D. Factory Overhead Costs Incurred Were Less Than Overhead Costs Charged To Production

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11.

The Johns Company budgeted overhead at $125,000 for the period for Department A
based on a budgeted volume of 50,000 direct labor hours. At the end of the period, the
factory overhead control account for Department A had a balance of $126,000. The
actual (and allowed) direct labor hours were 52,000. What was the overapplied
(underapplied) overhead for the period?
A. $(4,000) B. $4,000 C. $(6,500) D. $6,500

Actual factory overhead incurred - factory overhead applied = over- or underapplied


factory overhead

Budgeted overhead / budgeted direct labor hours =


   $125,000 / 50,000 = factory overhead application rate per direct labor $ 2.50
hour
Actual and allowed direct labor hours x 52,000
Factory overhead applied $130,000
Actual factory overhead incurred  126,000
Overapplied factory overhead for the period $ 4,000

12. Ben’s Climbing Gear, Inc. has direct material costs as follows:
Actual units of direct materials used 20,000
Standard price per unit of direct materials $2.50
Direct material quantity variance—favorable $5,000
What was Ben’s standard quantity of material?
A. $18,000 B. $20,000 C. $22,000 D. $24,000

$5,000 F = ($20,000 - standard quantity of materials allowed) x $2.50


$2,000 F* = $20,000 - standard quantity of materials allowed
$22,000** = standard quantity of materials allowed

* 5,000 F/ 2.50
** 20,000 + 2,000 (note that the favorable variance is added to the actual quantity to arrive
at the standard quantity because by definition, a favorable variance occurs when standard
quantities exceed actual quantities.)

13. Overapplied factory overhead would result if


A. the plant was operated at greater than normal capacity.
B. the plant was operated at less than normal capacity.
C. factory overhead costs incurred were greater than overhead costs charged to
production.
D. factory overhead costs incurred were less than overhead costs charged to
production.
14. The direct labor costs for Boundary Company follow:
Standard direct labor hours 34,000
Actual direct labor hours 33,500
Direct labor efficiency variance—favorable $12,000
Direct labor rate variance—favorable $15,075
Total payroll $252,925

What was Boundary’s standard direct labor rate?


A. $3.87 B. $8.00 C. $10.50 D. $12.00

Labor efficiency variance = (actual number of labor hours worked - standard number of
labor hours allowed) x standard labor rate per hour

$12,000 F = (33,000 -34,000) x standard labor rate per hour

Actual hours 33,500


Standard hours 34,000
   Standard hours allowed in excess of actual hours  500 hours
Efficiency variance:
   $12,000 / 500 hours = $24.00 standard rate

15. Elgin Company’s budgeted fixed factory overhead costs are $50,000 per month, plus
a variable factory overhead rate of $4.00 per direct labor hour. The standard direct labor
hours allowed for October production were 20,000. An analysis of the factory overhead
indicates that in October, Elgin had an unfavorable budget (controllable) variance of
$1,500 and a favorable volume variance of $500. Elgin uses a two-variance
analysis of overhead variances.
The actual factory overhead that Elgin incurred in October is
A. $126,500. B. $128,000. C. $128,500. D. $131,500.

Controllable variance = Actual factory overhead - Standard overhead budgeted for actual
activity level*

$1,500 U = Actual factory overhead - $130,000


Actual factory overhead = $131,500 (Unfavorable variance indicates that actual factory
overhead exceeds budgeted amounts.)

* Standard direct labor hours 20,000


Variable overhead rate per hour x $4.00
Variable overhead budgeted $ 80,000
Fixed overhead budgeted   50,000
Total overhead budgeted $130,000

16. Thomas Company uses a standard cost system. Information for raw materials for
product RBI for the month of October follows:
Standard unit price $1.75
Actual purchase price per unit $1.60
Actual quantity purchased 4,000 units
Actual quantity used 3,900 units
Standard quantity allowed for actual production 3,800 units
What is the materials purchase price variance for Thomas Company?
A. $15 favorable B. $15 unfavorable C. $600 favorable D. $600 unfavorable

Materials purchase price variance = (actual unit price of materials - standard unit price of
materials) x actual quantity of materials purchased

Materials purchase price variance = ($1.60 - $1.75) x 4,000

Actual unit price $1.60


Standard unit price  1.75
Excess of standard price over actual $ .15
Quantity purchased 4,000 units
Purchase price variance (favorable - standard price exceeds actual) $ 600

17. What type of standard cost is the absolute minimum cost possible under the best
conceivable operating conditions?
A. Practical B. Ideal C. Attainable D. Normal

18. The fixed overhead application rate is a function of a predetermined normal activity
level. If standard hours allowed for good output equal this normal activity level for a
given period, the volume variance will be
A. zero.
B. favorable.
C. unfavorable.
D. either favorable or unfavorable depending on the budgeted overhead.

19. Alyisa Corporation uses a standard cost system. Direct labor information for product
CER for the month of May is as follows:
Standard rate $8.00 per hour
Actual rate paid $8.20 per hour
Standard hours allowed for actual production 1,200 hours
Labor efficiency variance $800 unfavorable
What are actual hours worked?
A. 1,100 B. 1,300 C. 1,330 D. 1,400

Labor efficiency variance = (actual number of labor hours worked - standard number of
labor hours allowed) x standard labor rate per hour

$ 800 U = (actual number of labor hours worked - 1,200) x $8.00

Standard hours  standard rate:


   1,200 hours  $8 $9,600
Efficiency variance (unfavorable)     800
Actual hours (X)  $8 $10,400

$10,400
X= = 1,300 hours
$8

20. A company experienced $21,000 in actual factory overhead incurred. During the
same period, budgeted factory overhead based on actual hours worked was $19,300. The
difference between these two amounts, $1,700, is called the _______ variance.

A. volume B. budget C. efficiency D. quantity

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