Question 1

RTC Supply Co. produces cleaning equipment for professional cleaners. At the start of the year, RTC estimated variable overhead costs to be $13 per unit and total fixed overhead costs at $300,000 based on a volume of 60,000 units. The detail for the overhead estimates follows: $\begin{array}{lrr}\text { Variable Overhead } &\text { Budget } @ 60,000 \text { units }& \text { Actual Costs }\
\hline \text { Indirect materials } & \$ 480,000 & \$ 469,500 \
\text { Utilities } & 120,000 & 93,000 \
\text { Maintenance } & 180,000 & 224,000 \
\text { Total variable overhead } & 780,000 & 786,500\\
 \text { Fixed Overhead }\
\hline \text { Supervisor salaries } & 125,000 & 127,000 \
\text { Depreciation } & 150,000 & 145,000 \
\text { Other fixed overhead } & 25,000 & 26,000 \\text { Total fixed overhead } & 300,000 & 298,000 \
\text { Total overhead costs } & \$ 1,080,000 & \$ 1,084,500
\end{array}$ Actual production for the year totaled 62,000 units. How much is the variable overhead flexible budget variance?

Accepted Answer

Variable overhead flexible budget variance = (Actual units * Flexible overhead rate) - Actual variable overhead= (62,000 units * $12.72 per unit) - $786,500= $791,040 - $786,500= $4,540 favorable

Question 2

Sigorny Company uses standard costing and applies overhead on the basis of units produced. The company provided the following for July: $\begin{array}{lr}
\text { Predetermined overhead rate per unit produced } & \$ 6.20 \
\text { Budgeted fixed overhead } & \$ 12,600 \
\text { Variable overhead budgeted per unit } & \$ 2.00 \
\text { Actual units produced } & 3,100
\end{array}$ How much is the budgeted variable overhead in July?

Accepted Answer

The answer of Sigorny Company uses standard costing and applies...

Question 3

At the start of 2014, Capital Cemetery determined its standard labor cost to be 2.5 hours for each cemetery plot prepared at $14.00 per hour. The budget for variable overhead was $8 per plot and budgeted fixed overhead was $15,000 for the year. Overhead is applied based on the number of plots prepared. The company expects to prepare 5,000 plots during 2014. During 2014, the actual cost of labor was $14.30 per hour. Capital prepared 4,900 cemetery plots requiring 11,700 direct labor hours. Actual overhead for the year was $52,100. How much is the controllable overhead variance?

Accepted Answer

Controllable overhead variance = Actual overhead - (Standard overhead rate x Actual activity)= $52,100 - ($8 + ($14 x 2.5) x 4,900)= $52,100 - $50,300= $1,800 favorable

Question 4

Hanson produces pressure washers. The detail for the overhead estimates follows: $\begin{array}{lrr}\text { Variable Overhead } &\text { Budget } @ 60,000 \text { units }& \text { Actual Costs }\
\hline \text { Indirect materials } & \$ 480,000 & \$ 469,500 \
\text { Utilities } & 120,000 & 93,000 \
\text { Maintenance } & 180,000 & 224,000 \
\text { Total variable overhead } & 780,000 & 786,500\\
 \text { Fixed Overhead }\
\hline \text { Supervisor salaries } & 125,000 & 127,000 \
\text { Depreciation } & 150,000 & 145,000 \
\text { Other fixed overhead } & 25,000 & 26,000 \\text { Total fixed overhead } & 300,000 & 298,000 \
\text { Total overhead costs } & \$ 1,080,000 & \$ 1,084,500
\end{array}$ Actual production for the year totaled 62,000 units. How much is the overhead volume variance?

Accepted Answer

The overhead volume variance is calculated as (Budgeted fixed overhead - Applied fixed overhead). Applied fixed overhead = (Budgeted fixed overhead / Budgeted units) * Actual units = ($300,000 / 60,000) * 62,000 = $310,000. Volume variance = $300,000 - $310,000 = $10,000 unfavorable. However, the question seems to have a mistake in options as none match this calculation.

Question 5

Sigorny Company uses standard costing and applies overhead on the basis of units produced. The company provided the following for July: $$\begin{array} { l r } 
\text { Predetermined overhead rate per unit produced } & \$ 6.20 \
\text { Budgeted fixed overhead } & \$ 12,600 \
\text { Variable overhead budgeted per unit } & \$ 2.00 \
\text { Actual units produced } & 3,100
\end{array}$$ If the controllable overhead variance was $920 favorable in July, how much were total actual overhead costs?

