Azzurra Company manufactures computer chips used in aircraft and automobiles. Manufacturing overhead at Azzurra is applied to production on the basis of standard machine-hours.

Azzurra Company manufactures computer chips used in aircraft and automobiles. Manufacturing overhead at Azzurra is applied to production on the basis of standard machine-hours.

      86. Which overhead variance(s) at Azzurra would be affected in a favorable manner if more computer chips are produced during the year than originally budgeted?

            A)      variable overhead spending variance

            B)      variable overhead efficiency variance

            C)      fixed overhead budget variance

            D)      fixed overhead volume variance

            E)      none of the above would be affected favorably

           

            Ans:  D     LO:  3; 4; 6    

      87. Which overhead variance(s) at Azzurra would be affected in an unfavorable manner if some indirect materials were “inadvertently” taken home by a few of the indirect laborers?

            A)      variable overhead spending variance

            B)      variable overhead efficiency variance

            C)      fixed overhead budget variance

            D)      fixed overhead volume variance

            E)      none of the above would be affected unfavorably

           

            Ans:  A     LO:  3; 4; 6    

      88. Which overhead variance(s) at Azzurra would be affected in an unfavorable manner if fire and theft insurance rates increase by 25% unexpectedly during the period?

            A)      variable overhead spending variance

            B)      variable overhead efficiency variance

            C)      fixed overhead budget variance

            D)      fixed overhead volume variance

            E)      both C and D above

           

            Ans:  C     LO:  3; 4; 6    

Use the following to answer questions 89-90:

Single Company has a standard cost system in which manufacturing overhead is applied to units of product on the basis of standard direct labor-hours. The company has provided the following data concerning its manufacturing overhead costs for last year:

	Standard direct labor-hours allowed for the output........	32,000	hours
	Actual direct labor-hours worked...................................	33,000	hours
	Denominator activity......................................................	30,000	hours
	Actual variable factory overhead cost............................	$166,000
	Variable overhead rate...................................................	$5	per hour

      89. Given these data, the variable overhead spending variance for the year would be:

            A)      $1,000 U

            B)      $6,000 U

            C)      $1,000 F

            D)      $16,000 U

           

            Ans:  A     LO:  3; 4    

            Solution:

           

            Budgeted direct-labor hours: 30,000

Actual direct-labor hours: 33,000

Standard direct-labor hours allowed: 32,000

		Cost Formula (per DLH)	Actual Costs Incurred 33,000 DLHs	Budget Based on 33,000 DLHs	Spending Variance
	Variable overhead costs.....................	$5.00	$166,000	$165,000	$1,000 U

      90. The variable overhead efficiency variance would be:

            A)      $10,000 U

            B)      $5,000 F

            C)      $15,000 U

            D)      $5,000 U

           

            Ans:  D     LO:  3; 4    

            Solution:

           

            Budgeted direct-labor hours: 30,000

Actual direct-labor hours: 33,000

Standard direct-labor hours allowed: 32,000

		Cost Formula (per DLH)	Budget Based on 33,000 DLHs	Budget Based on 32,000 DLHs	Efficiency Variance
	Variable overhead costs.................	$5.00	$165,000	$160,000	$5,000 U

Use the following to answer questions 91-92:

A manufacturing company that has only one product has established the following standards for its variable manufacturing overhead. The company uses machine-hours as its measure of activity.

	Standard hours per unit of output..............	2.7	machine-hours
	Standard variable overhead rate................	$19.40	per machine-hour

The following data pertain to operations for the last month:

	Actual hours..............................................	4,500	machine-hours
	Actual total variable overhead cost...........	$88,425
	Actual output.............................................	1,500	units

      91. What is the variable overhead spending variance for the month?

            A)      $9,855 U

            B)      $1,125 F

            C)      $1,125 U

            D)      $9,855 F

           

            Ans:  C     LO:  3; 4    

            Solution:

           

            Actual machine-hours: 4,500

Standard machine-hours: 4,050*

		Cost Formula (per MH)	Actual Costs Incurred 4,500 MHs	Budget Based on 4,500 MHs	Spending Variance
	Variable overhead costs	$19.40	$88,425	$87,300	$1,125 U

*1,500 units × 2.7 machine-hours per unit = 4,050 machine-hours

      92. What is the variable overhead efficiency variance for the month?

            A)      $8,842 U

            B)      $1,013 F

            C)      $8,843 F

            D)      $8,730 U

           

            Ans:  D     LO:  3; 4    

            Solution:

           

