
Utilities................................................... 5,500
Depreciation........................................... 6,500
Total fixed overhead cost.......................... 27,500
Total overhead cost.................................... $60,380
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
$240,55
Total budgeted overhead cost.................... 0
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

Solution:
Budgeted number of patient-visits: 8,500

Activity
Cost Formula (in patient
(per patient- visits):
visit) 9,200
Overhead Costs
Supplies.................................................. $ 4.70 $ 43,240
Laundry................................................... 7.80 71,760
Occupancy costs..................................... 84,150
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

Supplies (@$7.00 per guest-day)........... $ 60,900
Laundry (@$3.80 per guest-day)............ 33,060
Occupancy costs..................................... 38,280
$213,15
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

Solution:
Budgeted number of guest-days: 8,700

Activity
Cost Formula (in guest-
(per guest- days):
day) 9,700
Overhead Costs
Supplies.................................................. $ 7.00 $ 67,900
Laundry................................................... 3.80 36,860
Occupancy costs..................................... 38,280
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

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
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

Solution:

Actual number of patient-visits: 1,530
Actual
Cost Costs Budget
Formula Incurred Based on
(per for 1,530 1,530
patient- patient- patient-
visit) visits visits Variance
Variable overhead costs....... $1.10 $1,400 $1,683 $ 283 F
Fixed overhead costs........... $21,720 $19,900 1,820 U
$1,537 U
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

Solution:
Budgeted number of square feet: 1,720

Actual number of square feet: 1,630
Actual
Cost Costs
Formula Incurred Budget
(per for 1,720 Based on
square square 1,720
foot) feet square feet Variance
Variable overhead costs
(Supply costs).............. $3.40 $6,750 $5,848 $902 U
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

Solution:
Budgeted number of skeins: 15,900

Actual number of skeins: 16,100
Actual
Costs
Cost Incurred Budget
Formula for Based on
(per 16,100 16,100
skein) skeins skeins Variance
Variable overhead costs (Dye
costs).................................. $0.87 $14,800 $14,007 $793 U
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

Solution:
Budgeted number of units produced: 19,400

Actual number of units produced: 19,700
Actual
Costs
Incurred
for Budget
Cost 19,700 Based on
Formula units 19,700
(per unit produce units
produced) d produced Variance
(Supplies)......................... $2.17 X $42,749 $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
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

Solution:

Actual number of machine-hours: 11,600
Actual
Costs
Incurred Budget
Cost for Based on
Formula 11,600 11,600
(per machine- machine-
MH) hours hours Variance
(Indirect materials)........... 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
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................................................. 9,700 MHs

Actual level of activity..................................................... 9,900 MHs
Cost formula for variable manufacturing overhead cost. . $6.30 per MH
$49,00
Budgeted fixed manufacturing overhead cost.................. 0
$60,39
Actual total variable manufacturing overhead................. 0
$47,00
Actual total fixed manufacturing overhead...................... 0
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

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
39. Teall Corporation has a standard cost system in which it applies manufacturing
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
$50,00
Budgeted fixed manufacturing overhead cost................... 0
$51,60
Actual total variable manufacturing overhead................... 0
$54,00
Actual total fixed manufacturing overhead....................... 0
What was the fixed overhead budget variance for the month?
A) $4,000 unfavorable
B) $4,000 favorable
C) $570 favorable
D) $570 unfavorable

Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost
= $54,000 − $50,000 = $4,000 U
40. Alapai Corporation has a standard cost system in which it applies manufacturing
Budgeted level of activity................................................. 7,000 MHs

Actual level of activity..................................................... 7,200 MHs
Cost formula for variable manufacturing overhead cost. . $9.40 per MH
$40,00
Budgeted fixed manufacturing overhead cost.................. 0
$66,96
Actual total variable manufacturing overhead................. 0
$37,00
Actual total fixed manufacturing overhead...................... 0
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

Solution:
Actual rate =
Actual total variable manufacturing overhead ÷ Actual machine-hours =
$66,960 ÷ 7,200 = $9.30
= 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

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?
B) $1,080 favorable
C) $920 unfavorable
D) $920 favorable

Solution:
Actual rate = Actual variable manufacturing overhead ÷ Actual machine-hours

= $22,080 ÷ 4,600 = $4.80
= 4,600 × ($4.80 − $4.60)
= 4,600 × $0.20 = $920 U

= 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

42. Amirault Manufacturing Corporation has a standard cost system in which it applies
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
C) $1,640 favorable
D) $410 unfavorable

Solution:
Actual rate = Actual variable manufacturing overhead ÷ Actual machine-hours

= $18,040 ÷ 4,100 = $4.40
= 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
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

Solution:

= Actual fixed overhead cost − Budgeted fixed overhead cost
= $61,200 − $58,000 = $3,200 U
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
$11,83
Supplies....................................... $11,160 0
Indirect labor............................... 26,280 27,970
Supervision................................. 19,700 19,340
Utilities........................................ 5,900 5,770
Factory depreciation................... 6,900 7,210
$72,12
Total overhead cost........................ $69,940 0
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

Solution:
Variable Machine- Per machine-

Supplies.............................. $11,160 3,600 $3.10
Indirect labor...................... $26,280 3,600 $7.30
Budgeted machine-hours: 3,600

Actual machine-hours: 3,900
Standard machine-hours allowed: 3,890
(1)
Budget
Based on (2)
Cost 3,900 Budget
Formula MHs Based on (1) − (2)
(per (AH × 3,890 MHs Efficiency
MH) SR) (SH × SR) Variance
Overhead Costs
Supplies..................... $ 3.10 $12,090 * $12,059 $ 31 U
*
Indirect labor............. 7.30 28,470 * $28,397 73 U
$10.40 $40,560 $104 U
*3,900 machine-hours × $3.10 per machine-hour = $12,090

**3,900 machine-hours × $7.30 per machine-hour = $28,470
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

Supplies....................................... $ 7,980 $ 8,230
Indirect labor............................... 29,820 29,610
Total variable overhead cost.......... $37,800 $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

Solution:
Variable Machine- Per machine-
Supplies.................. $7,980 4,200 $1.90
Indirect labor.......... $29,820 4,200 $7.10

(1)
Budget
Based (2)
on 4,350 Budget
Cost MHs Based on (1) − (2)
Formula (AH × 4,190 MHs Efficiency
(per MH) SR) (SH × SR) Variance
Supplies..................... $1.90 $8,265 * $7,961 $ 304 U
Indirect labor............. $7.10 $30,885 ** $29,749 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
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

Solution:

(1) (2)
Budget Budget
Cost Based on Based on (1) − (2)
Formula 2,270 MHs 2,280 MHs Efficiency
(per MH) (AH × SR) (SH × SR) Variance
Variable overhead costs $2.40 $5,448 $5,472 $24 F
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 machine-
hours 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

