Appendix 8A

Predetermined Overhead Rates and Overhead Analysis in a Standard Costing

System

 
 

True / False Questions

 

1. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. A fixed manufacturing overhead volume variance
will NOT necessarily occur in a month in which production volume differs from sales volume. 
 
True    False
 
2. The fixed manufacturing overhead volume variance is more meaningful than the budget variance for cost
control purposes. 
 
True    False
 
3. In a standard costing system, if the actual fixed manufacturing overhead cost exceeds the budgeted fixed
manufacturing overhead cost for the period, then fixed manufacturing overhead cost would be overapplied
for the period. 
 
True    False
 
4. If all four of Argo Corporation's overhead variances are favorable, Argo's overhead will be underapplied. 
 
True    False
 
5. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. The company's choice of the denominator level of
activity affects the fixed manufacturing overhead budget variance. 
 
True    False
 
6. The higher the denominator activity level used to compute the predetermined overhead rate, the lower the
predetermined overhead rate. 
 
True    False
 

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7. An unfavorable volume variance means that a firm operated at an activity level that was below the activity
level planned for the period. 
 
True    False
 
8. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. A fixed manufacturing overhead volume variance
will NOT necessarily occur in a month in which the fixed manufacturing overhead applied to units of
product on the basis of standard hours allowed differs from the budgeted fixed manufacturing overhead. 
 
True    False
 
9. A fixed manufacturing overhead volume variance occurs as the result of a difference between the
denominator level of activity (in hours) and the standard hours allowed for the actual output of the period. 
 
True    False
 
10. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. A fixed manufacturing overhead volume variance
will NOT necessarily occur in a month in which there is a fixed manufacturing overhead budget variance. 
 
True    False
 
11. In a standard costing system where the denominator activity for the predetermined overhead rate is labor-
hours, overhead costs are applied to work in process on the basis of the standard labor-hours allowed for
the actual output. 
 
True    False
 
12. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. The company's choice of the denominator level of
activity has no effect on the variable portion of the predetermined overhead rate. 
 
True    False
 
13. A favorable volume variance means that the company operated at an activity level greater than that planned
for the period. 
 
True    False
 
14. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. The company's choice of the denominator level of
activity affects the fixed manufacturing overhead volume variance. 
 
True    False
 
 

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Multiple Choice Questions
 

15. Sulema, Inc. repairs and refinishes antique furniture. Manufacturing overhead at Sulema is applied to
production on the basis of standard direct labor-hours. Which overhead variance(s) at Sulema would be
unfavorably affected if the cost of solvents used to strip the old paint from the furniture unexpectedly
doubles in price? 
 

A. variable overhead rate variance

B. variable overhead efficiency variance
C. fixed manufacturing overhead budget variance
D. fixed manufacturing overhead volume variance
 
16. When computing standard cost variances, the difference between actual and standard price multiplied by
actual quantity yields a(n): 
 

A. combined price and quantity variance.

B. efficiency variance.
C. price or rate variance.
D. quantity variance.
 
17. The fixed manufacturing overhead budget variance is: 
 

A. the difference between budgeted fixed manufacturing overhead cost and actual fixed manufacturing
overhead cost.
B. the difference between actual fixed manufacturing overhead cost and applied fixed manufacturing
overhead cost.
C. the difference between budgeted fixed manufacturing overhead cost and applied fixed manufacturing
overhead cost.
D. the difference between fixed overhead at the planned level of activity and the flexible budget for actual
activity.
 
18. A volume variance is computed for: 
 

A. both variable and fixed manufacturing overhead.

B. variable manufacturing overhead only.
C. fixed manufacturing overhead only.
D. direct labor costs as well as overhead costs.
 

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19. Which of the following variances is generally the least significant from the standpoint of cost control? 
 

A. Materials price variance.

B. Labor efficiency variance.
C. Fixed manufacturing overhead volume variance.
D. Variable overhead rate variance.
 
20. Traveller Corporation sells one product and uses a standard cost system. Last year the overhead volume
variance was zero. Which of the following is correct? 
 

A. Actual variable manufacturing overhead cost was equal to standard variable manufacturing overhead
cost.
B. Total applied overhead was equal to total actual overhead.
C. The denominator activity was equal to actual activity.
D. The budgeted fixed costs were equal to the applied fixed costs.
 
21. The Santos Corporation made an error when selecting a denominator level of activity and chose a much
lower level than was realistic. This error would most likely result in a large: 
 

A. favorable variable overhead efficiency variance.

B. favorable fixed manufacturing overhead budget variance.
C. favorable fixed manufacturing overhead volume variance.
D. unfavorable fixed manufacturing overhead budget variance.
 
22. In a standard cost system, overhead is applied to production on the basis of: 
 

A. the denominator hours chosen for the period.

B. the actual hours required to complete the actual output of the period.
C. the standard hours allowed to complete the actual output of the period.
D. the actual cost of fixed overhead during the period.
 
23. Dori Castings is a job order shop that uses a standard cost system. Manufacturing overhead costs are
applied on the basis of standard direct labor-hours. A volume variance will exist for Dori in a month
where: 
 

A. production volume differs from sales volume.

B. actual direct labor-hours differ from standard hours allowed.
C. there is a budget variance in fixed manufacturing overhead costs.
D. the fixed manufacturing overhead applied to units of product on the basis of standard hours allowed
differs from the budgeted fixed manufacturing overhead.
 

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24. Alex Corporation has a large underapplied overhead balance in the manufacturing overhead account. This
could be explained by: 
 

A. an unfavorable volume variance, assuming all other variances are zero.

B. a favorable volume variance, assuming all other variances are zero.
C. standard hours allowed for the period's output being greater than denominator hours for the period.
D. favorable total variance for overhead.
 
25. Coblentz Fabrication Corporation has a standard cost system in which it applies manufacturing overhead to
products on the basis of standard machine-hours (MHs) at $6.20 per MH. The company had budgeted its
fixed manufacturing overhead cost at $40,000 for the month. During the month, the actual total variable
manufacturing overhead was $48,970 and the actual total fixed manufacturing overhead was $43,000. The
actual level of activity for the period was 8,300 MHs. What was the total of the variable overhead rate and
fixed manufacturing overhead budget variances for the month? 
 

A. $2,490 Favorable
B. $510 Favorable
C. $510 Unfavorable
D. $2,490 Unfavorable
 

App8A-5
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26. Omary Corporation has a standard cost system in which it applies manufacturing overhead to products on
the basis of standard machine-hours (MHs). The company has provided the following data for the most
recent month:

Budgeted level of activity 3,900 MHs

Actual level of activity 4,100 MHs
Standard variable manufacturing per
$7.60
overhead rate MH
Budgeted fixed manufacturing overhead
$50,000
cost
Actual total variable manufacturing
$31,980
overhead
Actual total fixed manufacturing
$54,000
overhead
 

What was the total of the variable overhead rate and fixed manufacturing overhead budget variances for
the month?  
 

