Test bank managerial accounting by garrison 13e chapter 11

Chapter 11 Flexible Budgets and Overhead Analysis
True/False Questions
1. A key feature of a flexible budget is that actual results can be compared to budgeted
costs at the same level of activity.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
2. Direct labor-hours would generally be a better measure of activity for a flexible budget
than direct labor cost.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
3. In a flexible budget, when the activity declines, the variable costs per unit also
declines.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
4. Fixed costs should not be included in a flexible budget because they do not change
when the level of activity changes.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
5. To assess how well a production manager has controlled costs, actual costs should be
compared to what the costs should have been for the planned level of production.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
6. The overhead spending variance is not affected by excessive usage or waste of
overhead materials.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
7. The variable overhead efficiency variance provides a measure of how efficiently the
activity base which underlies the flexible budget is being utilized in production.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 11 Flexible Budgets and Overhead Analysis
8. A company has a standard cost system in which fixed and variable manufacturing
overhead costs are applied to products on the basis of direct labor-hours. The
company's choice of the denominator level of activity affects the fixed overhead
volume variance.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5; 6 Level: Medium
9. The higher the denominator activity level used to compute the predetermined overhead
rate, the higher the predetermined overhead rate.
Ans: False AACSB: Analytic
AICPA FN: Reporting LO: 5

AICPA BB: Critical Thinking
Level: Easy

10. In a standard costing system, if the actual fixed manufacturing overhead cost exceeds
the budgeted fixed manufacturing overhead cost for the period, then fixed
manufacturing overhead cost would be underapplied for the period.
Ans: False AACSB: Analytic
AICPA FN: Reporting LO: 5

AICPA BB: Critical Thinking
Level: Hard

11. When fixed manufacturing overhead cost is applied to work in process, it is treated as

if it were a variable cost.
Ans: True AACSB: Analytic
AICPA FN: Reporting LO: 5

AICPA BB: Critical Thinking
Level: Medium

12. A company has a standard cost system in which fixed and variable manufacturing
overhead costs are applied to products on the basis of direct labor-hours. The
company's choice of the denominator level of activity has no effect on the variable
portion of the predetermined overhead rate.
Ans: True AACSB: Analytic
AICPA FN: Reporting LO: 5

AICPA BB: Critical Thinking
Level: Medium

13. There can be a volume variance for either variable manufacturing overhead or fixed
manufacturing overhead.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium

11-6

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


Chapter 11 Flexible Budgets and Overhead Analysis
14. If the denominator level of activity is less than the standard hours allowed for the
output of the period, then the volume variance is unfavorable, indicating an

overutilization of available facilities.
Ans: False AACSB: Analytic
AICPA FN: Reporting LO: 6

AICPA BB: Critical Thinking
Level: Medium

15. A company has a standard cost system in which fixed and variable manufacturing
overhead costs are applied to products on the basis of direct labor-hours. A fixed
overhead volume variance will necessarily occur in a month in which actual direct
labor-hours differ from standard hours allowed.
Ans: False AACSB: Analytic
AICPA FN: Reporting LO: 6

AICPA BB: Critical Thinking
Level: Hard

Multiple Choice Questions
16. The purpose of a flexible budget is to:
A) allow management some latitude in meeting goals.
B) eliminate fluctuations in production reports by ignoring variable costs.
C) compare actual and budgeted results at virtually any level of activity.
D) reduce the time to prepare the annual budget.
Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy Source: CPA; adapted
17. When using a flexible budget, a decrease in activity within the relevant range:
A) decreases variable cost per unit.
B) decreases total costs.
C) increases total fixed costs.
D) increases variable cost per unit.

Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy Source: CPA; adapted

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

11-7


Chapter 11 Flexible Budgets and Overhead Analysis
18. The activity base that is used for a flexible budget for an overhead cost should be:
A) direct labor-hours.
B) units of output.
C) expressed in dollars, if possible.
D) the cause of the overhead cost.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
19. A budget that is based on the actual activity of a period is known as a:
A) continuous budget.
B) flexible budget.
C) static budget.
D) master budget.
Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
20. The fixed manufacturing overhead budget variance equals:
A) Actual fixed manufacturing overhead cost--Applied fixed manufacturing
overhead cost.
B) Actual fixed manufacturing overhead cost--Budgeted fixed manufacturing
overhead cost.
C) Budgeted fixed manufacturing overhead cost--Applied fixed manufacturing
overhead cost.