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

Solution:

= 5,400 × 3.8 = 20,520
= $7.90 × (20,880 − 20,520) = $7.90 × 360 = $2,844 U
49. The following data have been provided by Moretta Corporation, a company that
produces forklift trucks:
Budgeted production.................................. 3,400 trucks

Standard machine-hours per truck............. 2.9 machine-hours
Budgeted supplies cost............................... $1.50 per machine-hour
Actual production....................................... 3,800 trucks
Actual machine-hours................................ 10,930 machine-hours
$17,49
Actual supplies cost (total)......................... 6
The variable overhead efficiency variance for supplies cost is:

A) $135 U
B) $135 F
C) $966 U
D) $966 F

Solution:

= 3,800 × 2.9 = 11,020
= $1.50 × (10,930 − 11,020) = $1.50 × (-$90) = $135 F
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:
21,00
Denominator activity level in machine-hours................. 0
20,00
Standard machine-hours allowed for actual output........ 0
22,05
Actual number of machine-hours incurred..................... 0
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

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
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

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

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
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

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 machine- Activity
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
$126,20
Total overhead cost..................... $125,328 8
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

Solution:
Variable element = Total variable overhead cost ÷ Actual machine-hours
= $24,640 ÷ 2,800 machine-hours = $8.80 per machine-hour
55. Recht Corporation's summary flexible budget for two levels of activity appears below:
Cost Formula
1,200 1,300
Total overhead cost..................... $29,100 $30,030
If the denominator level of activity is 1,200 machine-hours, the fixed element in the
A) $14.95
B) $930.00
C) $24.25
D) $9.30

Solution:
Fixed element = Total fixed overhead ÷ Actual machine-hours

56. Billa Corporation's abbreviated flexible budget for two levels of activity appears
below:
Cost Formula
4,600 4,700
$396,58
Total overhead cost..................... $395,416 6
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

Solution:
Predetermined overhead rate = Total overhead cost ÷ Actual machine-hours

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

Solution:

= Actual fixed overhead cost − $600,000 = $8,000 U
Actual fixed overhead = $8,000 + $600,000 = $608,000
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:

Supplies....................................... $ 9,760 $10,200
Indirect labor............................... 42,090 43,720
Supervision................................. 14,500 14,350
Utilities........................................ 5,200 4,740
Total overhead cost........................ $78,950 $80,520
The company based its original budget on 6,100 machine-hours. The company
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

Solution:
= ($14,350 + $4,740 + $7,510) − ($14,500 + $5,200 + $7,400)
= $26,600 − $27,100 = $500 F
59. Songster Corporation applies manufacturing overhead to products on the basis of
month appear below:

Supervision..................... $14,100 $13,650
Utilities........................... 5,300 5,060
Factory depreciation....... 7,200 7,470
Total overhead cost............ $26,600 $26,180
fixed overhead budget variance for the month?
A) $2,432 favorable
C) $420 favorable
D) $420 unfavorable

Solution:
= $26,180 − $26,600 = $420 F
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

Solution:
= $10,540 − $10,890 = $350 F
61. Lossing Corporation applies manufacturing overhead to products on the basis of

month appear below:
Supplies....................................... $11,220 $10,670
Indirect labor............................... 8,670 8,030
Supervision................................. 5,610 5,940
Utilities........................................ 8,160 7,990
Total overhead cost........................ $73,440 $72,580
fixed overhead volume variance for the month?
B) $3,150 favorable
D) $1,260 favorable

Solution:

= 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:

Supervision................................. $ 9,880 $ 9,970
Utilities........................................ 4,160 4,440
Total fixed overhead cost............... $35,360 $35,600
fixed overhead volume variance for the month?
A) $4,352 favorable
D) $7,072 favorable

Solution:
Predetermined overhead rate = Total overhead ÷ Budgeted hours

= $35,360 ÷ 2,600 MHs = $13.60 per MH
= $13.60 per MH × 520 MHs = $7,072 U
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 machine-
hours. What was the overall fixed overhead volume variance for the month?
A) $220 unfavorable
B) $400 favorable
C) $44 favorable
D) $220 favorable

Solution:
Predetermined overhead rate = Total overhead ÷ Budgeted hours

= $5,060 ÷ 2,300 MHs = $2.20 per MH
= $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 machine-
hours 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

Solution:

= $1.20 per MH × 120 MHs = $144 U
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:

Supplies (@$5.00 per patient-visit)........ $ 41,500
Laundry (@$7.30 per patient-visit)........ 60,590
Occupancy costs..................................... 73,040
$235,72
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

Solution:

Activity
Cost Formula (in patient-
(per patient- visits):
visit) 9,300
Supplies.................................................. $ 5.00 $ 46,500
Laundry................................................... 7.30 67,890
Total variable overhead cost...................... $12.30 $114,390
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

Solution:

Activity
(in patient-
visits):
9,300
Wages and salaries................................. $ 60,590
Occupancy costs..................................... 73,040
Total fixed overhead cost.......................... $133,630
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

Solution:

Cost Formula Activity (in
(per patient- patient
visit) visits): 9,400
Overhead Costs
Supplies.................................................. $ 5.00 $ 47,000
Laundry................................................... 7.30 68,620
Occupancy costs..................................... 73,040
Mandalay Hotel bases its budgets on guest-days. The hotel's static budget for August appears
below:
Budgeted number of guest-days................. 4,300

Supplies (@$9.60 per guest-day)............ $ 41,280
Laundry (@$9.40 per guest-day)............ 40,420
Wages and salaries.................................. 57,190
Occupancy costs..................................... 52,030
Total fixed overhead cost........................... 109,220
$190,92
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

Solution:

(per guest- guest-days):
days) 5,000
Supplies.................................................. $ 9.60 $48,000
Laundry................................................... 9.40 47,000
Total variable overhead cost...................... $19.00 $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

Solution:

Activity (in
guest-days):
5,500
Wages and salaries................................. $ 57,190
Occupancy costs..................................... 52,030
Total fixed overhead cost.......................... $109,220
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

Solution:

(per guest- guest-days):
days) 5,200
Overhead Costs
Supplies.................................................. $ 9.60 $ 49,920
Laundry................................................... 9.40 48,880
Occupancy costs..................................... 52,030
Isadore Hospital bases its budgets on patient-visits. The hospital's static budget for July
appears below:

Supplies (@ $4.60 per patient-visit)....... $ 35,420
Laundry (@ $7.20 per patient-visit)....... 55,440
Salaries.................................................... 46,200
Occupancy costs..................................... 67,760
$204,82
Actual results for the month were:

Actual number of patient-visits............... 7,800
Supplies................................................... $38,250
Laundry................................................... $61,240
Salaries.................................................... $46,190
Occupancy costs..................................... $65,650
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