A. $1,520 Unfavorable
B. $3,180 Favorable
C. $4,820 Unfavorable
D. $6,340 Unfavorable
 

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27. Dexter Corporation uses a standard cost system and applies manufacturing overhead cost to units of
product on the basis of standard direct labor-hours (DLHs). Information on Dexter Corporation's
manufacturing overhead costs for last period is given below:

Actual hours worked 40,000 DLHs

Standard hours allowed for actual production 38,000 DLHs
Denominator hours used in computing the predetermined overhead rate 35,000 DLHs
Predetermined overhead rate $4 per DLH
Actual overhead cost incurred $150,000
 

Given these data, the underapplied or overapplied overhead cost for the period would be:  
 

A. $10,000 overapplied
B. $2,000 overapplied
C. $10,000 underapplied
D. $8,000 underapplied
 

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28. Steinhagen Corporation applies manufacturing overhead to products on the basis of standard machine-
hours. Budgeted and actual overhead costs for the most recent month appear below:

Original
Actual Costs
Budget
Variable overhead costs:
  Supplies $5,460 $6,570
  Indirect labor 3,640 4,410
Fixed overhead costs:
  Supervision 9,100 9,450
  Utilities 5,980 5,850
  Factory depreciation  22,100  22,520
Total overhead cost $46,280 $48,800
 

The company based its original budget on 2,600 machine-hours. The company actually worked 2,790
machine-hours during the month. The standard hours allowed for the actual output of the month totaled
2,960 machine-hours. What was the overall fixed manufacturing overhead volume variance for the month?

A. $5,148 Favorable
B. $5,148 Unfavorable
C. $2,717 Favorable
D. $2,717 Unfavorable
 

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29. Semaan Corporation applies manufacturing overhead to products on the basis of standard machine-hours.
Budgeted and actual overhead costs for the month appear below:

Original Actual
Budget Costs
Variable overhead costs:
  Supplies $11,340 $12,850
  Indirect labor 15,120 17,080
Fixed overhead costs:
  Supervision 14,900 14,640
  Utilities 5,800 6,010
  Factory depreciation     9,700     9,410
Total overhead cost  $56,860  $59,990
 

The company based its original budget on 2,700 machine-hours. The company actually worked 2,960
machine-hours during the month. The standard hours allowed for the actual output of the month totaled
3,030 machine-hours. What was the overall fixed manufacturing overhead budget variance for the month?  
 

A. $3,130 Unfavorable
B. $340 Unfavorable
C. $340 Favorable
D. $3,130 Favorable
 
30. Hairr Corporation bases its predetermined overhead rate on variable manufacturing overhead cost of $9.50
per machine-hour and fixed manufacturing overhead cost of $947,672 per period. If the denominator level
of activity is 8,900 machine-hours, the predetermined overhead rate would be: 
 

A. $9.50
B. $115.98
C. $106.48
D. $950.00
 

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31. The Adlake Corporation makes and sells a single product and uses a standard cost system. During October,
the company budgeted $300,000 in manufacturing overhead cost at a denominator activity of 20,000
machine-hours. At standard, each unit of finished product requires 5 machine-hours. The following cost
and activity were recorded during October:

Total actual manufacturing overhead cost

$294,000
incurred
Units of product completed 3,800
Actual machine-hours worked 19,422
 
The amount of overhead cost that the company applied to work in process for October was:  
 

A. $279,300
B. $291,330
C. $294,000
D. $285,000
 
32. Reidenbach Corporation applies manufacturing overhead to products on the basis of standard machine-
hours. The budgeted fixed manufacturing overhead cost for the most recent month was $17,100 and the
actual fixed manufacturing overhead cost for the month was $17,450. The company based its original
budget on 4,500 machine-hours. The standard hours allowed for the actual output of the month totaled
4,810 machine-hours. What was the overall fixed manufacturing overhead budget variance for the month? 
 

A. $1,178 Unfavorable
B. $350 Unfavorable
C. $350 Favorable
D. $1,178 Favorable
 
33. Diseth Corporation applies manufacturing overhead to products on the basis of standard machine-hours.
The company bases its predetermined overhead rate on 5,300 machine-hours. The company's total budgeted
fixed manufacturing overhead is $12,720. In the most recent month, the total actual fixed manufacturing
overhead was $12,370. The company actually worked 5,350 machine-hours during the month. The standard
hours allowed for the actual output of the month totaled 5,540 machine-hours. What was the overall fixed
manufacturing overhead volume variance for the month? 
 

A. $350 Favorable
B. $120 Favorable
C. $120 Unfavorable
D. $576 Favorable
 

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34. Masek Corporation has a standard cost system in which it applies manufacturing overhead to products on
the basis of standard machine-hours (MHs). The company has provided the following data for the most
recent month:

Budgeted level of activity 2,000 MHs

Actual level of activity 2,400 MHs
Standard variable manufacturing per
$5.90
overhead rate MH
Budgeted fixed manufacturing overhead
$50,000
cost
Actual total variable manufacturing
$14,880
overhead
Actual total fixed manufacturing
$49,000
overhead
 

What was the fixed manufacturing overhead budget variance for the month?  
 

A. $2,360 Unfavorable
B. $1,000 Unfavorable
C. $2,360 Favorable
D. $1,000 Favorable
 
35. Pizzi, Inc. had the following fixed manufacturing overhead variances last year:

Fixed overhead budget variance $30,000 Unfavorable

Fixed overhead volume variance $6,000 Favorable
 

Pizzi uses machine-hours as an activity base for overhead and used 48,000 machine-hours as the
denominator activity level for the year. Total actual fixed manufacturing overhead was $150,000. The
actual number of machine-hours incurred were 50,000. What were Pizzi's standard hours allowed for actual
output?  
 

A. 40,000
B. 42,000
C. 50,400
D. 52,500
 

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36. Tropiano Electronics Corporation has a standard cost system in which it applies manufacturing overhead to
products on the basis of standard machine-hours (MHs). The company had budgeted its fixed
manufacturing overhead cost at $62,100 for the month and its level of activity at 3,200 MHs. The actual
total fixed manufacturing overhead was $61,600 for the month and the actual level of activity was 3,000
MHs. What was the fixed manufacturing overhead budget variance for the month to the nearest dollar? 
 

A. $3,381 Unfavorable
B. $500 Favorable
C. $500 Unfavorable
D. $3,381 Favorable
 
37. At the beginning of last year, Tari Corporation budgeted $300,000 of fixed manufacturing overhead and
chose a denominator level of activity of 600,000 machine-hours. At the end of the year, Tari's fixed
manufacturing overhead budget variance was $9,000 favorable. Its fixed manufacturing overhead volume
variance was $15,000 favorable. Actual direct labor-hours for the year were 625,000. What was Tari's total
standard machine-hours allowed for last year's output?  
 

A. 570,000
B. 630,000
C. 648,000
D. 656,250
 

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38. Denby Corporation applies manufacturing overhead to products on the basis of standard machine-hours.
Budgeted and actual fixed manufacturing overhead costs for the most recent month appear below:

Original Budget Actual Costs

Fixed overhead costs:

  Supervision $12,800 $13,190
  Utilities 8,320 8,260
  Factory depreciation  46,720  46,540
Total fixed manufacturing overhead cost $67,840 $67,990
 

The company based its original budget on 6,400 machine-hours. The company actually worked 6,710
machine-hours during the month. The standard hours allowed for the actual output of the month totaled
6,540 machine-hours. What was the overall fixed manufacturing overhead volume variance for the month?