D) Actual fixed manufacturing overhead cost-- (Actual hours x Standard fixed
overhead rate).
Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
21. Which of the following variances is least significant from a standpoint of cost control?
A) materials price variance.
B) labor efficiency variance.
C) fixed overhead volume variance.
D) variable overhead spending variance.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium

11-8

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


Chapter 11 Flexible Budgets and Overhead Analysis
22. The manufacturing overhead variance that is a measure of capacity utilization is:
A) the overhead spending variance.
B) the overhead efficiency variance.
C) the overhead budget variance.
D) the overhead volume variance.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
23. If the denominator activity is less than the standard hours allowed for the actual
output, one would expect that:
A) the variable overhead efficiency variance would be unfavorable.
B) the fixed overhead volume variance would be favorable.
C) the fixed overhead budget variance would be unfavorable.

D) the variable overhead efficiency variance would be favorable.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
24. The volume variance is nonzero whenever:
A) standard hours allowed for the output of a period differ from the denominator
level of activity.
B) actual hours differ from the denominator level of activity.
C) standard hours allowed for the output of a period differ from the actual hours
during the period.
D) actual fixed overhead costs incurred during a period differ from budgeted fixed
overhead costs as contained in the flexible budget.
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
25. A volume variance is computed for:
A) both variable and fixed overhead.
B) variable overhead only.
C) fixed overhead only.
D) direct labor costs as well as overhead costs.
Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

11-9


Chapter 11 Flexible Budgets and Overhead Analysis
26. Which of the following standard cost variances would usually be least controllable by
a production supervisor?
A) Fixed overhead volume variance.

B) Variable overhead efficiency variance.
C) Direct labor efficiency variance.
D) Materials usage (quantity) variance.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Hard Source: CPA; adapted
27. The following costs appear in Malgorzata Company's flexible budget at an activity
level of 15,000 machine-hours:
Indirect materials...............
Factory rent........................

Total Cost
$7,800
$18,000

What would be the flexible budget amounts at an activity level of 12,000 machinehours if indirect materials is a variable cost and factory rent is a fixed cost?
A)
B)
C)
D)

Indirect Materials Factory Rent
$7,800
$14,400
$7,800
$18,000
$6,240
$14,400
$6,240
$18,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Budgeted number of machine hours: 15,000
Cost Formula
(per machine-hour)
Variable costs:
Indirect materials..........
Fixed costs:
Factory rent...................

$0.52*

Activity
(in machine-hours):
12,000
$6,240
$18,000

*$7,800 ÷ 15,000 MHs = $0.52 per MH

11-10

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


Chapter 11 Flexible Budgets and Overhead Analysis
28. Mongelli Family Inn is a bed and breakfast establishment in a converted 100-year-old
mansion. The Inn's guests appreciate its gourmet breakfasts and individually decorated
rooms. The Inn's overhead budget for the most recent month appears below:

Activity level.................................. 90 guests
Variable overhead costs:
Supplies.......................................
Laundry.......................................
Fixed overhead costs:
Utilities........................................
Salaries and wages......................
Depreciation................................
Total overhead cost........................

$ 234
315
220
4,290
2,680
$7,739

The Inn's variable overhead costs are driven by the number of guests.
What would be the total budgeted overhead cost for a month if the activity level is 99
guests? Assume that the activity levels of 90 guests and 99 guests are within the same
relevant range.
A) $7,793.90
B) $61,541.00
C) $8,512.90
D) $7,739.00
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

11-11


Chapter 11 Flexible Budgets and Overhead Analysis
Solution:
Budgeted number of guests: 90
Cost Formula
(per guest)
Overhead Costs
Variable overhead costs:
Supplies ($234 ÷ 90 guests)....................
Laundry ($315 ÷ 90 guests)....................
Total variable overhead cost......................
Fixed overhead costs:
Utilities....................................................
Salaries and wages..................................
Depreciation............................................
Total fixed overhead cost...........................
Total budgeted overhead cost.....................

11-12

$2.60
3.50
$6.10

Activity
(in guests):
99
$ 257.40

346.50
603.90
220.00
4,290.00
2,680.00
7,190.00
$7,793.90

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


Chapter 11 Flexible Budgets and Overhead Analysis
29. Kerekes Manufacturing Corporation has prepared the following overhead budget for
next month.
Activity level..................................
Variable overhead costs:
Supplies.......................................
Indirect labor...............................
Fixed overhead costs:
Supervision.................................
Utilities........................................
Depreciation................................
Total overhead cost........................

