Question 1

Because fixed overhead does not vary with changes in the level of activity, some managers do not see a need to investigate variances relating to fixed costs.However, that is not the case.
a.How is the fixed overhead spending variance calculated?
b.Discuss items that generally do not affect the fixed overhead variance and those that might affect the fixed overhead variances.

Accepted Answer

The answer of Because fixed overhead does not vary with...

Question 2

The flexible budget breaks down into the price and quantity variances for direct materials.
Required:
a.List two reasons why actual prices might differ from standard prices, resulting in a direct materials price variance.
b.List two reasons why actual materials usage might differ from standard material usage, resulting in a direct materials quantity variance.

Accepted Answer

The answer of The flexible budget breaks down into the...

Question 3

R&N Sports has budgeted $57,000 for fixed overhead for the period.This budget was based on the following items: depreciation of $24,000, rent of $4,000, production supervisor salaries of $27,000, and other fixed costs of $2,000.Actual overhead incurred is $52,000.Production was budgeted at 8,000 units while actual production is 8,100.
Required:
Calculate the fixed overhead spending variance.

Accepted Answer

The answer of R&N Sports has budgeted $57,000 for fixed...

Question 4

Suppose you are investigating direct materials variances.You find that the direct materials price variance is favorable, but the direct materials quantity variance is unfavorable.Assuming that the quantity purchased and used were equal, what circumstances could explain both variances?

Accepted Answer

The answer of Suppose you are investigating direct materials variances.You...

Question 5

Chillcott Manufacturing produces ceiling fans.A master budget was prepared by the controller based on sales of 19,500 fans for the month of May.The budgeted income statement for the period follows:  During May, Chillcott produced and sold 23,400 fans and had the following actual results:  Required: 
a.Prepare a flexible budget for May.
b.Calculate Chillcott's static budget variance for May.
c.Will the static budget variance that you calculated in part (b) be useful to management? Why or why not?
d.Based on the available information, prepare a performance report for management.
e.Comment on the results of your report.

Accepted Answer

The answer of Chillcott Manufacturing produces ceiling fans.A master budget...

Question 6

The following standards for variable manufacturing overhead have been established for Windsor, Inc.a manufacturer of reproduction vintage hats.  Required:
Calculate the variable overhead spending variance and the variable overhead efficiency variance for July and indicate whether the variances are favorable or unfavorable.

Accepted Answer

The answer of The following standards for variable manufacturing overhead...

Question 7

Hunter Company produces personalized towel wraps.During May, the company's actual wage rate was $12.50.The standard wage rate is $12 per hour, and the standard hours allowed for actual production was 9,000.The favorable direct labor efficiency variance for May was $1,200.
Required:
How many hours were actually worked during May?

Accepted Answer

The answer of Hunter Company produces personalized towel wraps.During May,...

Question 8

The flexible budget breaks down into the rate and efficiency variances for direct labor.
Required:
a.List two reasons why actual wage rates might differ from standard wage rates, resulting in a direct labor rate variance.
b.List two reasons why actual labor hours might differ from standard labor hours, resulting in a direct labor efficiency variance.

Accepted Answer

The answer of The flexible budget breaks down into the...

Question 9

Indirect materials are classified as manufacturing overhead.How might indirect materials generate an unfavorable variance that is not related to the efficient use of the variable overhead activity driver?

Accepted Answer

The answer of Indirect materials are classified as manufacturing overhead.How...

Question 10

Assume you have been assigned to a team responsible for using the flexible budget to assist in determining managers' bonuses.When you approach the production manager about some variances, he says, "I don't know why your team can't just use the budget we developed at the beginning of the year.It was based on last year's actual numbers which seems reasonable.I don't understand this 'flexible budget' stuff.When I compare my actual results with our beginning of the year budget, I have beat the budget, so that should be sufficient.That will save us all a lot of time and effort." Explain to the production manager why a flexible budget is better than a static budget and its use in evaluating performance.

Accepted Answer

The answer of Assume you have been assigned to a...

Question 11

While the sales manager may be ecstatic to learn he has exceeded his sales goal, the production manager may not share that enthusiasm, because having more sales than anticipated requires overtime for workers and additional maintenance on some machinery.Managers use budgeting to control and evaluate their operations.Two types of budgets that are discussed in this chapter are the static budget and the flexible budget.How do the two budgets differ and explain how the flexible budget is used in evaluating performance.

Accepted Answer

The answer of While the sales manager may be ecstatic...

Question 12

Variable overhead cost consists of indirect production costs that are expected to vary with production activity.How is the variable overhead spending variance calculated and list potential causes of the variance?

Accepted Answer

The answer of Variable overhead cost consists of indirect production...

Question 13

The following labor standards have been set for a product:  The following data pertain to operations for the period.  Required:
Calculate the direct labor rate and efficiency variances and indicate whether the variances are favorable or unfavorable.

Accepted Answer

The answer of The following labor standards have been set...

Question 14

Your friend has accepted a position with a large manufacturing company as production manager.She has found out that she must analyze and report any variances that relate to production.She has been told that managers use a method called "management by exception" and is concerned that any variance will be viewed negatively by her supervisors.
Required:
Explain to your friend the concept of "management by exception" and put her mind at ease about all variances being viewed as negative and explain what factors may be considered when deciding what variances to investigate.

Accepted Answer

The answer of Your friend has accepted a position with...

Quiz 6: Performance Evaluation: Variance Analysis

Suppose you are investigating direct materials variances.You find that the direct materials price variance is favorable, but the direct materials quantity variance is unfavorable.Assuming that the quantity purchased and used were equal, what circumstances could explain both variances?

Indirect materials are classified as manufacturing overhead.How might indirect materials generate an unfavorable variance that is not related to the efficient use of the variable overhead activity driver?

Variable overhead cost consists of indirect production costs that are expected to vary with production activity.How is the variable overhead spending variance calculated and list potential causes of the variance?

The following labor standards have been set for a product: The following data pertain to operations for the period. Required: Calculate the direct labor rate and efficiency variances and indicate whether the variances are favorable or unfavorable.