A. $3,286 Favorable
B. $1,484 Unfavorable
C. $3,286 Unfavorable
D. $1,484 Favorable
 
39. Bakos Corporation bases its predetermined overhead rate on variable manufacturing overhead cost of $8.80
per machine-hour and fixed manufacturing overhead cost of $100,688 per period. If the denominator level
of activity is 2,800 machine-hours, the variable component in the predetermined overhead rate would be: 
 

A. $44.76
B. $35.96
C. $43.52
D. $8.80
 

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40. Acuff Corporation applies manufacturing overhead to products on the basis of standard machine-hours.
Budgeted and actual overhead costs for the most recent month appear below:

Original Budget Actual Costs

Fixed overhead costs:

  Supervision $15,600 $15,950
  Utilities 5,000 5,070
  Factory depreciation    6,800    6,700
Total overhead cost $27,400 $27,720
 

The company based its original budget on 6,200 machine-hours. The company actually worked 6,560
machine-hours during the month. The standard hours allowed for the actual output of the month totaled
6,420 machine-hours. What was the overall fixed manufacturing overhead budget variance for the month?  
 

A. $320 Favorable
B. $320 Unfavorable
C. $972 Favorable
D. $972 Unfavorable
 
41. Oldham Corporation bases its predetermined overhead rate on variable manufacturing overhead cost of
$4.00 per machine-hour and fixed manufacturing overhead cost of $87,822 per period. If the denominator
level of activity is 4,100 machine-hours, the fixed component in the predetermined overhead rate would
be: 
 

A. $25.42
B. $4.00
C. $21.42
D. $400.00
 

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42. Bruley Corporation applies manufacturing overhead to products on the basis of standard machine-hours.
The company's predetermined overhead rate for fixed manufacturing overhead is $3.30 per machine-hour
and the denominator level of activity is 3,500 machine-hours. In the most recent month, the total actual
fixed manufacturing overhead was $11,570 and the company actually worked 3,430 machine-hours during
the month. The standard hours allowed for the actual output of the month totaled 3,450 machine-hours.
What was the overall fixed manufacturing overhead volume variance for the month? 
 

A. $66 Favorable
B. $231 Favorable
C. $231 Unfavorable
D. $165 Unfavorable
 
43. Nitrol Corporation manufactures brass vases using a standard cost system with standard machine-hours as
the activity base for overhead. The following information relates to vase production at Nitrol for last year:

Estimated for year Actual results for year

Variable overhead $50,000 $53,560
Fixed overhead $250,000 $247,500
Machine-hours 100,000 103,000
 

The standard machine-hours per vase is 1.25. Last year Nitrol produced 84,000 vases.

What was Nitrol's variable overhead rate variance for last year?  
 

A. $1,000 Favorable
B. $1,060 Unfavorable
C. $2,060 Unfavorable
D. $9,500 Unfavorable
 

App8A-15
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44. Nitrol Corporation manufactures brass vases using a standard cost system with standard machine-hours as
the activity base for overhead. The following information relates to vase production at Nitrol for last year:

Estimated for year Actual results for year

Variable overhead $50,000 $53,560
Fixed overhead $250,000 $247,500
Machine-hours 100,000 103,000
 

The standard machine-hours per vase is 1.25. Last year Nitrol produced 84,000 vases.

What was Nitrol's fixed manufacturing overhead volume variance for last year? 
 

A. $2,500 Favorable
B. $7,500 Favorable
C. $12,500 Favorable
D. $40,000 Unfavorable
 
45. Nitrol Corporation manufactures brass vases using a standard cost system with standard machine-hours as
the activity base for overhead. The following information relates to vase production at Nitrol for last year:

Estimated for year Actual results for year

Variable overhead $50,000 $53,560
Fixed overhead $250,000 $247,500
Machine-hours 100,000 103,000

The standard machine-hours per vase is 1.25. Last year Nitrol produced 84,000 vases.

What was Nitrol's total underapplied or overapplied overhead cost for last year?  
 

A. $1,060 overapplied
B. $1,060 underapplied
C. $7,940 overapplied
D. $13,940 overapplied
 

App8A-16
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46. The Dillon Corporation makes and sells a single product. Overhead costs are applied on the basis of
standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit.
The Dillon Corporation had the following budgeted and actual data for March:

Actual Budgeted
Units produced 33,900 30,800
Direct labor-hours 161,800 154,000
Variable overhead costs $140,500 $123,200
Fixed overhead costs $80,000 $77,000
 
The variable overhead rate variance for March is:  
 

A. $4,900 U
B. $11,060 U
C. $14,700 U
D. $17,300 U
 
47. The Dillon Corporation makes and sells a single product. Overhead costs are applied on the basis of
standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit.
The Dillon Corporation had the following budgeted and actual data for March:

Actual Budgeted
Units produced 33,900 30,800
Direct labor-hours 161,800 154,000
Variable overhead costs $140,500 $123,200
Fixed overhead costs $80,000 $77,000

The variable overhead efficiency variance for March is:  

 

A. $12,400 F
B. $6,160 U
C. $12,400 U
D. $6,160 F
 

App8A-17
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48. The Dillon Corporation makes and sells a single product. Overhead costs are applied on the basis of
standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit.
The Dillon Corporation had the following budgeted and actual data for March:

Actual Budgeted
Units produced 33,900 30,800
Direct labor-hours 161,800 154,000
Variable overhead costs $140,500 $123,200
Fixed overhead costs $80,000 $77,000

The fixed manufacturing overhead budget variance for March is:  

 

A. $900 F
B. $3,900 F
C. $3,000 U
D. $7,750 F
 
49. The Dillon Corporation makes and sells a single product. Overhead costs are applied on the basis of
standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit.
The Dillon Corporation had the following budgeted and actual data for March:

Actual Budgeted
Units produced 33,900 30,800
Direct labor-hours 161,800 154,000
Variable overhead costs $140,500 $123,200
Fixed overhead costs $80,000 $77,000

The fixed manufacturing overhead volume variance for March is:  

 

A. $7,750 F
B. $7,750 U
C. $1,550 F
D. $3,900 U
 

App8A-18
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50. Derf Corporation uses a standard cost system in which it applies manufacturing overhead on the basis of
standard direct labor-hours. Two direct labor-hours are required for each unit produced. The denominator
activity was set at 9,000 units. Manufacturing overhead was budgeted at $135,000 for the period; 20
percent of this cost was fixed. The 17,200 hours worked during the period resulted in production of 8,500
units. Variable manufacturing overhead cost incurred was $108,500 and fixed manufacturing overhead cost
was $28,000.

