54. Fixed overhead was budgeted at £500,000 and 25,000 direct labour hours were budgeted. If the fixed
overhead volume variance was £12,000 favourable and the fixed overhead spending variance was
£16,000 unfavourable, fixed overhead applied must be
a.
£516,000.
b.
£512,000.
c.
£504,000.
d.
£528,000.
55. Fortensky Construction planned to produce 275,000 units using 34,375 machine hours. Actual output
was 290,000 units using 37,425 machine hours. Fortensky’s volume variance
a.
was favourable.
b.
was unfavourable.
c.
was zero.
d.
cannot be determined from the information given.
Figure 17-6
Budgeted fixed overhead for the year
£300,000
Budgeted direct labour hours for the year
30,000
Actual fixed overhead for August
£24,000
Actual variable overhead for August
£10,000
Direct labour hours worked in August
2,600
Standard variable overhead cost per direct labour hour
£4
Standard direct labour hours allowed for August production
2,750
56. Refer to Figure 17-6. The standard rate for total overhead is
a.
£14.
b.
£13.
c.
£10.
d.
£4.
57. Refer to Figure 17-6. The variable overhead spending variance would be
a.
£2,000 favourable.
b.
£1,200 favourable.
c.
£400 favourable.
d.
£200 favourable.
58. Refer to Figure 17-6. The variable overhead efficiency variance would be
a.
£1,000 favourable.
b.
£600 favourable.
c.
£400 favourable.
d.
£200 favourable.
59. Refer to Figure 17-6. The fixed overhead spending variance would be
a.
£2,500 unfavourable.
b.
£2,500 favourable.
c.
£1,000 unfavourable.
d.
£1,000 favourable.
60. Refer to Figure 17-6. The fixed overhead volume variance would be
a.
£2,500 unfavourable.
b.
£2,500 favourable.
c.
£1,000 unfavourable.
d.
£1,000 favourable.
Figure 17-7
Orient Company has developed the following standards for one of its products:
Direct materials
10 pounds £8 per pound
Direct labour
6 hours £20 per hour
Variable overhead
6 hours £6 per hour
The following activities occurred during the month of November:
Materials purchased
8,000 pounds costing £70,000
Materials used
6,500 pounds
Units produced
600 units
Direct labour
4,200 hours costing £75,600
Actual variable overhead
£26,400
The company records materials price variances at the time of purchase.
61. Refer to Figure 17-7. Orient’s materials price variance would be
a.
£22,000 unfavourable.
b.
£18,000 unfavourable.
c.
£6,000 unfavourable.
d.
£4,000 unfavourable.
62. Refer to Figure 17-7. Orient’s materials usage variance would be
a.
£22,000 unfavourable.
b.
£12,000 favourable.
c.
£10,000 unfavourable.
d.
£4,000 unfavourable.
63. Refer to Figure 17-7. Orient’s labour rate variance would be
a.
£12,000 unfavourable.
b.
£12,000 favourable.
c.
£8,400 favourable.
d.
£3,600 unfavourable.
64. Refer to Figure 17-7. Orient’s labour efficiency variance would be
a.
£12,000 unfavourable.
b.
£12,000 favourable.
c.
£8,400 favourable.
d.
£3,600 unfavourable.
65. Refer to Figure 17-7. Orient’s variable overhead spending variance would be
a.
£4,800 favourable.
b.
£4,800 unfavourable.
c.
£3,600 unfavourable.
d.
£1,200 unfavourable.
66. Refer to Figure 17-7. Orient’s variable overhead efficiency variance would be
a.
£1,200 unfavourable.
b.
£3,600 unfavourable.
c.
£4,800 unfavourable.
d.
£4,800 favourable.
67. If actual fixed overhead was £164,000 and there was a £4,800 favourable spending variance and a
£1,000 unfavourable volume variance, budgeted fixed overhead must have been
a.
£168,800.
b.
£167,800.
c.
£165,000.
d.
£163,000.
e.
£159,200.
68. Fixed overhead was budgeted at £210,000 and 25,000 direct labour hours were budgeted. If the fixed
overhead volume variance was £8,000 unfavourable and the fixed overhead spending variance was
£3,000 favourable, fixed overhead applied must be
a.
£218,000.
b.
£213,000.
c.
£207,000.
d.
£205,000.
e.
£202,000.