Solution:

Actual
Costs Budget
Cost Incurred Based on
Formula for 7,800 7,800
(per patient- patient- patient-
visit) visits visits Variance
Variable overhead
costs (Supplies)....... $4.60 $38,250 $35,880 $2,370 U
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

Solution:

Cost Actual Costs Budget

Formula Incurred for Based on
(per patient- 7,800 7,800
visit) patient-visits patient-visits Variance
Variable overhead
costs (Laundry)... $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

Solution:

Actual Costs Budget
Incurred for Based on
7,800 7,800
patient-visits patient-visits Variance
Fixed overhead costs (Occupancy costs) $65,650 $67,760 $2,110 F
Moncrief Corporation bases its budgets on machine-hours. The company's static budget for
July appears below:
Budgeted number of machine-hours.......... 1,000

Supplies (@ $8.60 per machine-hour).... $ 8,600
Power (@ $8.80 per machine-hour)....... 8,800
Salaries................................................... 11,300
Equipment depreciation.......................... 9,900
$38,60

Actual number of machine-hours........... 1,200
$10,29
Supplies.................................................. 0
$10,86
Power...................................................... 0
$11,69
Salaries................................................... 0
Equipment depreciation.......................... $9,990
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

Solution:


(per 1,200 1,200
machine- machine- machine-
hour) hours hours Variance
Variable
overhead costs
(Supplies)......... $8.60 $10,290 $10,320 $30 F
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

Solution:


(per 1,200 1,200
Variable
overhead costs
(Power)............ $8.80 $10,860 $10,560 $300 U
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

Solution:

Actual Costs Budget

1,200 1,200
machine- machine-
hours hours Variance
Fixed overhead costs
(Equipment depreciation)...... $9,990 $9,900 $90 U
Medlar Corporation's static budget for June appears below. The company bases its budgets on
machine-hours.

$ 19,58
Supplies (@ $2.20 per machine-hour).... 0
33,82
Power (@ $3.80 per machine-hour)........ 0
53,40
Total variable overhead cost...................... 0
Salaries.................................................... 26,700
39,16
Equipment depreciation.......................... 0
65,86
Total fixed overhead cost........................... 0
$119,26
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

Solution:

Actual
Cost Costs Budget
(per 9,300 9,300
Variable overhead
costs (Supplies).... $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

Solution:


(per 9,300 9,300
(Power)................................ $3.80 $35,720 $35,340 $380 U
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

Solution:

Actual Costs Budget

9,300 9,300
machine- machine-
hours hours Variance
Fixed overhead costs (Equipment
depreciation)............................ $39,430 $39,160 $270 U
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................................ 1,000 DLHs

Overhead costs at the denominator activity level:
Variable overhead cost....................................... $3,800
$14,25
Fixed overhead cost............................................ 0
The following data pertain to operations for the most recent period:
Actual hours........................................................... 1,200 DLHs

Standard hours allowed for the actual output........ 885 DLHs
Actual total variable overhead cost....................... $4,380
$12,45
Actual total fixed overhead cost............................ 0
80. What is the predetermined overhead rate to the nearest cent?
A) $14.03
B) $16.83
C) $15.04
D) $18.05

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

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
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

Solution:
Budgeted direct-labor hours: 1,100

Actual direct-labor hours: 1,200
Standard direct-labor hours allowed: 800
Actual
Cost Costs Budget
(per 1,200 1,200 Spending
DLH) DLHs DLHs Variance
Variable overhead
costs....................... $3.80 * $4,380 $4,560 $180 F
* $3,800 ÷ 1,000 DLHs = $3.80 per DLH

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

Solution:

Standard direct-labor hours allowed: 885
Cost Budget
Formula Based on Budget
(per 1,200 Based on Efficiency
DLH) DLHs 885 DLHs Variance
Variable overhead
costs....................... $3.80 * $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

Solution:

= $12,450 − $14,250 = $1,800 F
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

Solution:

= $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
Azzurra Company manufactures computer chips used in aircraft and automobiles.

Manufacturing overhead at Azzurra is applied to production on the basis of standard machine-
hours.
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

AICPA FN: Reporting LO: 3; 4; 6 Level: Medium
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?
E) none of the above would be affected unfavorably

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?
E) both C and D above

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........ 32,000 hours

Actual direct labor-hours worked................................... 33,000 hours
Denominator activity...................................................... 30,000 hours
$166,00
Actual variable factory overhead cost............................. 0
Variable overhead rate.................................................... $5 per hour
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

Solution:

Standard direct-labor hours allowed: 32,000
Actual
Costs Budget
Formula 33,000 33,000 Spending
(per DLH) DLHs DLHs Variance
Variable overhead costs $5.00 $166,000 $165,000 $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

AICPA FN: Reporting LO: 3; 4 Level: Easy
Solution:

Standard direct-labor hours allowed: 32,000
Budget Budget
Cost Based on Based on
Formula 33,000 32,000 Efficiency
(per DLH) DLHs DLHs Variance
Variable overhead costs................. $5.00 $165,000 $160,000 $5,000 U
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.............. 2.7 machine-hours

$19.4
Standard variable overhead rate................ 0 per machine-hour
The following data pertain to operations for the last month:
Actual hours............................................... 4,500 machine-hours

$88,42
Actual total variable overhead cost........... 5
Actual output............................................. 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

Solution:

Standard machine-hours: 4,050*
Actual
Cost Costs Budget
Formula Incurred Based on Spending
(per MH) 4,500 MHs 4,500 MHs Variance
*1,500 units × 2.7 machine-hours per unit = 4,050 machine-hours

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

Solution:

Cost Budget Budget
Formula Based on Based on Efficiency
*1,500 units × 2.7 machine-hours per unit = 4,050 machine-hours
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.............. 56,000 70,000 84,000

Detectors produced............ 40,000 50,000 60,000
$252,00 $315,00 $378,00
Variable overhead cost...... 0 0 0
$672,00 $672,00 $672,00
Fixed overhead cost........... 0 0 0
Crispy was expecting to produce 40,000 detectors last year. The actual results for the year
were as follows:
Number of detectors produced....... 43,200

Direct labor-hours incurred............ 62,640
$278,74
Variable overhead cost................... 8
$714,00
Fixed overhead cost....................... 0
93. What was Crispy's variable overhead spending variance?
A) $3,132 favorable
D) $115,884 favorable

Solution:
Actual
Cost Costs Budget
(per 62,640 62,640 Spending
DLH) DLHs DLHs Variance
Variable overhead costs.. $4.50 * $278,748 $281,880 $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
D) $53,760 favorable

Solution:

= $714,000 − $672,000 = $42,000 U
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