The variable overhead rate variance for the period was: 

 

A. $5,300 Unfavorable
B. $1,200 Unfavorable
C. $6,300 Unfavorable
D. $6,500 Unfavorable
 
51. Derf Corporation uses a standard cost system in which it applies manufacturing overhead on the basis of
standard direct labor-hours. Two direct labor-hours are required for each unit produced. The denominator
activity was set at 9,000 units. Manufacturing overhead was budgeted at $135,000 for the period; 20
percent of this cost was fixed. The 17,200 hours worked during the period resulted in production of 8,500
units. Variable manufacturing overhead cost incurred was $108,500 and fixed manufacturing overhead cost
was $28,000.

The variable overhead efficiency variance for the period was: 

 

A. $5,300 Unfavorable
B. $1,200 Unfavorable
C. $1,500 Unfavorable
D. $6,500 Unfavorable
 
52. Derf Corporation uses a standard cost system in which it applies manufacturing overhead on the basis of
standard direct labor-hours. Two direct labor-hours are required for each unit produced. The denominator
activity was set at 9,000 units. Manufacturing overhead was budgeted at $135,000 for the period; 20
percent of this cost was fixed. The 17,200 hours worked during the period resulted in production of 8,500
units. Variable manufacturing overhead cost incurred was $108,500 and fixed manufacturing overhead cost
was $28,000.

The fixed manufacturing overhead budget variance for the period was: 
 

A. $6,300 Unfavorable
B. $2,500 Unfavorable
C. $1,500 Unfavorable
D. $1,000 Unfavorable
 

App8A-19
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53. Derf Corporation uses a standard cost system in which it applies manufacturing overhead on the basis of
standard direct labor-hours. Two direct labor-hours are required for each unit produced. The denominator
activity was set at 9,000 units. Manufacturing overhead was budgeted at $135,000 for the period; 20
percent of this cost was fixed. The 17,200 hours worked during the period resulted in production of 8,500
units. Variable manufacturing overhead cost incurred was $108,500 and fixed manufacturing overhead cost
was $28,000.

The fixed manufacturing overhead volume variance for the period was:  
 

A. $750 Unfavorable
B. $2,500 Unfavorable
C. $1,500 Unfavorable
D. $1,000 Unfavorable
 
54. Vette Tie Corporation has developed the following manufacturing overhead standards to use in applying
overhead to the production of its hand-painted silk ties. Manufacturing overhead at Vette is applied to
production on the basis of standard direct labor-hours (DLHs).

Standard Cost Per Tie:

    Variable overhead (1.1 DLHs × $14.00 per
$15.40
DLH)
    Fixed overhead (1.1 DLHs × $8.00 per DLH) $8.80
 
The above standards were based on an expected annual volume of 60,000 ties. The actual results for last
year were as follows:

Number of ties produced 58,000

Direct labor-hours worked 64,000
Variable overhead cost $880,000
Fixed overhead cost $525,000
 
What was Vette's variable overhead rate variance?  
 

A. $2,800 Unfavorable
B. $13,200 Favorable
C. $16,000 Favorable
D. $68,000 Unfavorable
 

App8A-20
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55. Vette Tie Corporation has developed the following manufacturing overhead standards to use in applying
overhead to the production of its hand-painted silk ties. Manufacturing overhead at Vette is applied to
production on the basis of standard direct labor-hours (DLHs).

Standard Cost Per Tie:

   Variable overhead (1.1 DLHs × $14.00 per
$15.40
DLH)
    Fixed overhead (1.1 DLHs × $8.00 per DLH) $8.80
 
The above standards were based on an expected annual volume of 60,000 ties. The actual results for last
year were as follows:

Number of ties produced 58,000

Direct labor-hours worked 64,000
Variable overhead cost $880,000
Fixed overhead cost $525,000
 
What was Vette's fixed manufacturing overhead budget variance?  
 

A. $1,600 Unfavorable
B. $3,000 Favorable
C. $13,000 Unfavorable
D. $17,600 Unfavorable
 

App8A-21
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McGraw-Hill Education.
56. Vette Tie Corporation has developed the following manufacturing overhead standards to use in applying
overhead to the production of its hand-painted silk ties. Manufacturing overhead at Vette is applied to
production on the basis of standard direct labor-hours (DLHs).

Standard Cost Per Tie:

   Variable overhead (1.1 DLHs × $14.00 per
$15.40
DLH)
   Fixed overhead (1.1 DLHs × $8.00 per DLH) $8.80
 
The above standards were based on an expected annual volume of 60,000 ties. The actual results for last
year were as follows:

Number of ties produced 58,000

Direct labor-hours worked 64,000
Variable overhead cost $880,000
Fixed overhead cost $525,000
 
What total amount of manufacturing overhead cost (variable and fixed) did Vette apply to the 58,000 ties
produced during the year?  
 

A. $1,276,000
B. $1,403,600
C. $1,421,200
D. $1,452,000
 

App8A-22
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McGraw-Hill Education.
57. Pohl Corporation uses a standard cost system in which manufacturing overhead is applied on the basis of
standard machine-hours. For June, the company's manufacturing overhead flexible budget showed the
following total budgeted costs at a denominator activity level of 20,000 machine-hours:

Variable overhead costs (total):

  Maintenance $16,000
  Utilities $10,000
Fixed overhead costs (total):
  Supervision $20,500
  Depreciation $9,500

During June, 17,000 machine-hours were used to complete 13,000 units of product, and the following
actual total overhead costs were incurred:

Variable overhead costs (total):

  Maintenance $14,620
  Utilities $10,710
Fixed overhead costs (total):
  Supervision $19,320
  Depreciation $9,500
 
At standard, each unit of finished product requires 1.4 hours of machine time.

The total predetermined overhead rate per machine-hour for June was:  

A. $2.57 per machine-hour

B. $1.30 per machine-hour
C. $2.80 per machine-hour
D. $3.15 per machine-hour
 

App8A-23
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McGraw-Hill Education.
58. Pohl Corporation uses a standard cost system in which manufacturing overhead is applied on the basis of
standard machine-hours. For June, the company's manufacturing overhead flexible budget showed the
following total budgeted costs at a denominator activity level of 20,000 machine-hours:

Variable overhead costs (total):

  Maintenance $16,000
  Utilities $10,000
Fixed overhead costs (total):
  Supervision $20,500
  Depreciation $9,500

During June, 17,000 machine-hours were used to complete 13,000 units of product, and the following
actual total overhead costs were incurred:

Variable overhead costs (total):

  Maintenance $14,620
  Utilities $10,710
Fixed overhead costs (total):
  Supervision $19,320
  Depreciation $9,500
 
At standard, each unit of finished product requires 1.4 hours of machine time.

The variable overhead rate variance for maintenance cost for June was:  

A. $1,020 F
B. $1,020 U
C. $3,230 F
D. $3,230 U
 

App8A-24
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McGraw-Hill Education.
59. Pohl Corporation uses a standard cost system in which manufacturing overhead is applied on the basis of
standard machine-hours. For June, the company's manufacturing overhead flexible budget showed the
following total budgeted costs at a denominator activity level of 20,000 machine-hours:

Variable overhead costs (total):

  Maintenance $16,000
  Utilities $10,000
Fixed overhead costs (total):
  Supervision $20,500
  Depreciation $9,500
 
During June, 17,000 machine-hours were used to complete 13,000 units of product, and the following
actual total overhead costs were incurred:

Variable overhead costs (total):

  Maintenance $14,620
  Utilities $10,710
Fixed overhead costs (total):
  Supervision $19,320
  Depreciation $9,500
 
At standard, each unit of finished product requires 1.4 hours of machine time.