            Actual machine-hours: 4,500

Standard machine-hours: 4,050*

		Cost Formula (per MH)	Budget Based on 4,500 MHs	Budget Based on 4,050 MHs	Efficiency Variance
	Variable overhead costs	$19.40	$87,300	$78,570	$8,730 U

*1,500 units × 2.7 machine-hours per unit = 4,050 machine-hours

Use the following to answer questions 93-95:

Crispy Company manufactures smoke detectors and has developed the following flexible budget for its overhead costs. Manufacturing overhead at Crispy is applied to production on the basis of standard direct labor-hours:

	Direct labor-hours.............	56,000	70,000	84,000
	Detectors produced............	40,000	50,000	60,000
	Variable overhead cost......	$252,000	$315,000	$378,000
	Fixed overhead cost...........	$672,000	$672,000	$672,000

Crispy was expecting to produce 40,000 detectors last year. The actual results for the year were as follows:

	Number of detectors produced......	43,200
	Direct labor-hours incurred...........	62,640
	Variable overhead cost..................	$278,748
	Fixed overhead cost.......................	$714,000

      93. What was Crispy's variable overhead spending variance?

            A)      $3,132 favorable

            B)      $9,720 unfavorable

            C)      $13,608 unfavorable

            D)      $115,884 favorable

           

            Ans:  A    

            Solution:

		Cost Formula (per DLH)		Actual Costs Incurred 62,640 DLHs	Budget Based on 62,640 DLHs	Spending Variance
	Variable overhead costs.......................	$4.50	*	$278,748	$281,880	$3,132 F

*$252,000 ÷ 56,000 DLHs = $4.50 per DLH

      94. What was Crispy's fixed overhead budget variance?

            A)      $11,760 favorable

            B)      $37,680 favorable

            C)      $42,000 unfavorable

            D)      $53,760 favorable

           

            Ans:  C     LO:  6    

            Solution:

            Fixed overhead budget variance

            = Actual fixed overhead cost − Budgeted fixed overhead cost

            = $714,000 − $672,000 = $42,000 U

      95. What total amount of manufacturing overhead cost (variable and fixed) did Crispy apply to the 43,200 detectors produced?

            A)      $712,800

            B)      $924,000

            C)      $997,920

            D)      $1,033,560

           

            Ans:  C     LO:  5    

            Solution:

           

            Predetermined overhead rate = Total overhead ÷ Per detector

= ($252,000 + $672,000) ÷ 40,000 detectors

= $924,000 ÷ 40,000 detectors = $23.10 per detector

Applied overhead = 43,200 detectors × $23.10 per detector = $997,920

Use the following to answer questions 96-97:

Dagle Corporation has provided the following data for a recent month:.

	Budgeted production..................................	4,700	motors
	Actual production.......................................	4,800	motors
	Standard machine-hours per motor............	5.1	machine-hours
	Budgeted machine-hours (5.1 × 4,700)......	23,970	machine-hours
	Standard machine-hours allowed for the actual output (5.1 × 4,800)......................	24,480	machine-hours
	Actual machine-hours.................................	24,740	machine-hours
	Budgeted variable overhead cost per machine-hour:
	Indirect labor...........................................	$6.30	per machine-hour
	Power.......................................................	$2.20	per machine-hour
	Actual total variable overhead costs:
	Indirect labor...........................................	$151,506
	Power.......................................................	$56,700

      96. The variable overhead spending variance for indirect labor is:

            A)      $4,356 U

            B)      $2,718 F

            C)      $4,356 F

            D)      $1,638 U

           

            Ans:  C    

            Solution:

           

            Budgeted machine-hours: 23,970

Actual machine-hours: 24,740

Standard machine-hours allowed: 24,480

		Cost Formula (per MH)	Actual Costs Incurred 24,740 MHs	Budget Based on 24,740 MHs	Spending Variance
	Variable overhead costs (Indirect labor).........................	$6.30	$151,506	$155,862	$4,356 F

      97. The variable overhead spending variance for power is:

            A)      $2,844 U

            B)      $2,844 F

            C)      $572 U

            D)      $2,272 U

           

            Ans:  D    

            Solution:

           

            Budgeted machine-hours: 23,970

Actual machine-hours: 24,740

Standard machine-hours allowed: 24,480

		Cost Formula (per MH)	Actual Costs Incurred 24,740 MHs	Budget Based on 24,740 MHs	Spending Variance
	Variable overhead costs (Power).................................	$2.20	$56,700	$54,428	$2,272 U