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
Dagle Corporation has provided the following data for a recent month:.
Budgeted production................................... 4,700 motors

Actual production........................................ 4,800 motors
Standard machine-hours per motor............. 5.1 machine-hours
Budgeted machine-hours (5.1 × 4,700)....... 23,970 machine-hours
Standard machine-hours allowed for the
actual output (5.1 × 4,800)...................... 24,480 machine-hours
Actual 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:

$151,50
Indirect labor............................................ 6
Power....................................................... $56,700
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

Solution:

Actual
Costs Budget
(per MH) MHs MHs Variance
Variable overhead costs (Indirect
labor)......................... $6.30 $151,506 $155,862 $4,356 F
97. The variable overhead spending variance for power is:

A) $2,844 U
B) $2,844 F
C) $572 U
D) $2,272 U

Solution:

Actual
Costs Budget
Variable overhead costs (Power) $2.20 $56,700 $54,428 $2,272 U
The following data have been provided by Furr Corporation:
Budgeted production.................................. 7,000 motors

Standard machine-hours per motor............ 8.6 machine-hours
Standard indirect labor............................... $7.10 per machine-hour
Standard power.......................................... $1.40 per machine-hour
Actual production...................................... 7,300 motors

Actual machine-hours (total)..................... 62,140 machine-hours
$408,34
Actual indirect labor (total)....................... 0
Actual power (total)................................... $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

Solution:

Standard machine-hours: 60,200
Actual
Costs Budget
labor)........................ $7.10 $408,340 $441,194 $32,854 F
99. The variable overhead spending variance for power is:
A) $7,097 U
B) $7,097 F
C) $896 F
D) $7,993 U

Solution:

Actual
Costs Budget
Variable overhead costs (Power) $1.40 $94,989 $86,996 $7,993 U
Macchi Corporation has provided the following data for a recent period:
Budgeted production.................................. 2,200 units

Actual production....................................... 2,500 units
Standard machine-hours per unit............... 3.1 machine-hours
Budgeted machine-hours (3.1 × 2,200)...... 6,820 machine-hours
actual output (3.1 × 2,500)..................... 7,750 machine-hours

Lubricants.............. $2.00 per machine-hour
Supplies................... $2.60 per machine-hour

$15,85
Lubricants................ 8
$20,39
Supplies................... 2
100. The variable overhead spending variance for lubricants is:
A) $202 F
B) $358 U
C) $202 U
D) $560 U

Solution:

Actual
Cost Costs Budget
(Lubricants).............. $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

Solution:

Actual
Cost Costs Budget
Variable overhead costs (Supplies) $2.60 $20,392 $20,878 $486 F
The following data have been provided by Liggett Corporation:
Budgeted production...................... 7,400 units

Standard machine-hours per unit... 6.6 machine-hours
Standard lubricants......................... $3.50 per machine-hour
Standard supplies........................... $2.00 per machine-hour
Actual production........................... 7,600 units

Actual machine-hours (total)......... 49,840 machine-hours
$179,82
Actual lubricants (total)................. 1
Actual supplies (total).................... $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

Solution:

Actual
Costs Budget
(Lubricants).............. $3.50 $179,821 $174,440 $5,381 U
A) $640 F
B) $1,387 F
C) $1,387 U
D) $747 F

Solution:

Actual
Costs Budget
Byers Corporation, which produces cellular transmission towers, has provided the following
data:
Budgeted production.................................. 2,500 towers

Actual production....................................... 2,800 towers
Standard machine-hours per tower............ 6.8 machine-hours

Indirect labor.......... $7.40 per machine-hour
Power..................... $1.40 per machine-hour

$139,66
Indirect labor.......... 0
Power..................... $26,212
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

Solution:

Budget Budget
labor)........................ $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

Solution:

Budget Budget
Variable overhead costs (Power) $1.40 $25,732 $26,656 $924 F
Czlapinski Corporation, which produces highway lighting poles, has provided the following
data:
Budgeted production.................................. 1,000 poles

Standard machine-hours per pole............... 6.4 machine-hours
Budgeted indirect labor.............................. $2.90 per machine-hour
Budgeted supplies...................................... $1.50 per machine-hour
Actual production....................................... 1,300 poles

$23,21
Actual indirect labor (total)........................ 0
$13,29
Actual supplies (total)................................ 7
106. The variable overhead efficiency variance for indirect labor is:
A) $918 F
B) $1,160 F
C) $918 U
D) $1,160 U

Solution:

Cost Budget Budget
labor)........................ $2.90 $22,968 $24,128 $1,160 F
*1,300 poles × 6.4 machine-hours per pole = 8,320 machine-hours

107. The variable overhead efficiency variance for supplies is:
A) $817 F
B) $1,417 U
C) $600 F
D) $817 U

Solution:

Cost Budget Budget
*1,300 poles × 6.4 machine-hours per pole = 8,320 standard machine-hours
Quickle Corporation, which produces commercial windows, has provided the following data:
Budgeted production.................................. 1,000 windows

Actual production....................................... 1,200 windows
Standard machine-hours per window......... 7.0 machine-hours

Supplies...................... $8.40 per machine-hour

$68,59
Supplies...................... 5
A) $3,495 F
B) $1,965 U
C) $3,495 U
D) $1,965 F

Solution:

Actual
Cost Costs Budget
Variable overhead costs (Supplies) $8.40 $68,595 $65,100 $3,495 U

A) $5,460 U
B) $1,965 F
C) $5,460 F
D) $1,965 U

Solution:

Cost Budget Budget
Variable overhead costs (Supplies) $8.40 $65,100 $70,560 $5,460 F
Geschke Corporation, which produces commercial safes, has provided the following data:
Budgeted production...................... 8,500 safes

Standard machine-hours per safe... 9.1 machine-hours
Standard supplies cost.................... $1.70 per machine-hour
Actual production........................... 8,700 safes
Actual machine-hours.................... 79,100 machine-hours
$123,64
Actual supplies cost....................... 2

A) $10,828 F
B) $10,947 U
C) $10,828 U
D) $10,947 F

Solution:

Actual
Costs Budget
Variable overhead costs (Supplies) $1.70 $123,642 $134,470 $10,828 F
*8,700 safes × 9.1 machine-hours = 79,170 standard machine-hours

A) $10,947 F
B) $119 U
C) $10,947 U
D) $119 F

Solution:

Budget Budget
*8,700 safes × 9.1 machine-hours = 79,170 standard machine-hours
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
$260,00
Actual total overhead cost.......................... 0
$180,00
Budgeted fixed overhead cost.................... 0
Variable overhead rate............................... $2 per hour
Fixed overhead rate.................................... $6 per hour
Standard hours allowed for the output....... 32,000 hours
112. The volume variance for the year was:
A) $12,000 F
B) $4,000 F
C) $4,000 U
D) $16,000 U