The variable overhead efficiency variance for utilities cost for June was:  

A. $400 F
B. $400 U
C. $600 F
D. $600 U
 

App8A-25
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McGraw-Hill Education.
60. Pohl Corporation uses a standard cost system in which manufacturing overhead is applied on the basis of
standard machine-hours. For June, the company's manufacturing overhead flexible budget showed the
following total budgeted costs at a denominator activity level of 20,000 machine-hours:

Variable overhead costs (total):

  Maintenance $16,000
  Utilities $10,000
Fixed overhead costs (total):
  Supervision $20,500
  Depreciation $9,500
 
During June, 17,000 machine-hours were used to complete 13,000 units of product, and the following
actual total overhead costs were incurred:

Variable overhead costs (total):

  Maintenance $14,620
  Utilities $10,710
Fixed overhead costs (total):
  Supervision $19,320
  Depreciation $9,500

At standard, each unit of finished product requires 1.4 hours of machine time.

The fixed manufacturing overhead budget variance (in total) for June was:  
 

A. $3,230 F
B. $3,230 U
C. $1,180 F
D. $1,180 U
 

App8A-26
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McGraw-Hill Education.
61. A manufacturing company uses a standard costing system in which standard machine-hours (MHs) is the
measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:

Denominator level of activity 6,100 MHs

Overhead costs at the denominator activity
level:
  Variable overhead cost $35,075

  Fixed overhead cost $77,775

 
The following data pertain to operations for the most recent period:

Actual hours 6,300 MHs

Standard hours allowed for the actual
5,994 MHs
output
Actual total variable manufacturing
$36,540
overhead cost
Actual total fixed manufacturing overhead
$76,875
cost
 
The predetermined overhead rate per MH is closest to:  
 

A. $17.91 per MH
B. $18.59 per MH
C. $18.00 per MH
D. $18.50 per MH
 

App8A-27
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McGraw-Hill Education.
62. A manufacturing company uses a standard costing system in which standard machine-hours (MHs) is the
measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:

Denominator level of activity 6,100 MHs

Overhead costs at the denominator activity
level:
  Variable overhead cost $35,075

  Fixed overhead cost $77,775

 
The following data pertain to operations for the most recent period:

Actual hours 6,300 MHs

Standard hours allowed for the actual
5,994 MHs
output
Actual total variable manufacturing
$36,540
overhead cost
Actual total fixed manufacturing overhead
$76,875
cost
 
The overhead applied to products during the period was closest to:  
 

A. $112,850
B. $113,415
C. $116,550
D. $110,889
 

App8A-28
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McGraw-Hill Education.
63. A manufacturing company uses a standard costing system in which standard machine-hours (MHs) is the
measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:

Denominator level of activity 6,100 MHs

Overhead costs at the denominator activity
level:
  Variable overhead cost $35,075

  Fixed overhead cost $77,775

 
The following data pertain to operations for the most recent period:

Actual hours 6,300 MHs

Standard hours allowed for the actual
5,994 MHs
output
Actual total variable manufacturing
$36,540
overhead cost
Actual total fixed manufacturing overhead
$76,875
cost

The variable overhead rate variance for the period was closest to:  
 

A. $315 U
B. $1,465 F
C. $1,465 U
D. $315 F
 

App8A-29
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McGraw-Hill Education.
64. A manufacturing company uses a standard costing system in which standard machine-hours (MHs) is the
measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:

Denominator level of activity 6,100 MHs

Overhead costs at the denominator activity
level:
  Variable overhead cost $35,075

  Fixed overhead cost $77,775

 
The following data pertain to operations for the most recent period:

Actual hours 6,300 MHs

Standard hours allowed for the actual
5,994 MHs
output
Actual total variable manufacturing
$36,540
overhead cost
Actual total fixed manufacturing overhead
$76,875
cost
 
The variable overhead efficiency variance for the period is closest to:  
 

A. $300 F
B. $1,465 U
C. $1,760 U
D. $1,775 U
 

App8A-30
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McGraw-Hill Education.
65. A manufacturing company uses a standard costing system in which standard machine-hours (MHs) is the
measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:

Denominator level of activity 6,100 MHs

Overhead costs at the denominator activity
level:
  Variable overhead cost $35,075

  Fixed overhead cost $77,775

 
The following data pertain to operations for the most recent period:

Actual hours 6,300 MHs

Standard hours allowed for the actual
5,994 MHs
output
Actual total variable manufacturing
$36,540
overhead cost
Actual total fixed manufacturing overhead
$76,875
cost
 
The fixed manufacturing overhead budget variance for the period is closest to:  
 

A. $900 F
B. $452 F
C. $3,734 F
D. $3,450 U
 

App8A-31
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McGraw-Hill Education.
66. A manufacturing company uses a standard costing system in which standard machine-hours (MHs) is the
measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:

Denominator level of activity 6,100 MHs

Overhead costs at the denominator activity
level:
  Variable overhead cost $35,075

  Fixed overhead cost $77,775

 
The following data pertain to operations for the most recent period:

Actual hours 6,300 MHs

Standard hours allowed for the actual
5,994 MHs
output
Actual total variable manufacturing
$36,540
overhead cost
Actual total fixed manufacturing overhead
$76,875
cost
 
The fixed manufacturing overhead volume variance for the period is closest to:  
 

A. $1,359 U
B. $2,550 F
C. $3,902 U
D. $1,352 U
 

App8A-32
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McGraw-Hill Education.
67. Cuda Manufacturing Corporation uses a standard cost system with machine-hours (MHs) as the activity
base for overhead. The following information relates to Cuda's operations last year:

Denominator activity level in machine-hours 50,000 MHs

Standard machine-hours allowed for actual output 55,000 MHs
Actual number of machine-hours incurred 52,000 MHs
Predetermined overhead rate for variable manufacturing overhead $7.00 per MH
Predetermined overhead rate for fixed manufacturing overhead $12.00 per MH
Total variable manufacturing overhead incurred $370,000

Total fixed manufacturing overhead incurred $615,000

 
What was Cuda's variable overhead rate variance?  
 

A. $6,000 Unfavorable
B. $15,000 Favorable
C. $20,000 Unfavorable
D. $21,000 Favorable
 
68. Cuda Manufacturing Corporation uses a standard cost system with machine-hours (MHs) as the activity
base for overhead. The following information relates to Cuda's operations last year:

Denominator activity level in machine-hours 50,000 MHs

Standard machine-hours allowed for actual output 55,000 MHs
Actual number of machine-hours incurred 52,000 MHs
Predetermined overhead rate for variable manufacturing overhead $7.00 per MH
Predetermined overhead rate for fixed manufacturing overhead $12.00 per MH
Total variable manufacturing overhead incurred $370,000

Total fixed manufacturing overhead incurred $615,000

 
What was Cuda's fixed manufacturing overhead budget variance?  
 