Accepted Answer

The total standard overhead cost for 3,100 units is $19,220 (3,100 units x $6.20). The controllable variance is $920 favorable, meaning actual overhead costs were $920 less than the standard overhead costs. Therefore, the actual overhead costs were $19,220 - $920 = $18,300.

Question 6

What does the overhead controllable variance indicate?

Accepted Answer

Overhead controllable variance indicates the difference between actual overhead cost and the amount indicated in the flexible budget that can be controlled by management.

Question 7

Cuevas Company produces magic swords. It uses units as the cost driver for overhead. The following information was provided concerning its standard cost system for 2014:
$\begin{array}{l}\text { Standard/Budgeted Data }&\text { Actual Data }\
\begin{array}{|l|l|}
\hline \text { Material } & 1 / 21 \mathrm{~b} . @ \$ 15.00 \text { per } \mathrm{lb} . \
\hline \text { Labor } & 1.2 \mathrm{hrs} @ \$ 12 \text { per hr. } \
\hline \text { Fixed overhead } & \$ 62,000 \
\hline \text { Variable overhead } & \$ 11 \text { per unit } \
\hline \text { Production } & 2,000 \text { units }\\hline
\end{array}
&\begin{array}{|l|l|}
\hline \text { Produced } & 2,100 \text { units } \
\hline \text { Materials purchased } & 1,050 \mathrm{lbs} . \text { for } \$ 14,700 \
\hline \text { Materials used } & 1,080 \mathrm{lbs} . \
\hline \text { Labor worked } & 2,500 \mathrm{hrs} \text {. costing } \$ 29,375 \
\hline \text { Overhead } & \$ 82,000\\hline
\end{array}
\end{array}$
How much is the standard cost per unit?

Accepted Answer

The answer of Cuevas Company produces magic swords. It uses...

Question 8

Which of the following values is used in the calculations for both the controllable overhead variance and the overhead volume variance?

Accepted Answer

The flexible budget level of overhead for the actual level of production is used in both the controllable overhead variance and the overhead volume variance calculations. The controllable overhead variance compares the actual overhead incurred to the flexible budget level of overhead for the actual level of production, while the overhead volume variance compares the flexible budget level of overhead for the actual level of production to the standard overhead allowed for the actual level of production.

Question 9

In which of the following situations will the overhead volume variance be favorable?

Accepted Answer

The answer of In which of the following situations will...

Question 10

Steep, Inc. budgeted 6,000 cup holders for March. Each holder is sold for $12. Actual production for March was 6,300 cup holders. Manufacturing overhead is applied based on units produced. Standards and actual costs follow for March:
$\begin{array}{|l|c|c|}
\hline &\text { Standards }&\text { Actual }\
\hline \text { Materials } & 1.1 \text { pounds @ \$2.40 a pound } & \begin{array}{c}
6,400 \text { pounds purchased for } \$ 15,040 \
6,450 \text { pounds used }
\end{array} \
\hline \text { Labor } & 0.10 \text { hours @ } \$ 14.00 \text { per hour } & 620 \text { hours @ } \$ 14.30 \text { per hour } \
\hline \text { Variable overhead } & \$ 16,800 & \$ 18,400 \
\hline \text { Fixed overhead } & \$ 9,600 & \$ 10,300\
\hline
\end{array}$
How much is the overhead controllable variance?

Accepted Answer

The overhead controllable variance is calculated by comparing the actual overhead costs to the budgeted overhead costs for the actual level of activity. The actual overhead costs are $18,400 (variable) + $10,300 (fixed) = $28,700. The budgeted overhead costs for 6,300 units are $16,800 (variable) + $9,600 (fixed) = $26,400. The variance is $28,700 - $26,400 = $2,300 unfavorable.

Question 11

Under what condition(s) might a favorable variance be considered unfavorable?
I. When a manager overproduces to fully utilize labor in a non-bottleneck department
II. When a manager buys a better quality materials at a cheaper price

Accepted Answer

A favorable variance is usually considered positive as it indicates that actual results exceed expected results. However, in the case of overproduction to fully utilize labor in a non-bottleneck department, it may lead to increased inventory costs and other holding costs, which could negate the benefits of the favorable variance. Therefore, such a variance may be considered unfavorable. Buying better quality materials at a cheaper price is a positive deviation from expectations and is considered favorable.