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
= $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

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
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
Denominator level of activity......................................... 8,500 DLHs

$19,55
Variable overhead cost................................................. 0
$93,07
Fixed overhead cost..................................................... 5
Actual hours.................................................................... 8,600 DLHs

Standard hours allowed for the actual output................. 8,575 DLHs
$18,49
Actual total variable overhead cost................................. 0
$91,22
Actual total fixed overhead cost..................................... 5

A) $12.91
B) $13.10
C) $12.76
D) $13.25

Solution:
Predetermined overhead rate = ($19,550 + $93,075) ÷ 8,500 DLHs

= $112,625 ÷ 8,500 DLHs = $13.25 per DLH
A) $109,715
B) $112,625
C) $113,619
D) $113,950

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
A) $265 F
B) $1,850 F
C) $2,671 U
D) $2,945 U

Solution:
= $91,225 − $93,075 = $1,850 F
A) $274 U
B) $1,095 F
C) $798 F
D) $821 F

Solution:
Fixed portion of predetermined overhead rate =

Budgeted fixed overhead cost ÷ Denominator activity level
$93,075 ÷ 8,500 DLHs = $10.95 per DLH
= $10.95 per DLH × (8,500 DLHs − 8,575 DLHs)
= $10.95 per DLH × 75 DLHs = $821 F
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
Denominator level of activity................................ 8,800 MHs

$71,72
Fixed overhead cost............................................... 0
Actual hours........................................................... 8,500 MHs

Standard hours allowed for the actual output........ 8,556 MHs
$71,47
Actual total fixed overhead cost............................ 0
118. What is the predetermined fixed overhead rate to the nearest cent?
A) $8.41
B) $8.12
C) $8.15
D) $8.44

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

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
A) $1,739 F
B) $471 U
C) $250 F
D) $2,195 F

Solution:
= $71,470 − $71,720 = $250 F
A) $2,038 U
B) $456 F
C) $2,445 U
D) $1,989 U

Solution:

= ($71,720 ÷ 8,800 MHs) × (8,800 MHs − 8,556 MHs)
= $8.15 per MH × 244 MHs = $1,989 U
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 machine-
hours 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 machine-
hours 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?

B) $59,400 favorable
C) $109,800 favorable

Solution:
= $394,200 − $378,000 = $16,200 U
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

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
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......................................... 2,200 DLHs

$12,76
Variable overhead cost................................................. 0
$29,81
Fixed overhead cost..................................................... 0
Actual hours.................................................................... 2,100 DLHs

Standard hours allowed for the actual output................. 2,108 DLHs
$12,39
Actual total variable overhead cost................................. 0
$29,36
Actual total fixed overhead cost..................................... 0
A) $18.98
B) $20.27
C) $19.88
D) $19.35

Solution:
Predetermined overhead rate = ($12,760 + $29,810) ÷ 2,200 DLHs = $19.35 per DLH
A) $42,570
B) $40,790
C) $40,635
D) $41,750

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
Muscato Corporation's flexible budget for two levels of activity appears below:
Cost
Formula
(per
machine- Activity (in machine-
hour) hours)
7,500 7,600
Supplies................................ $ 9.70 $ 72,750 $ 73,720
Indirect labor........................ 9.30 69,750 70,680
Total variable overhead cost.... $19.00 142,500 144,400
Salaries................................. 672,600 672,600
Occupancy costs................... 769,500 769,500
Total fixed overhead cost........ 1,442,100 1,442,100
$1,586,50
Total overhead cost.................. $1,584,600 0
126. If the denominator level of activity is 7,500 machine-hours, the variable element in the
A) $208.75
B) $192.28
C) $211.28
D) $19.00

Solution:
Variable element = $142,500 ÷ 7,500 MHs = $19.00 per MH

127. If the denominator level of activity is 7,500 machine-hours, the fixed element in the
A) $192.28
B) $211.28
C) $19.00
D) $1,900.00

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

A) $1,900.00
B) $19.00
C) $189.75
D) $208.75

Solution:
Predetermined overhead rate = $1,586,500 ÷ 7,600 MHs = $208.75 per MH

Keeran Corporation's flexible budget for two levels of activity appears below:
Cost
Formula
(per
machine- Activity
6,100 6,200
Lubricants............................. $3.70 $ 22,570 $ 22,940
Power.................................... 1.50 9,150 9,300
Depreciation.......................... 173,972 173,972
Taxes..................................... 68,076 68,076
Total fixed overhead cost......... 242,048 242,048
Total overhead cost.................. $273,768 $274,288
129. If the denominator level of activity is 6,100 machine-hours, the variable element in the
A) $5.20
B) $44.24
C) $39.68
D) $44.88

Solution:
Variable element = $31,720 ÷ 6,100 MHs = $5.20 per MH

130. If the denominator level of activity is 6,100 machine-hours, the fixed element in the
A) $520.00
B) $39.68
C) $5.20
D) $44.88

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

A) $520.00
B) $5.20
C) $44.24
D) $39.04

Solution:
Predetermined overhead rate = $274,288 ÷ 6,200 MHs = $44.24 per MH
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
Actual machine-hours................................................... 640 hours

Standard machine-hours allowed for the actual output. 650 hours
Denominator activity..................................................... 700 hours
$2,00
Actual fixed overhead costs.......................................... 0
$2,10
Budgeted fixed overhead costs...................................... 0
Predetermined overhead rate ($1 variable + $3 fixed).. $4 per hour
132. The fixed overhead budget variance would be:
A) $100 F
B) $300 F
C) $300 U
D) $200 F

Solution:
= $2,000 − $2,100 = $100 F
133. The volume variance would be:

A) $180 F
B) $240 F
C) $150 U
D) $200 U

Solution:

hours − Standard hours allowed) = $3 per hour × (700 hours − 650 hours) = $3 per
hours × 50 hours = $150 U
Asper Corporation has provided the following data for February.
Denominator level of activity.................... 7,700 machine-hours

$266,42
Budgeted fixed overhead costs.................. 0
Fixed portion of the predetermined
overhead rate.......................................... $34.60 per machine-hour
Actual level of activity.............................. 7,900 machine-hours
actual output........................................... 8,200 machine-hours
$259,96
Actual fixed overhead costs....................... 0
134. The budget variance for February is:
A) $6,460 F
B) $6,920 U
C) $6,460 U
D) $6,920 F

Solution:
= $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

Solution:

= $34.60 per MH × (7,700 MHs − 8,200 MHs)
= $34.60 per MH × 500 MHs = $17,300 F
The following data for May has been provided by Mccawley Corporation.
Denominator level of activity........ 2,600 machine-hours