Figure 17-8
The following information was extracted from the accounting records of Noelle Company:
STANDARD COST CARD
PER UNIT
Direct materials:
8 pounds £1.20 per pound
£ 9.60
Direct labour:
3 hours £20 per hour
60.00
Variable overhead:
3 hours £6 per hour
18.00
Fixed overhead
___?__
Total standard cost per unit
___?__
Budgeted fixed overhead for the period is £420,000, and the budgeted fixed overhead rate is based on
an expected capacity of 30,000 direct labour hours.
The following information is available regarding the company’s operations for the period:
Units produced
10,500
Direct labour
29,000 hours costing £590,000
Overhead incurred:
Variable
£182,000
Fixed
£430,000
69. Refer to Figure 17-8. Noelle’s standard fixed overhead rate is
a.
£14.82.
b.
£14.48.
c.
£14.34.
d.
£14.00.
70. Refer to Figure 17-8. Noelle’s variable overhead spending variance would be
a.
£7,000 favourable.
b.
£8,000 unfavourable.
c.
£15,000 favourable.
d.
£23,000 unfavourable.
71. Refer to Figure 17-8. Noelle’s variable overhead efficiency variance would be
a.
£7,000 favourable.
b.
£8,000 unfavourable.
c.
£15,000 favourable.
d.
£23,000 unfavourable.
72. Refer to Figure 17-8. Noelle’s fixed overhead spending variance would be
a.
£10,000 unfavourable.
b.
£11,000 unfavourable.
c.
£21,000 favourable.
d.
£31,000 favourable.
73. Refer to Figure 17-8. Noelle’s fixed overhead volume variance would be
a.
£10,000 unfavourable.
b.
£11,000 unfavourable.
c.
£21,000 favourable.
d.
£31,000 favourable.
74. Taylor Company’s budgeted sales were 10,000 units at £200 per unit. Actual sales were 9,200 units at
£210 per unit.
Taylor’s sales price variance is
a.
£68,000 (U).
b.
£100,000 (U).
c.
£8,000 (U).
d.
£92,000 (F).
75. The sales price variance is created by a difference between
a.
actual and standard contribution margin.
b.
actual and expected sales price.
c.
expected and standard net income.
d.
actual and expected sales volume.
76. Franklin Company expected sales were 2,000 units at £100 per unit. During 2011, it had actual sales of
1,800 units at £110 per unit. Budgeted variable costs were £60 per unit.
What is Franklin’s sales price variance?
a.
£8,000 (U)
b.
£20,000 (U)
c.
£18,000 (F)
d.
£2,000 (U)
77. A sales volume variance will be favourable when:
a.
actual units sold is greater than budgeted sales volume.
b.
actual units sold is less than budgeted sales volume.
c.
actual selling price is greater than budgeted selling price.
d.
actual contribution margin is greater than budgeted contribution margin.
78. The volume variance is caused by:
a.
the difference between the activity allowed for the actual output and the budgeted activity
used in computing the fixed overhead rate.
b.
the difference between total budgeted fixed overhead and total standard fixed overhead
assigned to production.
c.
the difference between the activity allowed for the actual output and the total standard
fixed overhead assigned to production.
d.
the difference between the standard fixed overhead rate and the actual fixed overhead rate.
79. For planning and control purposes, fixed overhead is NOT included in the standard cost per unit
because:
a.
it is incurred based on the number of units produced.
b.
the number of units produced do not vary from period to period.
c.
it can best be controlled on a lump-sum basis.
d.
of all of the above
PROBLEM
1. The following standard costs were developed for one of Commodore Company’s products:
STANDARD COST CARD
PER UNIT
Direct materials:
4 pounds £5 per pound
£20.00
Direct labour:
1.5 hours £20 per hour
30.00
Variable overhead:
£10 per hour
?
Fixed overhead
Total standard cost per unit
The following information is available regarding the company’s operations for the period:
Units produced
15,000
Materials purchased
90,000 pounds at £3.60 per pound
Materials used
80,000 pounds
Direct labour
9,000 hours at £16.50 per hour
Overhead incurred:
Variable
£220,000
Fixed
£640,000
Budgeted fixed overhead for the period is £600,000, and expected capacity for the period is 20,000
direct labour hours.
Required:
a.
Calculate the standard fixed overhead rate.
b.
Complete the standard cost card for the product.
2. The following standard costs were developed for one of Commodore Company’s products:
STANDARD COST CARD
PER UNIT
Direct materials:
3 pounds £2 per pound
£ 6.00
Direct labour:
2 hours £12 per hour
24.00
Variable overhead:
£4 per hour
?
Fixed overhead
___?__
Total standard cost per unit
?
