Exam 11: Standard Costs for Control: Flexible Budgets and Manufacturing Overhead

Management response to volume variance The SanBo Plant has an overall plant manager, four assistant plant managers and 30 department managers. One of the assistant plant managers made the following comments at a meeting of the department managers that report to him: 'These unfavourable production volume variances are killing our performance. When these variances are put on a per unit basis and added to our standard costs, the resulting product costs make us look like the worst plant in the company. If we don't get our unit costs down and look more efficient, we will be in deep trouble. The plant might be closed. 'This is what we should do. I want these departments to run at 100 per cent of normal output. If you don't have specific orders, make some of the components that are used for our most popular products. We can store the stuff; we will have to use it some time. Meanwhile that will boost our output, eliminate the unfavourable production volume variances and get our unit costs back down where they should be.' Will the assistant plant manager's suggestion improve the plant's performance? Explain why or why not.

Which of the following statements is correct?

Use the following data to determine the company's fixed overhead volume variance for March. A. $10 000 overapplied B. $10 000 underapplied C. $20 000 overapplied D. $20 000 underapplied

When does budgeted fixed overhead differ from applied fixed overhead? (Assume the number of machine hours is the activity base.)

Hamilton Pty Ltd uses a standard costing system for product costing. The company uses direct labour hours as the cost driver to apply overhead costs. The following amounts were budgeted for the year: The following were the actual results: Calculate the amount of overhead cost applied to work in process inventory.

Which of the following statements is false?

Felter Company uses a standard costing system based on direct labour hours. Last month, Felter Company used more direct labour hours than planned, while the production level was consistent with expectations. This is likely to result in

A flexible budget is appropriate for a:

Felter Company uses a standard costing system based on direct labour hours. Last month, Felter Company used more electricity and indirect materials than planned. This is likely to result in

Hamilton Pty Ltd uses a standard costing system for product costing. The company uses direct labour hours as the cost driver to apply overhead costs. The following amounts were budgeted for the year: The following were the actual results: Calculate the amount of variable overhead spending variance.

Management uses flexible budgets for controlling manufacturing overhead costs.

When is the predetermined fixed overhead rate used?

A flexible budget is prepared for an expected level of activity.

Advantages of standard costing One of the stated advantages of standard costing is 'more stable product costs'. i. List two other advantages of standard costing. ii. Assume that the company's business activity has a strong seasonal pattern; namely, the volume of activity in the busiest month of the year is four times as large as the volume in the slowest month. Explain how standard costing gives more stable product costs in this situation. You may assume that, on average, fixed costs of production amount to more than half of the cost of the product.

The sales volume variance equals:

Hamilton Pty Ltd uses a standard costing system for product costing. The company uses direct labour hours as the cost driver to apply overhead costs. The following amounts were budgeted for the year: The following were the actual results: Calculate the fixed overhead volume variance.

Atrex Company determined that its variable overhead spending variance was $10 000 unfavourable for the year. Actual variable overhead was $100 000 for the year. Variable overhead is applied based on machine hours. The standard rate per machine hour was $9. The standard quantity of machine hours allowed for good output was 9000. What was the actual quantity of machine hours used?

Which of the following statements is correct?

Hamilton Pty Ltd uses a standard costing system for product costing. The company uses direct labour hours as the cost driver to apply overhead costs. The following amounts were budgeted for the year: The following were the actual results: Calculate the amount of variable overhead efficiency variance.

Which of the following statements is true?