2,500 machine-hours
$12,250
22,000
15,500
5,500
6,500

$61,750

The company's variable overhead costs are driven by machine-hours.
What would be the total budgeted overhead cost for next month if the activity level is
2,400 machine-hours rather than 2,500 machine-hours? Assume that the activity levels
of 2,500 machine-hours and 2,400 machine-hours are within the same relevant range.
A) $59,830.00
B) $59,280.00
C) $60,380.00
D) $61,750.00
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

11-13


Chapter 11 Flexible Budgets and Overhead Analysis
Solution:
Budgeted variable
overhead costs
Supplies.......................................... $12,250
Indirect labor.................................. $22,000

Machinehours
2,500
2,500

Per

machinehour
$4.90
$8.80

Budgeted number of machine-hours: 2,500
Activity
Cost Formula (in MHs):
(per MH)
2,400
Overhead Costs
Variable overhead costs:
Supplies...................................................
Indirect labor...........................................
Total variable overhead cost......................
Fixed overhead costs:
Supervision.............................................
Utilities....................................................
Depreciation............................................
Total fixed overhead cost...........................
Total overhead cost....................................

11-14

$ 4.90
8.80
$13.70

$11,760
21,120
13,880

15,500
5,500
6,500
27,500
$60,380

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


Chapter 11 Flexible Budgets and Overhead Analysis
30. Sharifi Hospital bases its budgets on patient-visits. The hospital's static budget for
October appears below:
Budgeted number of patient-visits.............
8,500
Budgeted variable overhead costs:
Supplies (@$4.70 per patient-visit)........ $ 39,950
Laundry (@$7.80 per patient-visit)........
66,300
Total variable overhead cost...................... 106,250
Budgeted fixed overhead costs:
Wages and salaries..................................
50,150
Occupancy costs.....................................
84,150
Total fixed overhead cost........................... 134,300
Total budgeted overhead cost..................... $240,550
The total overhead cost at an activity level of 9,200 patient-visits per month should be:
A) $260,360
B) $250,070
C) $249,300

D) $240,550
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Budgeted number of patient-visits: 8,500

Overhead Costs
Variable overhead costs:
Supplies...................................................
Laundry...................................................
Total variable overhead cost......................
Fixed overhead costs:
Wages and salaries..................................
Occupancy costs.....................................
Total fixed overhead cost...........................
Total overhead cost....................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Cost Formula
(per patientvisit)

Activity
(in patient
visits):
9,200

$ 4.70
7.80
$12.50

$ 43,240
71,760
115,000
50,150
84,150
134,300
$249,300

11-15


Chapter 11 Flexible Budgets and Overhead Analysis
31. Ostler Hotel bases its budgets on guest-days. The hotel's static budget for April
appears below:
Budgeted number of guest-days.................
8,700
Budgeted variable overhead costs:
Supplies (@$7.00 per guest-day)............ $ 60,900
Laundry (@$3.80 per guest-day)............
33,060
Total variable overhead cost......................
93,960
Budgeted fixed overhead costs:
Wages and salaries..................................
80,910
Occupancy costs.....................................
38,280
Total fixed overhead cost........................... 119,190
Total budgeted overhead cost..................... $213,150

The total overhead cost at an activity level of 9,700 guest-days per month should be:
A) $213,150
B) $237,650
C) $223,950
D) $224,920
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
Solution:
Budgeted number of guest-days: 8,700

Overhead Costs
Variable overhead costs:
Supplies...................................................
Laundry...................................................
Total variable overhead cost......................
Fixed overhead costs:
Wages and salaries..................................
Occupancy costs.....................................
Total fixed overhead cost...........................
Total overhead cost....................................

11-16

Cost Formula
(per guestday)

Activity
(in guestdays):
9,700

$ 7.00
3.80
$10.80

$ 67,900
36,860
104,760
80,910
38,280
119,190
$223,950

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


Chapter 11 Flexible Budgets and Overhead Analysis
32. Riggs Enterprise's flexible budget cost formula for indirect materials, a variable cost,
is $0.45 per unit of output. If the company's performance report for last month shows a
$90 favorable variance for indirect materials and if 8,700 units of output were
produced last month, then the actual costs incurred for indirect materials for the month
must have been:
A) $4,005
B) $3,915
C) $3,825
D) $3,735
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Variable overhead spending variance = AH × (AR − SR) = 90 F
8,700 × (AR − 0.45) = -90

