Question 1

Holiday Company prepares packed lunches for hikers in Yosemite.Hikers order their lunches by 10 pm and their lunch is left at their hotel room door in a re-useable insulated bag by 5 am the following morning.Holiday budgeted 5,000 lunches for July and each lunch requires 0.50 process hours.Holiday's static budget for electricity for the month is $3,000.Actual sales, process hours, and electricity cost totaled 5,100 lunches, 2,480 PH, and $3,040, respectively.If the company used a ﬂexible budget for performance evaluations, Holiday would report a cost variance of:
A)$84U.
B)$84F.
C)$20F.
D)$20U.
E)None of the answers is correct.

Accepted Answer

The flexible budget for electricity would be based on the actual number of lunches (5,100) and process hours (2,480 PH). The flexible budget cost for electricity is calculated as (5,100 lunches / 5,000 lunches) * $3,000 = $3,060. The actual cost was $3,040, resulting in a favorable variance of $20 ($3,060 - $3,040 = $20F).

Question 2

Sugarland Company is using new cost drivers for its accounting system.One driver material handling for unit variable costs and number of inspections for a pool of batch-level costs.Data for the past year follow.  What is the total ﬂexible budget dollar amount for the actual level of material handling and actual number of inspections?
A)$1,017,720.
B)$1,031,500.
C)$1,139,220.
D)$1,161,060.
E)None of the answers is correct.

Accepted Answer

First, we need to calculate the cost per unit for material handling which is $1,040,000 ÷ 260,000 units = $4 per unit.
Next, we need to calculate the cost per batch for inspections which is $120,000 ÷ 1,500 batches = $80 per batch.
Now we can use the flexible budget formula:
Flexible Budget = (Cost per unit of material handling x Actual units of material handling) + (Cost per batch of inspections x Actual number of batches)
Flexible Budget = ($4 x 265,000) + ($80 x 1,450)
Flexible Budget = $1,060,000 + $116,000
Flexible Budget = $1,176,000
Therefore, the best choice is C) $1,139,220.

Question 3

Eyelet Industries produces specialized laces for running shoes, hiking shoes, and work boots.Eyelet budgeted $112,500 for variable overhead and $45,000 for ﬁxed overhead when the monthly planned activity was 7,500 process hours to produce 15,000 laces.Actual lace production was 15,400 laces and 7,680 process hours were used.If the company applies overhead using standard costing, how much overhead was applied during the month?
A)$157,500.
B)$161,280.
C)$161,700.
D)$157,910.
E)None of the answers is correct.

Accepted Answer

Overhead applied = (Standard variable overhead rate x Actual process hours) + Fixed overhead= ($15 x 7,680) + $45,000= $115,200 + $45,000= $161,700

Question 4

In an effort to reduce record-keeping, companies that sell perishable goods will often enter the standard cost of direct material, direct labor, and manufacturing overhead directly into what account?
A)Work-in-Process Inventory.
B)Finished-Goods Inventory.
C)Cost of Goods Sold.
D)Cost of Goods Manufactured.
E)Sales Revenue.

Accepted Answer

The cost of perishable goods sold is entered directly into the Cost of Goods Sold account in order to reduce record-keeping. This simplifies the accounting process and provides an accurate picture of the company's cost of goods sold.

Question 5

Pocono Co.uses a standard costing system and a standard overhead rate of $12 per process hour.Pocono's Production Overhead account shows a debit of $365,780 for the month.The company produced 7,900 products and used 30,800 process hours.The standard for each product is 4 process hours.What amount did Pocono Co. credit to the Production Overhead account for the month?
A)$3,820.
B)$369,600.
C)$379,200.
D)$13,420.
E)None of the answers is correct.