A. $9,000 Favorable
B. $15,000 Unfavorable
C. $45,000 Favorable
D. $45,000 Unfavorable
 

App8A-33
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McGraw-Hill Education.
69. Cuda Manufacturing Corporation uses a standard cost system with machine-hours (MHs) as the activity
base for overhead. The following information relates to Cuda's operations last year:

Denominator activity level in machine-hours 50,000 MHs

Standard machine-hours allowed for actual output 55,000 MHs
Actual number of machine-hours incurred 52,000 MHs
Predetermined overhead rate for variable manufacturing overhead $7.00 per MH
Predetermined overhead rate for fixed manufacturing overhead $12.00 per MH
Total variable manufacturing overhead incurred $370,000

Total fixed manufacturing overhead incurred $615,000

 
What total amount of manufacturing overhead cost (variable and fixed) did Cuda apply to production?  
 

A. $950,000
B. $985,000
C. $988,000
D. $1,045,000
 
70. The Claus Corporation makes and sells a single product and uses standard costing. During January, the
company actually used 8,700 direct labor-hours (DLHs) and produced 3,000 units of product. The standard
cost card for one unit of product includes the following:

Variable factory overhead: 3.0 DLHs @ $4.00 per DLH.

Fixed factory overhead: 3.0 DLHs @ $3.50 per DLH.

For January, the company incurred $22,000 of actual fixed manufacturing overhead costs and recorded a
$875 favorable volume variance.

The denominator level of activity in direct labor-hours (DLHs) used by Claus in setting the predetermined
overhead rate for January is:  
 

A. 9,500 DLHs
B. 9,250 DLHs
C. 8,750 DLHs
D. 10,500 DLHs
 

App8A-34
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McGraw-Hill Education.
71. The Claus Corporation makes and sells a single product and uses standard costing. During January, the
company actually used 8,700 direct labor-hours (DLHs) and produced 3,000 units of product. The standard
cost card for one unit of product includes the following:

Variable factory overhead: 3.0 DLHs @ $4.00 per DLH.

Fixed factory overhead: 3.0 DLHs @ $3.50 per DLH.

For January, the company incurred $22,000 of actual fixed manufacturing overhead costs and recorded a
$875 favorable volume variance.

The fixed manufacturing overhead cost used to compute the predetermined overhead rate was: 
 

A. $31,500
B. $30,625
C. $32,375
D. $33,250
 
72. A manufacturer of playground equipment uses a standard costing system in which standard machine-hours
(MHs) is the measure of activity. Data from the company's flexible budget for manufacturing overhead are
given below:

Denominator level of activity 3,000 MHs

Fixed overhead cost $40,650
 
The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,172 MHs
output
Actual total fixed manufacturing overhead
$41,600
cost
 
The predetermined fixed manufacturing overhead rate is closest to:  
 

A. $12.24 per MH
B. $13.55 per MH
C. $13.87 per MH
D. $11.96 per MH
 

App8A-35
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McGraw-Hill Education.
73. A manufacturer of playground equipment uses a standard costing system in which standard machine-hours
(MHs) is the measure of activity. Data from the company's flexible budget for manufacturing overhead are
given below:

Denominator level of activity 3,000 MHs

Fixed overhead cost $40,650
 
The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,172 MHs
output
Actual total fixed manufacturing overhead
$41,600
cost
 
The fixed manufacturing overhead applied to products during the period is closest to:  
 

A. $40,650
B. $42,981
C. $41,600
D. $46,070
 

App8A-36
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McGraw-Hill Education.
74. A manufacturer of playground equipment uses a standard costing system in which standard machine-hours
(MHs) is the measure of activity. Data from the company's flexible budget for manufacturing overhead are
given below:

Denominator level of activity 3,000 MHs

Fixed overhead cost $40,650
 
The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,172 MHs
output
Actual total fixed manufacturing overhead
$41,600
cost
 
The fixed manufacturing overhead budget variance for the period is closest to:  
 

A. $4,470 U
B. $950 U
C. $2,790 F
D. $1,381 U
 

App8A-37
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McGraw-Hill Education.
75. A manufacturer of playground equipment uses a standard costing system in which standard machine-hours
(MHs) is the measure of activity. Data from the company's flexible budget for manufacturing overhead are
given below:

Denominator level of activity 3,000 MHs

Fixed overhead cost $40,650
 
The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,172 MHs
output
Actual total fixed manufacturing overhead
$41,600
cost
 
The fixed manufacturing overhead volume variance for the period is closest to:  
 

A. $2,256 F
B. $2,331 F
C. $3,089 U
D. $5,420 F
 

App8A-38
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McGraw-Hill Education.
76. The Murray Corporation uses a standard cost system in which it applies manufacturing overhead on the
basis of standard direct labor-hours (DLHs). The company recorded the following activity and cost data for
May:

Activity:
    Number of units produced 40,100 units
    Standard direct labor-hours per unit of product 1.5 DLHs per unit
   Denominator activity 64,000 DLHS
Cost:

   Actual fixed manufacturing overhead costs incurred $56,000

    Fixed component of the predetermined overhead rate $0.90 per DLH
 
The amount of fixed manufacturing overhead cost that was used to compute the fixed component of the
predetermined overhead rate was:  
 

A. $54,135
B. $60,150
C. $59,465
D. $57,600
 
77. The Murray Corporation uses a standard cost system in which it applies manufacturing overhead on the
basis of standard direct labor-hours (DLHs). The company recorded the following activity and cost data for
May:

Activity:
    Number of units produced 40,100 units
    Standard direct labor-hours per unit of product 1.5 DLHs per unit
    Denominator activity 64,000 DLHS
Cost:

    Actual fixed manufacturing overhead costs incurred $56,000

    Fixed component of the predetermined overhead rate $0.90 per DLH
 
The amount of fixed manufacturing overhead cost applied during May was:  
 

A. $52,535
B. $54,135
C. $36,090
D. $50,400
 

App8A-39
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McGraw-Hill Education.
78. The Murray Corporation uses a standard cost system in which it applies manufacturing overhead on the
basis of standard direct labor-hours (DLHs). The company recorded the following activity and cost data for
May:

Activity:
   Number of units produced 40,100 units
   Standard direct labor-hours per unit of product 1.5 DLHs per unit
   Denominator activity 64,000 DLHS
Cost:

   Actual fixed manufacturing overhead costs incurred $56,000

   Fixed component of the predetermined overhead rate $0.90 per DLH
 
The fixed manufacturing overhead budget variance for May was:  
 

A. $8,000 F
B. $8,000 U
C. $1,600 F
D. $1,600 U
 
79. An outdoor barbecue grill manufacturer has a standard costing system based on standard direct labor-hours
(DLHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead
are given below:

Denominator level of activity 3,300 DLHs

Fixed overhead cost $26,895

The following data pertain to operations for the most recent period:

Actual hours 3,400 DLHs

Standard hours allowed for the actual
3,420 DLHs
output
Actual total fixed manufacturing
$28,295
overhead cost
 
The fixed manufacturing overhead budget variance for the period is closest to:  
 