(8,700 × AR) − 3,915 = -90
(8,700 × AR) = 3,825
AR = 3,825 ÷ 8,700 = $0.4396
Actual indirect labor costs = 8,700 × $0.4396 = $3,825

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

11-17


Chapter 11 Flexible Budgets and Overhead Analysis
33. Chmielewski Medical Clinic measures its activity in terms of patient-visits. Last
month, the budgeted level of activity was 1,560 patient-visits and the actual level of
activity was 1,530 patient-visits. The clinic's director budgets for variable overhead
costs of $1.10 per patient-visit and fixed overhead costs of $19,900 per month. The
actual variable overhead cost last month was $1,400 and the actual fixed overhead cost
was $21,720. In the clinic's flexible budget performance report for last month, what
would have been the variance for the total overhead cost?
A) $33 F
B) $1,504 U
C) $1,537 U
D) $283 F
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Budgeted number of patient-visits: 1,560
Actual number of patient-visits: 1,530

Variable overhead costs.......
Fixed overhead costs...........

11-18

Cost
Formula
(per
patientvisit)
$1.10

Actual
Costs
Incurred
for 1,530
patientvisits
$1,400
$21,720

Budget
Based on
1,530
patientvisits
$1,683
$19,900

Variance
$ 283 F
1,820 U
$1,537 U

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 11 Flexible Budgets and Overhead Analysis
34. Rodriques Tile Installation Corporation measures its activity in terms of square feet of
tile installed. Last month, the budgeted level of activity was 1,630 square feet and the
actual level of activity was 1,720 square feet. The company's owner budgets for supply
costs, a variable overhead cost, at $3.40 per square foot. The actual supply cost last
month was $6,750. In the company's flexible budget performance report for last
month, what would have been the variance for supply costs?
A) $353 U
B) $306 U
C) $902 U
D) $1,208 U
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Budgeted number of square feet: 1,720
Actual number of square feet: 1,630
Cost
Formula
(per
square
foot)
Variable overhead costs
(Supply costs).............................
$3.40

Actual
Costs
Incurred

for 1,720
square
feet

Budget
Based on
1,720
square feet

Variance

$6,750

$5,848

$902 U

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

11-19


Chapter 11 Flexible Budgets and Overhead Analysis
35. Rodabaugh Natural Dying Corporation measures its activity in terms of skeins of yarn
dyed. Last month, the budgeted level of activity was 15,900 skeins and the actual level
of activity was 16,100 skeins. The company's owner budgets for dye costs, a variable
overhead cost, at $0.87 per skein. The actual dye cost last month was $14,800. In the
company's flexible budget performance report for last month, what would have been
the variance for dye costs?
A) $967 U

B) $174 U
C) $184 U
D) $793 U
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
Solution:
Budgeted number of skeins: 15,900
Actual number of skeins: 16,100

Variable overhead costs (Dye
costs)..................................

11-20

Cost
Formula
(per
skein)

Actual
Costs
Incurred
for
16,100
skeins

Budget
Based on
16,100
skeins

Variance

$0.87

$14,800

$14,007

$793 U

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


Chapter 11 Flexible Budgets and Overhead Analysis
36. Andress Footwear Corporation's flexible budget cost formula for supplies, a variable
overhead cost, is $2.17 per unit of output. The company's flexible budget performance
report for last month showed a $4,531 unfavorable variance for supplies. During that
month, 19,700 units were produced. Budgeted activity for the month had been 19,400
units. The actual costs incurred for indirect materials must have been closest to:
A) $2.17
B) $2.63
C) $2.67
D) $2.40
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Hard
Solution:
Budgeted number of units produced: 19,400
Actual number of units produced: 19,700

Cost
Formula
(per unit
produced)
Variable overhead costs
(Supplies)..............................

Actual
Costs
Incurred
for
19,700
units
produced

$2.17

X

Budget
Based on
19,700
units
produced
$42,749

Variance
$4,531 U

Actual costs − Budgeted costs = Supplies variance

X − $42,749 = $4,531
X = $47,280
Per unit cost = Total actual costs ÷ Number of units produced
Per unit cost = $47,280 ÷ 19,700 = $2.40

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

11-21


Chapter 11 Flexible Budgets and Overhead Analysis
37. Ocker Corporation's flexible budget performance report for last month shows that
actual indirect materials cost, a variable overhead cost, was $28,420 and that the
variance for indirect materials cost was $3,828 unfavorable. During that month, the
company worked 11,600 machine-hours. Budgeted activity for the month had been
11,300 machine-hours. The cost formula per machine-hour for indirect materials cost
must have been closest to:
A) $2.85
B) $2.18
C) $2.78
D) $2.12
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Hard
Solution:
Budgeted number of machine-hours: 11,300
Actual number of machine-hours: 11,600

Variable overhead costs
(Indirect materials)...........

