Cost Accounting (14th Edition)

290 CHAPTER 8 FLEXIBLE BUDGETS, OVERHEAD COST VARIANCES, AND MANAGEMENT CONTROL
Terms to Learn
The chapter and the Glossary at the end of the book contain definitions of the following important terms:
denominator level (p. 266)
denominator-level variance (p. 272)
fixed overhead flexible-budget
variance (p. 271)
fixed overhead spending variance
(p. 271)
operating-income volume variance
(p. 281)
production-denominator level (p. 266)
production-volume variance (p. 272)
standard costing (p. 264)
total-overhead variance (p. 278)
variable overhead efficiency variance
(p. 267)
variable overhead flexible-budget
variance (p. 267)
variable overhead spending variance
(p. 269)
Assignment Material
Questions
8-1 How do managers plan for variable overhead costs?
8-2 How does the planning of fixed overhead costs differ from the planning of variable overhead costs?
8-3 How does standard costing differ from actual costing?
8-4 What are the steps in developing a budgeted variable overhead cost-allocation rate?
8-5 What are the factors that affect the spending variance for variable manufacturing overhead?
8-6 Assume variable manufacturing overhead is allocated using machine-hours. Give three possible
reasons for a favorable variable overhead efficiency variance.
8-7 Describe the difference between a direct materials efficiency variance and a variable manufacturing
overhead efficiency variance.
8-8 What are the steps in developing a budgeted fixed overhead rate?
8-9 Why is the flexible-budget variance the same amount as the spending variance for fixed manufacturing
overhead?
8-10 Explain how the analysis of fixed manufacturing overhead costs differs for (a) planning and control
and (b) inventory costing for financial reporting.
8-11 Provide one caveat that will affect whether a production-volume variance is a good measure of
the economic cost of unused capacity.
8-12 “The production-volume variance should always be written off to Cost of Goods Sold.” Do you
agree? Explain.
8-13 What are the variances in a 4-variance analysis?
8-14 “Overhead variances should be viewed as interdependent rather than independent.” Give
an example.
8-15 Describe how flexible-budget variance analysis can be used in the control of costs of activity areas.
Exercises
Required
Required
8-16 Variable manufacturing overhead, variance analysis. Esquire Clothing is a manufacturer of designer
suits. The cost of each suit is the sum of three variable costs (direct material costs, direct manufacturing labor
costs, and manufacturing overhead costs) and one fixed-cost category (manufacturing overhead costs). Variable
manufacturing overhead cost is allocated to each suit on the basis of budgeted direct manufacturing labor-hours
per suit. For June 2012 each suit is budgeted to take four labor-hours. Budgeted variable manufacturing overhead
cost per labor-hour is $12. The budgeted number of suits to be manufactured in June 2012 is 1,040.
Actual variable manufacturing costs in June 2012 were $52,164 for 1,080 suits started and completed. There
were no beginning or ending inventories of suits. Actual direct manufacturing labor-hours for June were 4,536.
1. Compute the flexible-budget variance, the spending variance, and the efficiency variance for variable
manufacturing overhead.
2. Comment on the results.
8-17 Fixed manufacturing overhead, variance analysis (continuation of 8-16). Esquire Clothing allocates
fixed manufacturing overhead to each suit using budgeted direct manufacturing labor-hours per suit. Data
pertaining to fixed manufacturing overhead costs for June 2012 are budgeted, $62,400, and actual, $63,916.
1. Compute the spending variance for fixed manufacturing overhead. Comment on the results.
2. Compute the production-volume variance for June 2012. What inferences can Esquire Clothing draw
from this variance?