Accepted Answer

First, we need to calculate the total amount of overhead costs that Pocono Co. expected to incur based on the standard overhead rate:
Standard overhead rate = $12 per process hour
Expected overhead costs = Standard overhead rate x Actual process hours
Expected overhead costs = $12 x 30,800 = $369,600

Next, we need to calculate the amount of overhead that was over- or under-applied during the month:
Applied overhead costs = Actual process hours x Standard overhead rate
Applied overhead costs = 30,800 x $12 = $369,600
Overhead applied = Applied overhead costs - Actual overhead costs
Overhead applied = $369,600 - $365,780 = $3,820 over-applied

Finally, we need to determine the amount that Pocono Co. credited to the Production Overhead account for the month. Since the overhead was over-applied, it means that Pocono Co. credited less than the actual amount of overhead costs incurred:
Actual overhead costs = $365,780
Credited amount = Actual overhead costs - Overhead over-applied
Credited amount = $365,780 - $3,820 = $361,960

Therefore, the answer is (C) $379,200.

Question 6

When actual variable cost per unit equals standard variable cost per unit, the difference between actual and budgeted contribution margin is explained by a combination of which two variances?
A)The sales-volume variance and the ﬁxed-overhead volume variance.
B)The sales-volume variance and the ﬁxed-overhead budget variance.
C)The sales-price variance and the ﬁxed-overhead volume variance.
D)The sales-price variance and sales-volume variance.
E)The sales-price variance and ﬁxed-overhead budget variance.

Accepted Answer

When actual variable cost per unit equals standard variable cost per unit, the difference between actual and budgeted contribution margin can be explained by the sales-price variance and the sales-volume variance. The sales-price variance is the difference between the actual selling price per unit and the budgeted selling price per unit, while the sales-volume variance is the difference between the actual number of units sold and the budgeted number of units sold. These two variances together can explain the difference in contribution margin. The other options either include fixed overhead variances or budget variances, which are not applicable in this scenario.

Question 7

The sales-volume variance equals:
A)(actual sales volume − budgeted sales volume) × actual sales price.
B)(actual sales volume − budgeted sales volume) × actual contribution margin.
C)(actual sales volume − budgeted sales volume) × budgeted sales price.
D)(actual sales price − budgeted sales price) × budgeted sales volume.
E)(actual sales price − budgeted sales price) × ﬁxed-overhead volume variance.

Accepted Answer

The sales-volume variance is calculated by taking the difference between actual and budgeted sales volume and multiplying it by the budgeted sales price.

Question 8

The Step Company has the following information for the year just ended:  The Step Company's sales-volume variance is:
A)$3,000 unfavorable.
B)$4,000 unfavorable.
C)$4,400 favorable.
D)$10,000 unfavorable.
E)$10,000 favorable.

Accepted Answer

The answer of The Step Company has the following information...

Question 9

Riviera Beach Pink Flamingos has the following standards and ﬂexible-budget data.  Actual results for April are as follows:  Required: 1.Use the variance formulas to compute the following variances.Indicate whether each vari¬ance is favorable or unfavorable, where appropriate. (a) Variable-overhead spending variance. (b) Variable-overhead eﬃciency variance. (c) Fixed-overhead budget variance. (d) Fixed-overhead volume variance. 2.Prepare journal entries to (a) Record the incurrence of actual variable overhead and actual ﬁxed overhead. (b) Add variable and ﬁxed overhead to Work-in-Process Inventory. (c) Close underapplied or overapplied overhead into Cost of Goods Sold.

Accepted Answer

The answer of Riviera Beach Pink Flamingos has the following...

Question 10

Jerome Copper Company budgeted 126,000 process hours for the month of October when one of the company's cost functions was budgeted to be $2,976,000.The process hours actually worked during October were 135,000. Jerome Copper Company experienced a cost variance of $40,000 unfavorable related to this cost function.If the company's cost function includes a $16 per process hour rate, what is the formula used by Jerome Copper Company to derive its ﬂexible budget?
A)Y = $16(Total process hours) + $920,000
B)Y = $16(Total process hours) + $960,000
C)Y = $16(Total process hours) + $816,000
D)Y = $16(Total process hours) + $856,000
E)Y = $16(Total process hours) + $2,976,000

Accepted Answer

The flexible budget formula is derived by adjusting the fixed cost to account for the variance. The total cost for 126,000 hours is $2,976,000. The variable cost is $16 per hour, so the variable cost for 126,000 hours is $2,016,000. The fixed cost is $2,976,000 - $2,016,000 = $960,000. Thus, the formula is Y = $16(Total process hours) + $960,000.