Cost
Formula
(per
MH)

Actual
Costs
Incurred
for
11,600
machinehours

Budget
Based on
11,600
machinehours

Variance

Y

$28,420

X

$3,828 U

Actual costs − Budgeted costs = Indirect materials variance
$28,420 − X = $3,828
X = $24,592

Y = Per machine-hour cost =
Per machine-hour cost = Actual cost ÷ Machine-hours =
Per machine-hour cost = $24,592 ÷ 11,600 = $2.12

11-22

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


Chapter 11 Flexible Budgets and Overhead Analysis
38. Viger Corporation has a standard cost system in which it applies manufacturing
overhead to products on the basis of standard machine-hours (MHs). The company has
provided the following data for the most recent month:
Budgeted level of activity.................................................
Actual level of activity.....................................................
Cost formula for variable manufacturing overhead cost. .
Budgeted fixed manufacturing overhead cost..................
Actual total variable manufacturing overhead.................
Actual total fixed manufacturing overhead......................

9,700 MHs
9,900 MHs
$6.30 per MH
$49,000
$60,390
$47,000

What was the variable overhead spending variance for the month?
A) $2,000 favorable
B) $720 favorable

C) $1,260 unfavorable
D) $1,980 favorable
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Actual rate =
Actual total variable manufacturing overhead ÷ Actual machine-hours
Actual rate = $60,390 ÷ 9,900 = $6.10
Variable overhead spending variance = AH × (AR − SR)
9,900 × ($6.10 − $6.30) = 9,900 × (-$0.20) = $1,980 F

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

11-23


Chapter 11 Flexible Budgets and Overhead Analysis
39. Teall Corporation has a standard cost system in which it applies manufacturing
overhead to products on the basis of standard machine-hours (MHs). The company has
provided the following data for the most recent month:
Budgeted level of activity..................................................
8,500 MHs
Actual level of activity.......................................................
8,600 MHs
Cost formula for variable manufacturing overhead cost...
$5.70 per MH
Budgeted fixed manufacturing overhead cost................... $50,000
Actual total variable manufacturing overhead................... $51,600
Actual total fixed manufacturing overhead....................... $54,000
What was the fixed overhead budget variance for the month?

A) $4,000 unfavorable
B) $4,000 favorable
C) $570 favorable
D) $570 unfavorable
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Budget variance = Actual fixed overhead cost − Budgeted fixed overhead cost
= $54,000 − $50,000 = $4,000 U

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


Chapter 11 Flexible Budgets and Overhead Analysis
40. Alapai Corporation has a standard cost system in which it applies manufacturing
overhead to products on the basis of standard machine-hours (MHs). The company has
provided the following data for the most recent month:
Budgeted level of activity.................................................
Actual level of activity.....................................................
Cost formula for variable manufacturing overhead cost. .
Budgeted fixed manufacturing overhead cost..................
Actual total variable manufacturing overhead.................
Actual total fixed manufacturing overhead......................

7,000 MHs
7,200 MHs
$9.40 per MH
$40,000

$66,960
$37,000

What was the total of the variable overhead spending and fixed overhead budget
variances for the month?
A) $3,720 favorable
B) $2,280 unfavorable
C) $1,840 favorable
D) $1,880 unfavorable
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:
Actual rate =
Actual total variable manufacturing overhead ÷ Actual machine-hours =
$66,960 ÷ 7,200 = $9.30
Variable overhead spending variance = AH × (AR − SR)
= 7,200 × ($9.30 − $9.40)
= 7,200 × (−$0.10) = $720 F
Fixed overhead budget variance
= Actual fixed overhead costs − Budgeted fixed overhead cost
= $37,000 − $40,000 = $3,000 F
Total overhead variance = $720 F + $3,000 F = $3,720 F