$53,82
Budgeted fixed overhead costs...... 0
Actual level of activity................... 2,700 machine-hours
Standard machine-hours allowed
for the actual output.................... 2,800 machine-hours
$56,29
Actual fixed overhead costs........... 0
136. The budget variance for May is:
A) $2,070 U
B) $2,470 F
C) $2,070 F
D) $2,470 U

Solution:
= $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

Solution:

= ($53,820 ÷ 2,600 MHs) × (2,600 MHs − 2,800 MHs) =
= $20.70 per MH × 200 MHs = $4,140 F
138. The following overhead data are for a department in a large company.
Actual Static budget

Activity level (in units)...... 290 280
Variable costs:
Indirect materials............ $3,625 $3,780
Power.............................. $2,648 $2,576
Fixed costs:
Supervision..................... $9,670 $9,700
Depreciation.................... $4,210 $4,200
Required:
Prepare a report that would be useful in assessing how well costs were controlled in
this department.
Ans:
Flexible
budget
Cost Actual based on
formula costs actual
per unit incurred activity Variance
Variable costs:
Indirect materials.... $13.50 $3,625 $3,915 $290 F
Power...................... 9.20 2,648 2,668 20 F
Total variable cost..... $22.70 6,273 6,583 310 F
Fixed costs:
Supervision............. 9,670 9,700 30 F
Depreciation........... 4,210 4,200 10 U
Total fixed cost.......... 13,880 13,900 20 F
Total cost................... $20,153 $20,483 $330 F
AACSB: Analytic AICPA BB: Critical Thinking

AICPA FN: Measurement; Reporting LO: 1; 2 Level: Easy
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.

AICPA FN: Measurement; Reporting LO: 1 Level: Easy
140. Elvin Hospital bases its budgets on patient-visits. The hospital's static budget for May
appears below:

$13,77
Supplies (@ $2.70 per patient-visit)....... 0
Laundry (@ $3.00 per patient-visit)....... 15,300
Wages and salaries.................................. 16,830
Occupancy costs..................................... 16,830
$62,73
Required:
Prepare a flexible budget for an activity level of 5,300 patient-visits per month.
Ans:
Flexible
Cost Formula Budget Based
(per patient- on 5,300
visit) Patient-Visits
Supplies.................................... $2.70 $14,310
Laundry.................................... 3.00 15,900
Total variable overhead cost....... $5.70 30,210
Wages and salaries................... 16,830
Occupancy costs...................... 16,830
Total fixed overhead cost............ 33,660
Total overhead cost..................... $63,870

141. Wytch Corporation bases its budgets on machine-hours. The company's static budget
for February appears below:

$ 41,40
Supplies (@ $6.90 per machine-hour).... 0
Power (@ $3.70 per machine-hour)....... 22,200
Salaries................................................... 51,600
$141,60
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
Supplies................................. $6.90 $44,160
Power..................................... 3.70 23,680
Total variable overhead cost..... $10.60 67,840
Salaries.................................. 51,600
Equipment depreciation......... 26,400
Total fixed overhead cost......... 78,000
Total overhead cost................... $145,840

142. Lobato Hospital bases its budgets on patient-visits. The hospital's static budget for
September appears below:

$21,78
Supplies (@ $2.20 per patient-visit)....... 0
10,89
Laundry (@ $1.10 per patient-visit)....... 0
32,67
Total variable overhead cost...................... 0
Salaries.................................................... 28,710
10,89
Occupancy costs..................................... 0
39,60
Total fixed overhead cost........................... 0
$72,27
Actual number of patient-visits.................. 10,000

$22,04
Supplies...................................................... 0
$10,64
Laundry...................................................... 0
$28,48
Salaries....................................................... 0
$11,36
Occupancy costs......................................... 0
Required:
Prepare a flexible budget performance report in good form.

Ans:
Actual Flexible
Cost Costs Budget
(per for 10,000 10,000
patient- Patient- Patient-
visit) Visits Visits Variances
Supplies............................... $2.20 $22,040 $22,000 $40 U
Laundry............................... 1.10 10,640 11,000 360 F
Total variable overhead cost. . $3.30 32,680 33,000 320 F
Salaries................................ 28,480 28,710 230 F
Occupancy costs................. 11,360 10,890 470 U
Total fixed overhead cost....... 39,840 39,600 240 U
Total overhead cost................ $72,520 $72,600 $80 F

143. Weakly Corporation bases its budgets on machine-hours. The company's static budget
for September appears below:

Power (@ $9.30 per machine-hour)........ $ 55,800
Supplies (@ $5.20 per machine-hour).... 31,200
Salaries.................................................... 68,400
$201,60
Actual number of machine-hours............... 6,400

$59,87
Power......................................................... 0
$34,96
Supplies...................................................... 0
$65,10
Salaries....................................................... 0
$44,61
Equipment depreciation............................. 0
Required:

Ans:
Actual Flexible
Cost Costs Budget
(per for 6,400 6,400
machine Machine- Machine-
-hour) Hours Hours Variances
Power.................................. $9.30 $59,870 $59,520 $350 U
Supplies............................... 5.20 34,960 33,280 1,680 U
Total variable overhead cost. . $14.50 94,830 92,800 2,030 U
Salaries................................ 65,100 68,400 3,300 F
Equipment depreciation...... 44,610 46,200 1,590 F
Total fixed overhead cost....... 109,710 114,600 4,890 F
Total overhead cost................ $204,540 $207,400 $2,860 F

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.......... 4,200

$27,30
Power (@ $6.50 per unit)........................ 0
Supplies (@ $1.10 per unit).................... 4,620
Salaries.................................................... 34,020
Occupancy costs..................................... 4,620
$70,56
Actual number of units produced............... 4,500

$31,84
Power......................................................... 0
Supplies...................................................... $4,730
$32,48
Salaries....................................................... 0
Occupancy costs......................................... $4,800
Required:
Ans:
Actual Flexible
Cost Costs Budget
(per for 4,500 4,500
unit) Units Units Variances
Power.................................. $6.50 $31,840 $29,250 $2,590 U
Supplies............................... 1.10 4,730 4,950 220 F
Total variable overhead cost. . $7.60 36,570 34,200 2,370 U
Salaries................................ 32,480 34,020 1,540 F
Occupancy costs................. 4,800 4,620 180 U
Total fixed overhead cost....... 37,280 38,640 1,360 F
Total overhead cost................ $73,850 $72,840 $1,010 U

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. What is the denominator level of activity?

b. What were the standard hours allowed for the output last year?
c. What was the variable overhead spending variance?
d. What was the variable overhead efficiency variance?
e. What was the fixed overhead budget variance?
f. What was the fixed overhead volume variance?
Ans:
a. Total overhead at the denominator level of activity........ $50,000

