Question 1

Bismith Company reported:

To record the write-off of these variances at the end of the accounting period, Bismith would ________.

Accepted Answer

The answer of Bismith Company reported:

To record the write-off of...

Question 2

Radon Corporation manufactured 37,500 units during March. The following fixed overhead data pertain to March:

What is the fixed overhead production-volume variance?

Accepted Answer

Fixed cost per machine hour = $204,000 ÷ 10,200 = $20
Machine hours per unit = 10,200 ÷ 34,000 = 0.3
Fixed cost per unit = $20 × 0.3 = $6.00
Fixed overhead allocated = 37,500 × $6.00 = $225,000.00
Fixed overhead production-volume variance = $204,000 - $225,000.00 =$21,000.00 F

Question 3

Time and Again Company makes clocks. The fixed overhead costs for 2017 total $900,000. The company uses direct labor-hours for fixed overhead allocation and anticipates 200,000 hours during the year for 330,000 units. An equal number of units are budgeted for each month.
During June, 32,000 clocks were produced and $72,000 was spent on fixed overhead.
Required:
a.Determine the fixed overhead rate for 2017 based on units of input.
b.Determine the fixed overhead static-budget variance for June.
c.Determine the production-volume overhead variance for June.

Accepted Answer

The answer of Time and Again Company makes clocks. The...

Question 4

When forecasting fixed costs, managers should concentrate on total lump-sum costs instead of unitized fixed overhead costs.

Accepted Answer

When forecasting fixed costs, it is important for managers to consider the total lump-sum cost of these fixed costs, as opposed to unitized fixed overhead costs. This is because fixed costs tend to be relatively stable regardless of the level of production, so it is more helpful to consider the overall cost rather than the cost per unit.

Question 5

'Managers should be wary of using the same unitized fixed overhead costs for planning and control purposes'. Do you agree with this argument? Give reasons for your answer.

Accepted Answer

The answer of 'Managers should be wary of using the...

Question 6

Favorable overhead variances are always recorded with credits in a standard cost system.

Accepted Answer

In a standard cost system, overhead variances are compared with the standard overhead cost and actual overhead cost, and any favorable variance is considered as a credit and recorded on the credit side. This helps in reducing the cost of goods sold and increasing the profit margin. Therefore, the statement is true.

Question 7

Neon Company manufactured 2,500 units during April with a total overhead budget of $55,000. However, while manufacturing the 2,500 units the microcomputer that contained the month's cost information broke down. With the computer out of commission, the accountant has been unable to complete the variance analysis report. The information missing from the report is lettered in the following set of data:
Variable overhead:
Standard cost per unit: 1.2 labor hour at $10 per hour
Actual costs: $26,250 for 2,250 hours
Flexible budget: a
Total flexible-budget variance: b
Variable overhead spending variance: c
Variable overhead efficiency variance: d
Fixed overhead:
Budgeted costs: e
Actual costs: f
Flexible-budget variance: $200 favorable
Required:
Compute the missing elements in the report represented by the lettered items.

Accepted Answer

The answer of Neon Company manufactured 2,500 units during April...

Question 8

Radon Corporation manufactured 38,100 units during March. The following fixed overhead data pertain to March:

What is the fixed overhead spending variance?

Accepted Answer

Fixed overhead spending variance = $289,100 - $280,000 = $9,100.00 unfavorable

Question 9

An unfavorable production-volume variance indicates an overallocation of fixed overhead costs.

Accepted Answer

A favorable production-volume variance indicates an overallocation of fixed overhead costs. An unfavorable production-volume variance indicates an underallocation of fixed overhead costs.

Question 10

Timely Products Company makes watches. The fixed overhead costs for 2017 total $648,000. The company uses direct labor-hours for fixed overhead allocation and anticipates 21,600 hours during the year for 540,000 units. An equal number of units are budgeted for each month.
During October, 48,000 watches were produced and $52,000 was spent on fixed overhead.
Required:
a.Determine the fixed overhead rate for 2017 based on the units of input.
b.Determine the fixed overhead static-budget variance for October.
c.Determine the production-volume overhead variance for October.

Accepted Answer

The answer of Timely Products Company makes watches. The fixed...

Question 11

If the production planners set the budgeted machine hours standards too loose, one could anticipate there would be a favorable fixed overhead efficiency variance.

Accepted Answer

There is no efficiency variance for fixed costs because a given lump sum of fixed costs will be unaffected by how efficiently machine-hours are used to produce output in a given budget period.

Question 12

Fixed costs for the period are by definition a lump sum of costs that remain unchanged and therefore the fixed overhead spending variance is always zero.

Accepted Answer

Fixed costs for the period are by definition a lump sum of costs, but they can and do change from the amount that was originally budgeted.

Question 13

If fixed overhead cost variances are always written off to Cost of Goods Sold, operating income can be manipulated for either financial reporting or income tax purposes.

Accepted Answer

Since fixed overhead cost variances are written off to Cost of Goods Sold, adjusting the amount of fixed overhead costs can manipulate the reported operating income for financial reporting or income tax purposes. This is because these variances do not directly affect the production or sale of goods but rather relate to overhead expenses that may be controllable by management.

Question 14

Prorated allocation of production-volume variance has the effect of approximating the allocation of fixed costs based on actual costs and actual output.

Accepted Answer

Prorated allocation of production-volume variance takes into account the actual output to allocate production-related costs. This approximation helps to allocate fixed costs based on actual costs and actual output. Therefore, the given statement is true.

Question 15

Explain why there is no efficiency variance for fixed manufacturing overhead costs.

Accepted Answer

The answer of Explain why there is no efficiency variance...

Question 16

Lump-sum fixed costs of acquiring capacity decrease automatically if the capacity needed turns out to be less than the capacity acquired.

Accepted Answer

Lump-sum fixed costs represent the costs of acquiring capacity. These costs do not decrease
automatically if the capacity needed turns out to be less than the capacity acquired.

Question 17

A favorable fixed overhead flexible-budget variance indicates that actual fixed costs exceeded the lump-sum amount budgeted.

Accepted Answer

A favorable fixed overhead flexible-budget variance indicates that actual fixed costs were less than the lump-sum amount budgeted.

Question 18

Prorated allocation of production-volume variance results in a higher operating income for current year than if the entire favorable production-volume variance were credited to Cost of Goods Sold.

Accepted Answer

Proration of production-volume variance results in a lower operating income for current year than if the entire favorable production-volume variance were credited to Cost of Goods Sold.

Question 19

If the company's fixed overhead spending variance was unfavorable it could be attributed to higher plant-leasing costs.

Accepted Answer

Fixed overhead spending variance refers to the difference between the actual fixed overhead costs incurred and the budgeted or standard costs. If this variance is unfavorable, it means that the actual costs were higher than anticipated. One reason for this could be higher plant-leasing costs, as it is a component of fixed overhead expenses.

Question 20

Allocated fixed overhead can be expressed in terms of allocation-base units or in terms of the budgeted fixed cost per unit.

Accepted Answer

Allocated fixed overhead can be calculated using either allocation-base units or budgeted fixed cost per unit methodology.

Quiz 8: Flexible Budgets, Overhead Cost Variances, and Management Control

Bismith Company reported: To record the write-off of these variances at the end of the accounting period, Bismith would ________.

Radon Corporation manufactured 37,500 units during March. The following fixed overhead data pertain to March: What is the fixed overhead production-volume variance?