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 11 Flexible Budgets and Overhead Analysis
41. Bartoletti Fabrication Corporation has a standard cost system in which it applies

manufacturing overhead to products on the basis of standard machine-hours (MHs).
The company's cost formula for variable manufacturing overhead is $4.60 per MH.
The company had budgeted its fixed manufacturing overhead cost at $65,000 for the
month. During the month, the actual total variable manufacturing overhead was
$22,080 and the actual total fixed manufacturing overhead was $63,000. The actual
level of activity for the period was 4,600 MHs. What was the total of the variable
overhead spending and fixed overhead budget variances for the month?
A) $1,080 unfavorable
B) $1,080 favorable
C) $920 unfavorable
D) $920 favorable
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Actual rate = Actual variable manufacturing overhead ÷ Actual machine-hours
= $22,080 ÷ 4,600 = $4.80
Variable overhead spending variance = AH × (AR − SR)
= 4,600 × ($4.80 − $4.60)
= 4,600 × $0.20 = $920 U
Fixed overhead budget variance
= Actual fixed overhead costs − Budgeted fixed overhead cost
= $63,000 − $65,000 = $2,000 F
Total overhead variance = $920 U + $2,000 F = $1,080 F

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


Chapter 11 Flexible Budgets and Overhead Analysis

42. Amirault Manufacturing Corporation has a standard cost system in which it applies
manufacturing overhead to products on the basis of standard machine-hours (MHs).
The company's cost formula for variable manufacturing overhead is $4.00 per MH.
During the month, the actual total variable manufacturing overhead was $18,040 and
the actual level of activity for the period was 4,100 MHs. What was the variable
overhead spending variance for the month?
A) $410 favorable
B) $1,640 unfavorable
C) $1,640 favorable
D) $410 unfavorable
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Easy
Solution:
Actual rate = Actual variable manufacturing overhead ÷ Actual machine-hours
= $18,040 ÷ 4,100 = $4.40
Variable overhead spending variance = AH × (AR − SR)
= 4,100 × ($4.40 − $4.00) = 4,100 × $0.40 = $1,640 U
43. Goolden Electronics Corporation has a standard cost system in which it applies
manufacturing overhead to products on the basis of standard machine-hours (MHs).
The company had budgeted its fixed manufacturing overhead cost at $58,000 for the
month and its level of activity at 2,500 MHs. The actual total fixed manufacturing
overhead was $61,200 for the month and the actual level of activity was 2,600 MHs.
What was the fixed overhead budget variance for the month to the nearest dollar?
A) $880 unfavorable
B) $880 favorable
C) $3,200 favorable
D) $3,200 unfavorable
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 3 Level: Medium
Solution:

Fixed overhead budget variance
= Actual fixed overhead cost − Budgeted fixed overhead cost
= $61,200 − $58,000 = $3,200 U

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Chapter 11 Flexible Budgets and Overhead Analysis
44. Wadding Corporation applies manufacturing overhead to products on the basis of
standard machine-hours. For the most recent month, the company based its budget on
3,600 machine-hours. Budgeted and actual overhead costs for the month appear
below:
Original
Budget
Based
on 3,600
Machine Actual
-Hours
Costs
Variable overhead costs:
Supplies.......................................
$11,160 $11,830
Indirect labor...............................
26,280 27,970
Fixed overhead costs:
Supervision.................................
19,700 19,340
Utilities........................................

5,900
5,770
Factory depreciation...................
6,900
7,210
Total overhead cost........................
$69,940 $72,120
The company actually worked 3,900 machine-hours during the month. The standard
hours allowed for the actual output were 3,890 machine-hours for the month. What
was the overall variable overhead efficiency variance for the month?
A) $760 favorable
B) $104 unfavorable
C) $180 favorable
D) $656 favorable
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Hard

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


Chapter 11 Flexible Budgets and Overhead Analysis
Solution:
Variable
overhead costs
Supplies....................................
$11,160
Indirect labor............................
$26,280

Machinehours
3,600
3,600

Per machinehour
$3.10
$7.30

Budgeted machine-hours: 3,600
Actual machine-hours: 3,900
Standard machine-hours allowed: 3,890

Cost
Formula
(per
MH)
Overhead Costs
Variable overhead costs:
Supplies.....................
Indirect labor.............

$ 3.10
7.30
$10.40

(1)
Budget
Based on
3,900

MHs
(AH ×
SR)

(2)
Budget
Based on
3,890 MHs
(SH × SR)

$12,090 *
28,470 **
$40,560

$12,059
$28,397

(1) − (2)
Efficiency
Variance
$ 31 U
73 U
$104 U

*3,900 machine-hours × $3.10 per machine-hour = $12,090
**3,900 machine-hours × $7.30 per machine-hour = $28,470

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