Question 1

Cavalaris Products uses a standard cost system.Overhead costs are allocated based on direct labor hours.In the first quarter,Cavalaris had an unfavorable cost variance for variable overhead costs.Which of the following scenarios is a reasonable explanation for this variance?

Accepted Answer

An unfavorable cost variance occurs when actual costs are higher than budgeted costs. Therefore, option B is the correct answer as it suggests that the actual variable overhead costs were higher than the budgeted costs. The number of direct labor hours (option A and D) does not impact the variable overhead cost variance directly, as overhead costs are allocated based on direct labor hours rather than variable overhead cost. Option C suggests that the actual variable overhead costs were lower than the budgeted costs, which would result in a favorable cost variance rather than an unfavorable one.

Question 2

Austin Brands Company uses standard costs for its manufacturing division.Standards specify 0.1 direct labor hours per unit of product.At the beginning of the year,the static budget for variable overhead costs included the following data: $$\begin{array} { | l | l | } 
\hline \text { Production volume } & 6,300 \text { units } \
\hline \text { Budgeted variable overhead costs } & \$ 15,000 \
\hline \text { Budgeted direct labor hours } & 630 \text { hours } \
\hline
\end{array}$$ At the end of the year,actual data were as follows:
$$\begin{array} { | l | l | } 
\hline \text { Production volume } & 4,200 \text { units } \
\hline \text { Actual variable overhead costs } & \$ 15,000 \
\hline \text { Actual direct labor hours } & 480 \text { hours } \
\hline
\end{array}$$ What is the variable overhead cost variance? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )

Accepted Answer

The variable overhead cost variance is calculated as the difference between the actual variable overhead costs and the flexible budget for variable overhead costs based on actual production. The flexible budget for 4,200 units is (4,200 units * 0.1 hours/unit * $15,000/630 hours) = $10,000. The actual cost was $15,000, so the variance is $15,000 - $10,000 = $5,000 U. However, the correct calculation should consider the rate per hour, leading to a variance of $3,571 U.

Question 3

Bridget Company manufactures candles.The standard direct materials quantity required to produce one large candle is 1 pound at a cost of $5 per pound.Every candle requires 2 direct labor hours at a standard cost of $3 per direct labor hour.During November,7,200 large candles were produced using 7,500 pounds costing $45,000.At the end of November,an examination of the labor cost records showed that the company used 15,000 direct labor hours (DLHr)at a cost of $4 per hour.
Using the format below,prepare an analysis of the direct labor cost variances.

Accepted Answer

The answer of Bridget Company manufactures candles.The standard direct materials...

Question 4

Akao Products uses a standard cost system.Overhead costs are allocated based on direct labor hours.In the first quarter,Akao had an unfavorable efficiency variance for variable overhead costs.Which of the following scenarios is a reasonable explanation for this variance?

Accepted Answer

An unfavorable efficiency variance for variable overhead costs means that more direct labor hours were used than what was budgeted. Option D is the only choice that suggests this scenario.

Question 5

A new factory manager was hired for a company that was experiencing slow production rates and lower production volumes than demanded by management.Upon investigation,the manager found that the workers were poorly motivated and not closely supervised.Midway through the quarter,an incentive program was initiated,and cash bonuses were given when workers hit their production targets.Within a short time,production output increased,but the bonuses had to be charged to the direct labor budget,and the manager was worried about the impact of these costs on operating income.This could produce a(n)________.

Accepted Answer

The incentive program led to increased production output by motivating workers to hit their production targets, which directly relates to a favorable direct labor efficiency variance, indicating that labor was used more efficiently than planned.

Question 6

List the direct labor variances and briefly describe each.

Accepted Answer

The answer of List the direct labor variances and briefly...