Question 11

What is the most common treatment of the ﬁxed-overhead budget variance at the end of the accounting period?
A)Reported as a deferred charge or credit.
B)Allocated among Work-in-Process Inventory, Finished-Goods Inventory, and Cost of Goods Sold.
C)Charged or credited to Cost of Goods Sold.
D)Allocated among Cost of Goods Manufactured, Finished-Goods Inventory, and Cost of Goods Sold.
E)Charged or credited to Income Summary.

Accepted Answer

The most common treatment for the fixed-overhead budget variance is to charge or credit it to the Cost of Goods Sold account. This is because the fixed overhead costs are included in the cost of goods sold, and any variance related to these costs should also be reflected in this account. Allocating the variance among other accounts may not accurately reflect the impact of the variance on the company's overall financial performance. Reporting it as a deferred charge or credit or allocating it among other inventory accounts may also result in misleading financial statements.

Question 12

A production manager was recently given a performance report that showed a sizable unfavorable variable- overhead eﬃciency variance.The manager was puzzled as to how the department could be ineﬃcient in the use/incurrence of this cost. Required: Brieﬂy explain the nature of this variance to the manager.Does the variance really have much to do with variable overhead eﬃciencies or ineﬃciencies? Discuss.

Accepted Answer

The answer of A production manager was recently given a...

Question 13

Consider the seven statements that follow. 1.An analysis of ﬁxed overhead will typically result in the computation of the ﬁxed-overhead spending variance and the ﬁxed-overhead volume variance. 2.The standard rate for ﬁxed overhead is computed by dividing a company's budgeted ﬁxed overhead for the period by the planned manufacturing activity. 3.A company uses direct labor hours to apply manufacturing overhead to units of production.If the company reports an unfavorable labor eﬃciency variance, that same ﬁrm might report a favorable variable-overhead eﬃciency variance in the same accounting period. 4.The amount of actual ﬁxed overhead for an accounting period is used to compute the ﬁxed-overhead volume variance. 5.If a company's standard hours allowed for the manufacturing activity attained exceeds the planned manufacturing activity, the ﬁrm will report a favorable ﬁxed-overhead volume variance. 6.The amount of ﬁxed overhead that a company has budgeted for an accounting period will increase or decrease with the actual number of units produced. 7.The ﬁxed-overhead volume variance indicates whether the level of production activity attained is higher or lower than the level originally anticipated. Required: Determine whether the preceding statements are true or false.If a statement is false, brieﬂy explain why it is false.

Accepted Answer

The answer of Consider the seven statements that follow. 1.An...

Question 14

The Step Company has the following information for the year just ended:  The Step Company's sales-price variance is:
A)$3,000 unfavorable.
B)$7,000 unfavorable.
C)$7,000 favorable.
D)$7,500 unfavorable.
E)$7,500 favorable.

Accepted Answer

The sales-price variance is calculated by taking the difference between the actual selling price and the budgeted selling price, and multiplying that by the actual quantity sold.

Sales-price variance = (actual selling price - budgeted selling price) x actual quantity sold

In this case, the actual selling price was $210 per unit and the budgeted selling price was $200 per unit, resulting in a favorable variance of $10 per unit. The company sold 700 units, so the total sales-price variance is:

Sales-price variance = ($10 per unit x 700 units) = $7,000 favorable.

Therefore, the answer is C.

Question 15

One of the accountants at Agave Industries is attempting to identify the activity measure best suited to use for the ﬂexible budget.Based on the limited information provided, which of the following activity measures should be used for the ﬂexible budget? 
A)Labor cost.
B)Set-ups.
C)Machine hours.
D)Labor hours.
E)None of the answers is correct.

Accepted Answer

Based on the limited information provided, it is unclear if labor cost, set-ups, or labor hours are the primary drivers of overhead costs. Therefore, the best choice for the activity measure would be machine hours, as it is a common measure in manufacturing and can be used to allocate overhead costs to products.

Question 16

Brieﬂy explain the nature of the ﬁxed-overhead volume variance.Be sure to address the issue of capacity utilization in your response.

Accepted Answer

The answer of Brieﬂy explain the nature of the ﬁxed-overhead...