÷ Predetermined overhead rate........................................ $2.50/DLH
= Denominator level of activity....................................... 20,000 DLHs
b
. Actual output............................... 11,500 units
× Standard DLH per unit............. 2 DLH per unit
= Standard DLHs allowed........... 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
AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting

LO: 3; 4; 5; 6 Level: Medium
146. Wattis Manufacturing has established the following master flexible budget:
Sales in units..................................... 100,000 150,000 200,000

$1,500,00 $2,250,00 $3,000,00
Sales.................................................. 0 0 0
Variable expenses:
Raw materials................................ 220,000 330,000 440,000
Direct labor.................................... 240,000 360,000 480,000
Variable manufacturing overhead.. 180,000 270,000 360,000
Variable selling and administrative 100,000 150,000 200,000
Total variable expenses..................... 740,000 1,110,000 1,480,000
Contribution margin.......................... 760,000 1,140,000 1,520,000
Fixed expenses:
Fixed manufacturing overhead...... 337,500 337,500 337,500
Fixed selling and administrative.... 250,000 250,000 250,000
Total fixed expenses......................... 587,500 587,500 587,500
Net operating income........................ $ 172,500 $ 552,500 $ 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:
$211,68
Actual variable manufacturing overhead cost................. 0
$343,00
Actual fixed manufacturing overhead cost..................... 0
Actual machine-hours incurred....................................... 126,000
Units produced and sold.................................................. 120,000
Compute the variable overhead spending and efficiency variances and the fixed
overhead budget and volume variances for the year.
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

LO: 3; 4; 5; 6 Level: Hard
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..................................... 5,300 valves

Actual production.......................................... 5,400 valves
Standard machine-hours per valve................ 7.5 machine-hours
Budgeted machine-hours (7.5 × 5,300)......... 39,750 machine-hours
actual output (7.5 × 5,400)........................ 40,500 machine-hours
Actual machine-hours................................... 41,160 machine-hours

Indirect labor............. $9.30 per machine-hour
Power........................ $2.40 per machine-hour

$363,40
Indirect labor............. 0
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:
Actual Costs Flexible
Cost Formula Incurred Budget Based
(per 41,160 on 41,160
machine- Machine- Machine- Spending
hour) Hours Hours Variance
Indirect labor.. $9.30 $363,400 $382,788 $19,388 F
Power............. $2.40 $94,821 $98,784 $3,963 F

LO: 3 Level: Easy
148. The following data for November have been provided by Hunn Corporation, a
producer of precision drills for oil exploration:
Budgeted production...................... 3,700 drills

Standard machine-hours per drill... 9.0 machine-hours
Standard indirect labor................... $8.80 per machine-hour
Standard power.............................. $2.40 per machine-hour
Actual production........................... 3,900 drills

Actual machine-hours.................... 35,350 machine-hours
$313,92
Actual indirect labor...................... 3
Actual power.................................. $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:
Actual Flexible
Costs Budget
Incurred Based on
Cost Formula 35,350 35,350
(per machine- Machine- Machine- Spending
hour) Hours Hours Variance
Indirect labor.. $8.80 $313,923 $311,080 $2,843 U
Power............. $2.40 $83,310 $84,840 $1,530 F

LO: 3 Level: Easy
149. Hammond Corporation has provided the following data for October:

12,60
Budgeted machine-hours (6.0 × 2,100)...... 0 machine-hours
Standard machine-hours allowed for the 14,40
actual output (6.0 × 2,400)..................... 0 machine-hours
14,22
Actual machine-hours................................ 0 machine-hours

Lubricants........... $1.00 per machine-hour
Supplies............... $1.60 per machine-hour

$13,97
Lubricants........... 4
$23,55
Supplies............... 8
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:
Actual Costs Flexible Budget
Cost Formula Incurred Based on
(per machine- 14,220 14,220 Spending
hour) Machine-Hours Machine-Hours Variance
Lubricants...... $1.00 $13,974 $14,220 $246 F
Supplies......... $1.60 $23,558 $22,752 $806 U

LO: 3 Level: Easy
150. The following data have been provided by Lopus Corporation:

Standard lubricants..................................... $4.20 per machine-hour
Standard supplies....................................... $2.90 per machine-hour

$35,15
Actual lubricants (total)............................. 1
$23,03
Actual supplies (total)................................ 8
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 Actual Costs Flexible Budget
(per machine- Incurred 8,080 Based on 8,080 Spending
hour) Machine-Hours Machine-Hours Variance
Lubricants...... $4.20 $35,151 $33,936 $1,215 U
Supplies......... $2.90 $23,038 $23,432 $394 F

LO: 3 Level: Easy
151. Osika Corporation, which makes helicopter rotors, has provided the following data for
November:
Budgeted production.................................. 3,300 rotors

Actual production....................................... 3,500 rotors
Standard machine-hours per rotor.............. 8.7 machine-hours
28,71
Budgeted machine-hours (8.7 × 3,300)...... 0 machine-hours
Standard machine-hours allowed for the 30,45
actual output (8.7 × 3,500)..................... 0 machine-hours
31,01

Indirect labor........... $1.00 per machine-hour
Power....................... $2.50 per machine-hour

$32,67
Indirect labor........... 3
$70,91
Power....................... 3
Required:
Prepare a variable overhead performance report in good form showing the total
variances, the spending variances, and the efficiency variances.
Ans:
Osika Corporation
Variable Overhead Performance Report
For the Month Ended November 30
Budgeted machine-hours......................... 28,710

Actual machine-hours.............................. 31,010
Standard machine-hours allowed............. 30,450
(1) (2) (3)

Actual Flexible Flexible
Cost Costs Budget Budget
Formula Incurred Based on Based on
(per 31,010 31,010 30,450
machine Machine- Machine- Machine-
Variable overhead costs: -hour) Hours Hours Hours
Indirect labor............................. $1.00 $32,673 $31,010 $30,450
Power........................................ 2.50 70,913 77,525 76,125
Total.......................................... $3.50 $103,586 $108,535 $106,575
Total Spending Efficiency

Variance Variance Variance
Variable overhead costs: (1) − (3) (1) − (2) (2) − (3)
Indirect labor............................. $2,223 U $1,663 U $560 U
Power........................................ 5,212 F 6,612 F 1,400 U
Total.......................................... $2,989 F $4,949 F $1,960 U

LO: 4 Level: Easy
152. Koppa Corporation, which makes skylights, has provided the following data for
January:
Budgeted production.................................. 6,100 skylights

Actual production...................................... 6,300 skylights
Standard machine-hours per skylight........ 6.6 machine-hours
42,12

Indirect labor.......... $5.90 per machine-hour
Power..................... $1.00 per machine-hour