A. $166 U
B. $422 F
C. $585 F
D. $1,400 U
 

App8A-40
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McGraw-Hill Education.
80. An outdoor barbecue grill manufacturer has a standard costing system based on standard direct labor-hours
(DLHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead
are given below:

Denominator level of activity 3,300 DLHs

Fixed overhead cost $26,895
 
The following data pertain to operations for the most recent period:

Actual hours 3,400 DLHs

Standard hours allowed for the actual
3,420 DLHs
output
Actual total fixed manufacturing
$28,295
overhead cost
 
The fixed manufacturing overhead volume variance for the period is closest to:  
 

A. $978 F
B. $993 F
C. $163 F
D. $815 F
 
81. The Forbes Corporation uses a standard cost system in which overhead costs are applied to products on the
basis of standard direct labor-hours (DLHs). The following data applied to the company's activities for
June:

Actual fixed manufacturing overhead cost incurred $161,450

Denominator activity 50,000 DLHs
Number of units completed 21,000 units
Fixed overhead budget variance $11,450 Unfavorable
Standard direct labor-hours per unit 3 DLHs
 
The fixed component of the predetermined overhead rate for June is:  
 

A. $3.00 per DLH

B. $3.23 per DLH
C. $3.78 per DLH
D. $3.46 per DLH
 

App8A-41
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McGraw-Hill Education.
82. The Forbes Corporation uses a standard cost system in which overhead costs are applied to products on the
basis of standard direct labor-hours (DLHs). The following data applied to the company's activities for
June:

Actual fixed manufacturing overhead cost incurred $161,450

Denominator activity 50,000 DLHs
Number of units completed 21,000 units
Fixed overhead budget variance $11,450 Unfavorable
Standard direct labor-hours per unit 3 DLHs
 
The volume variance for June is:  
 

A. $44,954 Unfavorable
B. $39,000 Favorable
C. $39,000 Unfavorable
D. $44,954 Favorable
 
83. The Murray Corporation makes and sells a single product. The company recorded the following activity
and cost data for May:

Number of units completed 45,000 units

Standard direct labor-hours allowed per
1.5 DLHs
unit of product
Budgeted direct labor-hours
72,000 DLHs
(denominator activity)
Actual fixed manufacturing overhead
$66,000
costs incurred
Volume variance $4,275 U
 
The fixed component of the predetermined overhead rate is $0.95 per direct labor-hour.

The fixed manufacturing overhead used to calculate the predetermined overhead rate was:  
 

A. $64,125
B. $67,500
C. $68,400
D. $70,275
 

App8A-42
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McGraw-Hill Education.
84. The Murray Corporation makes and sells a single product. The company recorded the following activity
and cost data for May:

Number of units completed 45,000 units

Standard direct labor-hours allowed per
1.5 DLHs
unit of product
Budgeted direct labor-hours
72,000 DLHs
(denominator activity)
Actual fixed manufacturing overhead
$66,000
costs incurred
Volume variance $4,275 U
 
The fixed component of the predetermined overhead rate is $0.95 per direct labor-hour.

The amount of fixed manufacturing overhead cost applied to work in process during May was:  
 

A. $61,725
B. $62,700
C. $42,750
D. $64,125
 
85. The Murray Corporation makes and sells a single product. The company recorded the following activity
and cost data for May:

Number of units completed 45,000 units

Standard direct labor-hours allowed per
1.5 DLHs
unit of product
Budgeted direct labor-hours
72,000 DLHs
(denominator activity)
Actual fixed manufacturing overhead
$66,000
costs incurred
Volume variance $4,275 U
 
The fixed component of the predetermined overhead rate is $0.95 per direct labor-hour.

The fixed manufacturing overhead budget variance for May was:  

 

A. $2,400 U
B. $2,400 F
C. $6,000 U
D. $6,000 F
 

App8A-43
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McGraw-Hill Education.
86. The following data for February has been provided by Gillard Corporation.

Denominator level of activity 3,700 machine-hours

Budgeted fixed manufacturing overhead costs $68,820
Actual level of activity 4,100 machine-hours
Standard machine-hours allowed for the actual output 4,000 machine-hours
Actual fixed manufacturing overhead costs $69,960
 
The budget variance for February is:  
 

A. $7,440 F
B. $7,440 U
C. $1,140 F
D. $1,140 U
 
87. The following data for February has been provided by Gillard Corporation.

Denominator level of activity 3,700 machine-hours

Budgeted fixed manufacturing overhead costs $68,820
Actual level of activity 4,100 machine-hours
Standard machine-hours allowed for the actual output 4,000 machine-hours
Actual fixed manufacturing overhead costs $69,960
 
The volume variance for February is:  
 

A. $5,580 F
B. $5,580 U
C. $7,440 U
D. $7,440 F
 

App8A-44
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McGraw-Hill Education.
88. Odonell Corporation estimates that its variable manufacturing overhead is $11.20 per machine-hour and its
fixed manufacturing overhead is $563,640 per period.

If the denominator level of activity is 6,000 machine-hours, the variable component in the predetermined
overhead rate would be: 
 

A. $93.94 per machine-hour

B. $11.20 per machine-hour
C. $105.14 per machine-hour
D. $103.60 per machine-hour
 
89. Odonell Corporation estimates that its variable manufacturing overhead is $11.20 per machine-hour and its
fixed manufacturing overhead is $563,640 per period.

If the denominator level of activity is 6,000 machine-hours, the fixed component in the predetermined
overhead rate would be: 
 

A. $1,120.00 per machine-hour

B. $11.20 per machine-hour
C. $93.94 per machine-hour
D. $105.14 per machine-hour
 
90. Odonell Corporation estimates that its variable manufacturing overhead is $11.20 per machine-hour and its
fixed manufacturing overhead is $563,640 per period.

If the denominator level of activity is 6,100 machine-hours, the predetermined overhead rate would be: 
 

A. $11.20 per machine-hour

B. $1,120.00 per machine-hour
C. $92.40 per machine-hour
D. $103.60 per machine-hour
 
91. Tillinghast Corporation estimates that its variable manufacturing overhead is $9.60 per machine-hour and
its fixed manufacturing overhead is $14,630 per period.

If the denominator level of activity is 1,000 machine-hours, the variable component in the predetermined
overhead rate would be: 
 

A. $22.90 per machine-hour

B. $14.63 per machine-hour
C. $24.23 per machine-hour
D. $9.60 per machine-hour
 

App8A-45
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McGraw-Hill Education.
92. Tillinghast Corporation estimates that its variable manufacturing overhead is $9.60 per machine-hour and
its fixed manufacturing overhead is $14,630 per period.

If the denominator level of activity is 1,000 machine-hours, the fixed component in the predetermined
overhead rate would be: 
 

A. $24.23 per machine-hour

B. $14.63 per machine-hour
C. $960.00 per machine-hour
D. $9.60 per machine-hour
 
93. Tillinghast Corporation estimates that its variable manufacturing overhead is $9.60 per machine-hour and
its fixed manufacturing overhead is $14,630 per period.