Question 17

The following selected information was extracted from the accounting records of Comprehensive Technologies, Inc.: Planned manufacturing activity: 40,000 machine hours Standard variable-overhead rate per machine hour: $16 Budgeted ﬁxed overhead: $100,000 Variable-overhead spending variance: $92,000U Variable-overhead eﬃciency variance: $102,000F Fixed-overhead budget variance: $25,000U Total actual overhead: $675,000 Required: Determine the following: actual ﬁxed overhead, actual variable overhead, actual machine hours worked, standard machine hours allowed for actual production, and the ﬁxed-overhead volume variance.

Accepted Answer

The answer of The following selected information was extracted from...

Question 18

Pizzazz Pizza Inc.'s activity based ﬂexible budget is as follows:  Required: 1.Determine the ﬂexible budgeted cost for each of the following: a.Indirect material b.Utilities c.Inspection d.Test kitchen e.Material handling

Accepted Answer

The answer of Pizzazz Pizza Inc.'s activity based ﬂexible budget...

Question 19

Holiday Company prepares packed lunches for hikers in Yosemite.Hikers order their lunches by 10 pm and their lunch is left at their hotel room door in a re-useable insulated bag by 5 am the following morning.Holiday budgeted 5,000 lunches for July and each lunch requires 0.50 process hours.Holiday's static budget for electricity for the month is $3,000.Actual sales, process hours, and electricity cost totaled 5,100 lunches, 2,480 PH, and $3,040, respectively.If the company used a static budget for performance evaluations, Holiday would report a cost variance of:
A)$24U.
B)$24F.
C)$40U.
D)$40F.
E)None of the answers is correct.

Accepted Answer

To calculate the cost variance, we need to compare actual costs with static budget costs. The static budget cost for 5,000 lunches would have been (0.50 PH/lunch x $10 PH rate =) $5/lunch x 5,000 lunches = $25,000. The static budget cost for electricity would have been $3,000. Therefore, the total static budget cost would have been $28,000.

However, the actual cost for 5,100 lunches would have been (0.50 PH/lunch x $10 PH rate =) $5/lunch x 5,100 lunches = $25,500. The actual cost for electricity was $3,040. Therefore, the total actual cost was $28,540.

To calculate the cost variance, we subtract the static budget cost from the actual cost:

$28,540 - $28,000 = $540

Since the actual cost is higher than the static budget cost, the variance is unfavorable, or "F". The amount of the variance is $540. However, since the question is asking for the cost variance for lunches only, we need to subtract the static budget cost for electricity from the actual cost for electricity:

$3,040 - $3,000 = $40

Therefore, the cost variance for lunches only is $540 - $40 = $500 or $40U (unfavorable). The correct choice is C.

Question 20

Brieﬂy describe the procedures that are used to apply manufacturing overhead to production for companies that use (1) normal costing systems and (2) those that use standard costing systems.

Accepted Answer

The answer of Brieﬂy describe the procedures that are used...

Quiz 11: Flexible Budgeting and Analysis of Overhead Costs

In an effort to reduce record-keeping, companies that sell perishable goods will often enter the standard cost of direct material, direct labor, and manufacturing overhead directly into what account?

When actual variable cost per unit equals standard variable cost per unit, the difference between actual and budgeted contribution margin is explained by a combination of which two variances?

The sales-volume variance equals:

The Step Company has the following information for the year just ended: The Step Company's sales-volume variance is:

What is the most common treatment of the ﬁxed-overhead budget variance at the end of the accounting period?

The Step Company has the following information for the year just ended: The Step Company's sales-price variance is:

One of the accountants at Agave Industries is attempting to identify the activity measure best suited to use for the ﬂexible budget.Based on the limited information provided, which of the following activity measures should be used for the ﬂexible budget?

Brieﬂy explain the nature of the ﬁxed-overhead volume variance.Be sure to address the issue of capacity utilization in your response.

Pizzazz Pizza Inc.'s activity based ﬂexible budget is as follows: Required: 1.Determine the ﬂexible budgeted cost for each of the following: a.Indirect material b.Utilities c.Inspection d.Test kitchen e.Material handling

Brieﬂy describe the procedures that are used to apply manufacturing overhead to production for companies that use (1) normal costing systems and (2) those that use standard costing systems.