Question 7

The following information relates to Regency Manufacturing's overhead costs for the month:
 $$\begin{array} { | l | l | } 
\hline \text { Static budget variable overhead } & \$ 14,200 \
\hline \text { Static budget fixed overhead } & \$ 5,600 \
\hline \text { Static budget direct labor hours } & 1,000 \text { hours } \
\hline \text { Static budget number of units } & 5,000 \text { units } \
\hline
\end{array}$$ Regency allocates manufacturing overhead to production based on standard direct labor hours.
Regency reported the following actual results for last month: actual variable overhead,$14,500; actual fixed overhead,$5,400; actual production of 4,700 units at 0.22 direct labor hours per unit.The standard direct labor time is 0.20 direct labor hours per unit.
Compute the variable overhead cost variance.(Round the answer to the nearest dollar. )

Accepted Answer

The answer of The following information relates to Regency Manufacturing's...

Question 8

Glendale Brands Company uses standard costs for its manufacturing division.Standards specify 0.1 direct labor hours per unit of product.At the beginning of the year,the static budget for variable overhead costs included the following data: $$\begin{array} { | l | l | } 
\hline \text { Production volume } & 6,000 \text { units } \
\hline \text { Budgeted variable overhead costs } & \$ 14,000 \
\hline \text { Budgeted direct labor hours (DLHr) } & 500 \text { hours } \
\hline
\end{array}$$ At the end of the year,actual data were as follows:
$$\begin{array} { | l | l | } 
\hline \text { Production volume } & 4,000 \text { units } \
\hline \text { Actual variable overhead costs } & \$ 15,200 \
\hline \text { Actual direct labor hours (DLHr) } & 480 \text { hours } \
\hline
\end{array}$$ What is the variable overhead efficiency variance? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )

Accepted Answer

The variable overhead efficiency variance is calculated as follows:Variable overhead efficiency variance = (Actual DLHr - Standard DLHr) x Standard variable overhead rate= (480 - 400) x $28= 80 x $28= $2,240 F

Question 9

A new factory manager was hired for a company that was experiencing slow production rates and lower production volumes than demanded by management.Upon investigation,the manager found that the workers were poorly motivated and not closely supervised.Midway through the quarter,an incentive program was initiated,and cash bonuses were given when workers hit their production targets.Within a short time,production output increased,but the bonuses had to be charged to the direct labor budget,and the manager was worried about the impact of these costs on operating income.This could produce a(n)________.

Accepted Answer

The introduction of the incentive program and cash bonuses caused an increase in direct labor costs since the bonuses were charged to the direct labor budget. This increase in direct labor costs could potentially result in an unfavorable direct labor cost variance.

Question 10

To compute the variable overhead cost variance,first compute the difference between actual cost and standard cost.Then,multiple this difference by standard quantity.

Accepted Answer

To compute the variable overhead cost variance,first compute the difference between actual cost and standard cost.Then,multiple this difference by actual quantity.

Question 11

In a standard cost system,the manufacturing overhead allocated to production equals the standard overhead allocation rate multiplied by the standard quantity of the allocation base allowed for expected output.

Accepted Answer

In a standard cost system,the manufacturing overhead allocated to production equals standard overhead allocation rate × standard quantity of the allocation base allowed for actual output.

Question 12

A company's production department was experiencing a high defect rate on the assembly line,which was slowing down production and causing wastage of valuable direct materials.The production manager decided to recruit some highly skilled production workers from another company to bring down the defect rate but was worried that the higher wages of these workers might negatively affect operating income.This would produce a(n)________.

Accepted Answer

Hiring higher-skilled workers at a higher wage would increase the direct labor cost, leading to an unfavorable direct labor cost variance. None of the other answer choices relate to the situation given in the scenario.

Question 13

A company's production department was experiencing a high defect rate on the assembly line,which was slowing down production and causing wastage of valuable direct materials.The production manager decided to recruit some highly skilled production workers from another company to bring down the defect rate but was worried that the higher wages of these workers might negatively affect operating income.This would produce a(n)________.

Accepted Answer

Hiring highly skilled workers would likely increase the efficiency of labor, leading to a favorable direct labor efficiency variance, as these workers could reduce the defect rate and improve the production process.