$268,30
Indirect labor.......... 6
Power..................... $41,922
Required:
Prepare a variable overhead performance report in good form showing the total
variances, the spending variances, and the efficiency variances.
Ans:
Koppa Corporation
Variable Overhead Performance Report
For the Month Ended January 31
Budgeted machine-hours (6.6 × 6,100)................................................ 40,260

Actual machine-hours........................................................................... 42,120
Standard machine-hours allowed for the actual output (6.6 × 6,300)... 41,580
(1) (2) (3)

(per 42,120 42,120 41,580
Indirect labor.................... $5.90 $268,306 $248,508 $245,322
Power............................... 1.00 41,922 42,120 41,580
Total................................. $6.90 $310,228 $290,628 $286,902

Indirect labor.................... $22,984 U $19,798 U $3,186 U
Power............................... 342 U 198 F 540 U
Total................................. $23,326 U $19,600 U $3,726 U

LO: 4 Level: Easy
153. Creger Corporation, which makes landing gears, has provided the following data for a
recent month:
Budgeted production.................................. 7,900 gears

Standard machine-hours per gear.............. 9.3 machine-hours
Budgeted supplies cost.............................. $6.20 per machine-hour
Actual production...................................... 8,300 gears
$479,43
Actual supplies cost (total)........................ 8
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)................................................ 73,470

Actual machine-hours........................................................................... 76,930
Standard machine-hours allowed for the actual output (9.3 × 8,300). . 77,190
(1) (2) (3)

(per 76,930 76,930 77,190
Supplies cost...................... $6.20 $479,438 $476,966 $478,578

Supplies cost...................... $860 U $2,472 U $1,612 F

LO: 4 Level: Easy
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
(1) (2) (3)

(per 15,860 15,860 16,740
machine- Machine- Machine- Machine-
Variable overhead costs: hour) Hours Hours Hours
Power cost........................ $3.10 $51,593 $49,166 $51,894

Power cost........................ $301 F $2,427 U $2,728 F

LO: 4 Level: Easy
155. Hykes Corporation's flexible budget for two levels of activity appears below:
Cost
Formula
(per
machine- Activity
3,000 3,100
Supplies................................. $4.40 $ 13,200 $ 13,640
Indirect labor......................... 4.40 13,200 13,640
Salaries.................................. 55,800 55,800
Depreciation.......................... 58,590 58,590
Total fixed overhead cost......... 114,390 114,390
Total overhead cost.................. $140,790 $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

LO: 5 Level: Easy
156. Benoit Corporation has provided its flexible budget for two levels of activity:
Cost
Formula
(per
machine- Activity
5,600 5,700
Supplies....................................... $ 4.60 $ 25,760 $ 26,220
Wearing tools.............................. 8.60 48,160 49,020
Total variable overhead cost.......... $13.20 73,920 75,240
Salaries........................................ 201,096 201,096
Occupancy costs......................... 354,312 354,312
Total fixed overhead cost............... 555,408 555,408
$630,64
Total overhead cost........................ $629,328 8
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

LO: 5 Level: Easy
157. Coppin Corporation has provided the following data for August.
Denominator level of activity................... 5,600 machine-hours

$196,56
Budgeted fixed overhead costs................. 0
Fixed portion of the predetermined
overhead rate......................................... $35.10 per machine-hour
Actual level of activity............................. 5,800 machine-hours
actual output.......................................... 6,000 machine-hours
$193,71
Actual fixed overhead costs...................... 0
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 ×

= $35.10 × (5,600 − 6,000) = $14,040 F

LO: 6 Level: Easy
158. Holl Corporation has provided the following data for November.
Denominator level of activity............................. 4,800 machine-hours

$56,64
Budgeted fixed overhead costs........................... 0
Standard machine-hours allowed for the actual
output.............................................................. 5,100 machine-hours
$55,86
Actual fixed overhead costs................................ 0
Required:
a. Compute the budget variance for November. Show your work!

b. Compute the volume variance for November. Show your work!
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

Volume variance = Fixed portion of the predetermined overhead rate ×
= $11.80 × (4,800 − 5,100) = $3,540 F

LO: 6 Level: Easy
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

Volume variance = Fixed portion of the predetermined overhead rate ×
= $34.90 × (6,900 − 7,200) = $10,470 F

LO: 6 Level: Easy

CH 11 Flexiblebudgetsandoverheadanalysis

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True/False Questions

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

6. The overhead spending variance is not affected by excessive usage or waste of

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: False AACSB: Analytic AICPA BB: Critical Thinking

Ans: False AACSB: Analytic AICPA BB: Critical Thinking

Ans: True AACSB: Analytic AICPA BB: Critical Thinking

Ans: True AACSB: Analytic AICPA BB: Critical Thinking

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: False AACSB: Analytic AICPA BB: Critical Thinking

Ans: False AACSB: Analytic AICPA BB: Critical Thinking

Multiple Choice Questions

16. The purpose of a flexible budget is to:

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: B AACSB: Analytic AICPA BB: Critical Thinking

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

19. A budget that is based on the actual activity of a period is known as a:

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking

20. The fixed manufacturing overhead budget variance equals:

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: C AACSB: Analytic AICPA BB: Critical Thinking

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: B AACSB: Analytic AICPA BB: Critical Thinking

24. The volume variance is nonzero whenever:

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking

25. A volume variance is computed for:

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking

Ans: A AACSB: Analytic AICPA BB: Critical Thinking

Indirect Materials Factory Rent

Ans: D AACSB: Analytic AICPA BB: Critical Thinking

Budgeted number of machine hours: 15,000

*$7,800 ÷ 15,000 MHs = $0.52 per MH

Activity level................................. 90 guests

Variable overhead costs:

Ans: A AACSB: Analytic AICPA BB: Critical Thinking

Budgeted number of guests: 90

Activity level................................. 2,500 machine-hours

Variable overhead costs:

The company's variable overhead costs are driven by machine-hours.

Ans: C AACSB: Analytic AICPA BB: Critical Thinking

Budgeted number of machine-hours: 2,500

Budgeted number of patient-visits............. 8,500

Ans: C AACSB: Analytic AICPA BB: Critical Thinking

Budgeted number of patient-visits: 8,500

Budgeted number of guest-days................ 8,700

Ans: C AACSB: Analytic AICPA BB: Critical Thinking

Budgeted number of guest-days: 8,700

Ans: C AACSB: Analytic AICPA BB: Critical Thinking

Variable overhead spending variance = AH × (AR − SR) = 90 F

Ans: C AACSB: Analytic AICPA BB: Critical Thinking

Budgeted number of patient-visits: 1,560

Ans: C AACSB: Analytic AICPA BB: Critical Thinking

Budgeted number of square feet: 1,720

Ans: D AACSB: Analytic AICPA BB: Critical Thinking

Budgeted number of skeins: 15,900

Ans: D AACSB: Analytic AICPA BB: Critical Thinking