Fixed Manufacturing Overhead Variances

Hard Practice Test

Introduction to Accounting

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Hard Practice Test

Hard Practice Test

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1.  Which variance could be affected by hiring workers with less skill

a. unfavorable labor rate variance
b. favorable material price variance
c.unfavorable fixed overhead efficiency variance
d. unfavorable overhead budget variance

Answer
C. A fixed overhead efficiency variance is related to how much is actually produced compared to what was expected to be produced.  Workers will less skill will most likely produce less, unfavorable.  Hiring workers with less skill would most likely mean the rate per hour was less which would give a favorable  labor rate variance. (a.).  The overhead budget variance and material price variances are related to the price paid for these items which would cost less for less skill and be favorable (a. & d.)  

2. Fixed overhead costs

a. are best controlled on a unit by unit basis as production occurs
b. are best controlled on a total basis for each type of cost
c. constant per unit as volume changes
d. increase as production increases
Answer
B. Fixed costs do not change because more or less units are produced. (d.) Therefore, any answer that discusses volume/production changes is not correct (a.& c.) Fixed costs are paid in total and are not direct to each individual unit.

3. The budgeted total fixed overhead amount is

a. used by management to calculate the total quantity of the activity base
b. the total estimated fixed overhead dollars allocated to units produced
c. hard to estimate so it is not used for anything significant
d. used to calculate variable overhead variances
Answer
B. Budgeted fixed overhead is part of the formula along with the activity base, they are two separate things, one dollar and one quantity, so it is not used to get quantity. (a.) It is not hard to estimate and it has nothing to do with variable overhead variances (c.d.) The cost must be allocated to units produced. The predetermine overhead rate which gives an estimated cost per activity is used to determine how much cost should go to each unit (b.)

4. The following standards have been set for the product:

Standard Total Standard Cost
Direct Materials 4 pounds $6.00
Direct Labor .5 hours $5.00
Variable O/H .5 hours $2.00
Fixed O/H .5 hours $8.00

During the year the company produced 3,000 units.
8,900 pounds were purchased at a cost of $13,729
Inventory increased by 360 pounds this year
1,265 direct labor hours were worked at a cost of $11,467
Actual variable manufacturing overhead incurred was $4,157
Actual fixed manufacturing overhead incurred was $18,702
Budgeted production was 3,200 units

Compute the following and write the amount as favorable or unfavorable

Fixed overhead budget variance
Fixed overhead volume variance
Answer

Fixed Overhead:

  Actual                     Budget                      Applied

$18,702               3,200 x .5 x $16       3,000 x .5 x $16
Given                    = $25,600                   = $24,000

 

Variance                     $6,898 F                     $1,600 U
                                    budget                        volume

Important to notice:

The rate/ cost per hour of $16 is calculated by dividing the total standard cost by the standard quantity. It is not given.

Budgeted fixed overhead must be calculated, it is not given.
Budgeted production units x hours for 1 x $ rate per hour.

5. More Manufacturing accumulated the following data related to production:

Actual Standard
Raw materials purchased, 10,500 each $23,100 $21,000
Raw materials used 10,900 10,000
Direct labor payroll $122,100 $120,000
Direct labor hours worked 14,800 15,000
Total Manufacturing overhead incurred/applied $182,500 $184,500
Variable overhead actual $ and stnd. rate per hour $127,500 $3.00
Fixed overhead actual $ and standard rate per hour $322,401 $6.00

Manufacturing overhead is applied based on 45,000 annual machine hours.
Three hours of machine time is required for each direct labor hour.

 

Compute the following and write the amount and favorable or unfavorable

Fixed overhead budget variance
Fixed overhead volume variance

Answer

Fixed Overhead:

  Actual                        Budget                    Applied
$322,401             15,000 x 3 x $6       14,800 x 3 x $6

                                = $270,000              = $266,400

 

Variance                 $52,401 U                 $3,600 U
                                 budget                      volume

Important to notice:

Overhead is applied based on machine hours and the standard rate is $6 per machine hour. It takes 3 machine hours for 1 direct labor hour. So, to get the standard machine hours allowed you must always multiply the direct labor hours by 3.

If overhead was based on direct labor hours you would not multiply by 3, you would just use the direct labor hour standard.

You must be consistent: The activity used must be multiplied by the rate per the same activity.