Question 14

Cheapo Sales Company uses a standard cost system.Overhead costs are allocated based on direct labor hours.In the first quarter,Cheapo Sales had a favorable efficiency variance for variable overhead costs.Which of the following scenarios is a reasonable explanation for this variance?

Accepted Answer

A favorable efficiency variance for variable overhead costs means that the actual direct labor hours used in production were lower than the budgeted hours. This suggests that Cheapo Sales was able to produce the same amount of output with fewer direct labor hours, which should result in lower variable overhead costs.

Question 15

Elite Brands Company uses standard costs for its manufacturing division.Standards specify 0.1 direct labor hours per unit of product.At the beginning of the year,the static budget for variable overhead costs included the following data: $$\begin{array} { | l | l | } 
\hline \text { Production volume } & 6,000 \text { units } \
\hline \text { Budgeted variable overhead costs } & \$ 13,500 \
\hline \text { Budgeted direct labor hours } & 610 \text { hours } \
\hline
\end{array}$$ At the end of the year,actual data were as follows:
$$\begin{array} { | l | l | } 
\hline \text { Production volume } & 4,100 \text { units } \
\hline \text { Actual variable overhead costs } & \$ 15,200 \
\hline \text { Actual direct labor hours } & 505 \text { hours } \
\hline
\end{array}$$ How much is the standard cost per direct labor hour for variable overhead?

Accepted Answer

The standard cost per direct labor hour for variable overhead is $22.13. This is calculated by dividing the budgeted variable overhead costs by the budgeted direct labor hours: $13,500 / 610 hours = $22.13 per direct labor hour.

Question 16

In a standard cost system,the standard overhead allocation rate replaces the predetermined
overhead allocation rate but the concept is the same.

Accepted Answer

The standard overhead allocation rate is calculated using predetermined overhead costs and based on expected activity levels. This rate is then used to allocate overhead costs to products or services. Therefore, the concept is the same as the predetermined overhead allocation rate used in traditional costing systems.

Question 17

Discount Sales Company uses a standard cost system.Variable overhead costs are allocated based on direct labor hours.In the first quarter,Discount Sales had a favorable cost variance for variable overhead costs.Which of the following scenarios is a reasonable explanation for this variance?

Accepted Answer

A favorable cost variance for variable overhead costs means that the actual costs were lower than the budgeted costs. Therefore, option C - the actual variable overhead costs were lower than the budgeted costs - is a reasonable explanation for this variance. Options A and D relate to direct labor hours and are not relevant to explaining the variance for variable overhead costs. Option B suggests that the actual variable overhead costs were higher than the budgeted costs, which would result in an unfavorable cost variance, not a favorable one.

Question 18

When investigating overhead variances,management needs to determine whether cost increases were controllable or if the cost standard needs to be updated.

Accepted Answer

When investigating overhead variances, management must determine whether the cost increases were within their control or influenced by external factors. If the increase was outside of their control, such as a sudden spike in energy prices or unexpected maintenance costs, then the cost standard may need to be updated. However, if the increase was due to management decisions or actions, then they need to take corrective action to address the issue.

Question 19

What does the variable overhead cost variance measure?

Accepted Answer

The answer of What does the variable overhead cost variance...

Question 20

The following information relates to Leonard Manufacturing's overhead costs for the month:
 $$\begin{array} { | l | l | } 
\hline \text { Static budget variable overhead } & \$ 14,200 \
\hline \text { Static budget fixed overhead } & \$ 5,600 \
\hline \text { Static budget direct labor hours } & 1,000 \text { hours } \
\hline \text { Static budget number of units } & 5,000 \text { units } \
\hline
\end{array}$$ Leonard allocates manufacturing overhead to production based on standard direct labor hours.
Leonard reported the following actual results for last month: actual variable overhead,$14,500; actual fixed overhead,$5,400; actual production of 4,700 units at 0.22 direct labor hours per unit.The standard direct labor time is 0.20 direct labor hours per unit.
Compute the fixed overhead cost variance.

Accepted Answer

The answer of The following information relates to Leonard Manufacturing's...

Quiz 23: Flexible Budgets and Standard Cost Systems