Question 12

For which of the following reasons does the volume variance arise?

Accepted Answer

Volume variance arises when the company operates at more or less units of production activity than expected during the period. This results in actual overhead costs differing from the budgeted overhead costs per unit of production.

Question 13

Steep, Inc. budgeted 6,000 cup holders for March. Each holder is sold for $12. Manufacturing overhead is applied based on units produced. Actual production for March was 6,300 cup holders. Standards and actual costs follow for March:
$\begin{array}{|l|c|c|}
\hline &\text { Standards }&\text { Actual }\
\hline \text { Materials } & 1.1 \text { pounds @ \$2.40 a pound } & \begin{array}{c}
6,400 \text { pounds purchased for } \$ 15,040 \
6,450 \text { pounds used }
\end{array} \
\hline \text { Labor } & 0.10 \text { hours @ } \$ 14.00 \text { per hour } & 620 \text { hours @ } \$ 14.30 \text { per hour } \
\hline \text { Variable overhead } & \$ 16,800 & \$ 18,400 \
\hline \text { Fixed overhead } & \$ 9,600 & \$ 10,300\
\hline
\end{array}$
How much is the overhead volume variance?

Accepted Answer

The answer of Steep, Inc. budgeted 6,000 cup holders for...

Question 14

For what reason(s) might the overhead volume variance occur?
I. Overhead cost control is poor.
II. The actual activity level was less than estimated.
III. The expected production level was greater than budgeted.

Accepted Answer

The overhead volume variance occurs when the actual activity level is less than estimated, and/or the expected production level was greater than budgeted. Poor overhead cost control may contribute to the problem but is not a direct cause of the variance. Therefore, the best choice is B, which includes options II and III.

Question 15

Rodchester Company uses standard costing. Overhead is applied at $12 per unit produced. Data for the month of March follows: $\begin{array}{lr}
\text { Actual overhead costs } & \$ 194,000 \
\text { Actual units produced } & 17,400 \
\text { Flexible budget overhead for units produced } & \$ 210,000
\end{array}$ How much is the overhead volume variance?

Accepted Answer

The answer of Rodchester Company uses standard costing. Overhead is...

Question 16

What does an unfavorable overhead volume variance indicate?

Accepted Answer

An unfavorable overhead volume variance indicates that the actual quantity of production was less than what was anticipated, resulting in underutilization of overhead resources and higher overhead costs per unit.

Question 17

Into what components is the manufacturing overhead variance decomposed when it is analyzed?

Accepted Answer

The answer of Into what components is the manufacturing overhead...

Question 18

At the start of 2014, Capital Cemetery determined its standard labor cost to be 2.5 hours for each cemetery plot prepared at $14.00 per hour. The budget for variable overhead was $8 per plot and budgeted fixed overhead was $15,000 for the year. Overhead is applied based on the number of plots prepared. The company expects to prepare 5,000 plots during 2014. During 2014, the actual cost of labor was $14.30 per hour. Capital prepared 4,900 cemetery plots requiring 11,700 direct labor hours. Actual overhead for the year was $52,100. How much is the overhead volume variance?

Accepted Answer

Overhead volume variance = Actual overhead - (Budgeted fixed overhead + (Budgeted variable overhead rate x Actual direct labor hours))

= $52,100 - ($15,000 + ($8 x 11,700/14.30))

= $52,100 - ($15,000 + $6,662.94)

= $30,437.06

Since the actual overhead is higher than what was expected for the number of plots prepared, the variance is unfavorable. Therefore, the answer is choice B, $300 unfavorable.

Question 19

Which of the following variances is most likely the responsibility of the purchasing manager?

Accepted Answer

Material price variance is the difference between the actual cost of materials purchased and the standard cost of materials for the quantity purchased. The purchasing manager is responsible for buying materials at the best possible price, so this variance is most likely their responsibility. The other variances listed (material quantity variance, labor efficiency variance, and overhead volume variance) are more likely to be the responsibility of production or operations managers.

Question 20

Which of the following is not a criterion that a company might use to determine whether or not a variance is exceptional?

Accepted Answer

Whether a variance is favorable or unfavorable is not a criterion for determining whether or not it is exceptional. A company typically considers factors such as the percentage of the standard cost, the dollar amount, and the percentage of the flexible budget amount when evaluating variances.

Quiz 11: Standard Costs and Variance Analysis