The following information is available regarding the company’s operations for the period:
Units produced
12,000
Materials purchased
50,000 pounds at £2 per pound
Materials used
40,000 pounds
Direct labour
25,000 hours at £13 per hour
Overhead incurred:
Variable
£90,000
Fixed
£300,000
Budgeted fixed overhead for the period is £280,000, and expected capacity for the period is 28,000
direct labour hours.
£30 per DLH £600,000/20,000 hours
b.
Direct materials:
4 pounds £5 per pound
1.5 hours £20 per hour
Variable overhead:
1.5 hours £10 per hour
Fixed overhead:
1.5 hours £30 per hour
Total standard cost per unit
Required:
a.
Calculate the standard fixed overhead rate.
b.
Complete the standard cost card for the product.
3. Mills Company uses standard costing for direct materials and direct labour. Management would like to
use standard costing for variable and fixed overhead.
The following monthly cost functions were developed for overhead items:
Overhead Item
Cost Function
Indirect materials
£0.30 per DLH
Indirect labour
£0.20 per DLH
Utilities
£0.25 per DLH
Insurance
£2,000
Depreciation
£10,000
The cost functions are considered reliable within a relevant range of 70,000 to 100,000 direct labour
hours. The company expects to operate at 80,000 direct labour hours per month.
Information for the month of September is as follows:
Actual overhead costs incurred:
Indirect materials
£22,500
Indirect labour
15,000
Utilities
21,000
Insurance
2,500
Depreciation
_10,000
Total
£71,000
Actual direct labour hours worked
85,000
Standard direct labour hours
allowed for production achieved
82,000
Required:
a.
Calculate the following standard overhead rates based upon expected capacity:
Variable overhead rate
£10 per DLH £280,000/28,000 hours
b.
Direct materials: 3 pounds £2 per pound
Direct labour: 2 hours £12 per hour
Variable overhead: 2 hours £4 per hour
Fixed overhead: 2 hours £10 per hour
Total standard cost per unit
Fixed overhead rate
Total overhead rate
b.
Calculate the following variances:
Variable overhead spending variance
Variable overhead efficiency variance
Fixed overhead spending variance
Fixed overhead volume variance
4. The following budgeted and actual contribution statement is for a component sold by Dark, Inc. for
June of this year:
Actual
Budget
Unit sales
18,000
20,000
Unit selling price
£3.70
£4.00
Sales revenue
£66,600
£80,000
Cost of goods sold
36,000
40,000
Gross profit
£30,600
£40,000
Operating costs (all fixed)
20,000
24,000
Contribution to corporate costs and profits
£10,600
£16,000
Required:
a.
Compute the sales price variance, the net sales volume variance, and the operating cost
variance for June.
b.
Use the calculations in part a. to reconcile the budgeted and actual contribution to
corporate costs and profits.
c.
How would you evaluate the performance of Dark, Inc.‘s manager?
ANS:
Sales price variance = (£3.70 – £4.00) 18,000 = £5,400 (U);
£4,000 (U);
Variable overhead rate:
£0.75 per DLH
(£0.30 + £0.20 + £0.25)
Fixed overhead rate:
£0.15 per DLH
[(£2,000 + £10,000)/80,000 hours]
Total overhead rate:
£0.90 per DLH
(£0.75 + £0.15)
[(£22,500 + £15,000 + £21,000)-(85,000 hours £0.75)]
Variable overhead efficiency variance:
[(85,000 hours £0.75)-(82,000 hours £0.75)]
Fixed overhead spending variance:
(£12,500 – £12,000)
Fixed overhead volume variance:
[£12,000 -(82,000 hours £0.15)]
5. The Chair Division operates as a revenue centre and has the following relevant information for 2011:
Sales price variance
£1,000 (U)
Sales volume variance
£2,000 (F)
Net sales volume variance
£1,200 (F)
Budgeted unit contribution margin per unit
£6
The actual selling price was £1 less than the budgeted selling price.
Required:
a.
Calculate the budgeted sales price.
b.
Calculate the actual sales price.
c.
Calculate actual unit sales.
d.
Calculate budget unit sales.
Net sales volume variance = (AS – BS) BCM
b.
£10 – £1 = £9
c.
Sales price variance = (ASP – BSP)AS = – £1,000
Operating costs variances = (£20,000 – £24,000) = £4,000 (F)
Budgeted contribution
Sales price variance
Net sales volume variance
Operating costs variance
Actual contribution
competition appears to have forced a price reduction that did NOT increase sales in units.