If the denominator level of activity is 1,100 machine-hours, the predetermined overhead rate would be: 
 

A. $960.00 per machine-hour

B. $9.60 per machine-hour
C. $13.30 per machine-hour
D. $22.90 per machine-hour
 
94. Saffold Corporation has provided the following data for December.

Denominator level of activity 8,400 machine-hours

Budgeted fixed manufacturing overhead costs $274,680
Fixed component of the predetermined overhead rate $32.70 per machine-hour
Actual level of activity 8,600 machine-hours
Standard machine-hours allowed for the actual output 8,900 machine-hours
Actual fixed manufacturing overhead costs $284,730
 

The budget variance for December is:  

 

A. $10,050 U
B. $6,540 U
C. $6,540 F
D. $10,050 F
 

App8A-46
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95. Saffold Corporation has provided the following data for December.

Denominator level of activity 8,400 machine-hours

Budgeted fixed manufacturing overhead costs $274,680
Fixed component of the predetermined overhead rate $32.70 per machine-hour
Actual level of activity 8,600 machine-hours
Standard machine-hours allowed for the actual output 8,900 machine-hours
Actual fixed manufacturing overhead costs $284,730
 
The volume variance for December is:  
 

A. $6,540 F
B. $6,540 U
C. $16,350 F
D. $16,350 U
 

App8A-47
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96. A furniture manufacturer uses a standard costing system in which standard machine-hours (MHs) is the
measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:

Denominator level of activity 3,300 MHs

Overhead costs at the denominator activity
level:
    Variable overhead cost $31,845

    Fixed overhead cost $40,425

The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,078 MHs
output
Actual total variable manufacturing
$32,980
overhead cost
Actual total fixed manufacturing overhead
$38,975
cost

The predetermined overhead rate is closest to:  

 

A. $21.90 per hour

B. $21.80 per hour
C. $21.16 per hour
D. $21.26 per hour
 

App8A-48
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McGraw-Hill Education.
97. A furniture manufacturer uses a standard costing system in which standard machine-hours (MHs) is the
measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:

Denominator level of activity 3,300 MHs

Overhead costs at the denominator activity
level:
     Variable overhead cost $31,845

    Fixed overhead cost $40,425

 
The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,078 MHs
output
Actual total variable manufacturing
$32,980
overhead cost
Actual total fixed manufacturing overhead
$38,975
cost
 

The overhead applied to products during the period was closest to:  
 

A. $74,460
B. $72,270
C. $67,408
D. $71,955
 

App8A-49
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McGraw-Hill Education.
98. A furniture manufacturer uses a standard costing system in which standard machine-hours (MHs) is the
measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:

Denominator level of activity 3,300 MHs

Overhead costs at the denominator activity
level:
    Variable overhead cost $31,845

    Fixed overhead cost $40,425

The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,078 MHs
output
Actual total variable manufacturing
$32,980
overhead cost
Actual total fixed manufacturing overhead
$38,975
cost
 

The fixed manufacturing overhead budget variance for the period is closest to:  
 

A. $2,675 U
B. $1,450 F
C. $3,691 F
D. $1,270 F
 

App8A-50
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McGraw-Hill Education.
99. A furniture manufacturer uses a standard costing system in which standard machine-hours (MHs) is the
measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:

Denominator level of activity 3,300 MHs

Overhead costs at the denominator activity
level:
    Variable overhead cost $31,845

    Fixed overhead cost $40,425

 
The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,078 MHs
output
Actual total variable manufacturing
$32,980
overhead cost
Actual total fixed manufacturing overhead
$38,975
cost

The fixed manufacturing overhead volume variance for the period is closest to:  
 

A. $2,720 U
B. $1,225 F
C. $2,811 U
D. $3,945 U
 

App8A-51
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100. Homer Corporation has a standard cost system in which manufacturing overhead is applied on the basis of
standard machine-hours. The company has provided the following data concerning its manufacturing
overhead costs for last year:

Actual machine-hours 840 hours

Standard machine-hours allowed for the
900 hours
actual output
Denominator activity 1,000 hours
Actual fixed manufacturing overhead
$3,800
costs
Budgeted fixed manufacturing overhead
$4,000
costs
 

The fixed manufacturing overhead budget variance was:  

 

A. $200 F
B. $400 U
C. $300 F
D. $240 U
 
101. Homer Corporation has a standard cost system in which manufacturing overhead is applied on the basis of
standard machine-hours. The company has provided the following data concerning its manufacturing
overhead costs for last year:

Actual machine-hours 840 hours

Standard machine-hours allowed for the
900 hours
actual output
Denominator activity 1,000 hours
Actual fixed manufacturing overhead
$3,800
costs
Budgeted fixed manufacturing overhead
$4,000
costs
 
The volume variance was:  
 

A. $200 F
B. $400 U
C. $300 F
D. $240 U
 
 

App8A-52
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McGraw-Hill Education.
Essay Questions
 

App8A-53
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102.
Cajun Corporation manufactures a labor-intensive product. The cost standards developed by Cajun appear
below. Manufacturing overhead at Cajun is applied to production on the basis of standard direct labor-
hours:

Standard Standard Standard

quantity cost per cost
per unit ounce or per unit
hour
Direct 0.75 $20.00 $15.00
materials ounces
Direct 1.2 hours $12.00 14.40
labor
Variable 1.2 hours $3.00 3.60
overhead
Fixed 1.2 hours $5.00    6.00
overhead
Total $39.00
standard
cost per
unit

The standards above were based on an expected annual volume of 8,000 units. The actual results for last
year were as follows:

Number of units produced 8,200

Direct labor-hours incurred 10,000
Ounces of direct materials purchased 7,900
Ounces of direct materials used in production 6,070
Total cost of direct materials purchased $156,815
Total direct labor cost $122,800
Total variable overhead cost $28,600
Total fixed manufacturing overhead cost $47,500

Required:

Compute the following variances for Cajun.

App8A-54
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McGraw-Hill Education.
 a. Materials price variance.
b. Materials quantity variance.
c. Labor rate variance.
d. Variable overhead rate variance.
e. Variable overhead efficiency variance.
f. Fixed overhead budget variance.

 
 

App8A-55
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103.
Nova Corporation produces a single product and uses a standard cost system to help control costs.
Overhead is applied to production on the basis of standard machine-hours. According to the company's
flexible budget, the following overhead costs should be incurred at an activity level of 18,000 machine-
hours (the denominator activity level chosen for the current year):

Variable overhead costs $45,000

Fixed overhead costs  108,000
Total overhead costs $153,000

 
During the current year, the following operating results were recorded:

Actual machine-hours worked 15,000

Standard machine-hours allowed 16,000
Actual variable overhead cost incurred $38,000
Actual fixed manufacturing overhead cost $107,100
incurred

 
At the end of the year, the company's Manufacturing Overhead account showed total debits for actual
overhead costs of $145,100 and total credits of $136,000 for overhead applied. The difference ($9,100)
represents under-applied overhead, the cause of which management would like to know.

Required:

a. Compute the predetermined overhead rate that would have been used during the year, showing
separately the variable and fixed components of the rate.
b. Show how the $136,000 of overhead actually applied was computed.
c. Analyze the $9,100 under-applied overhead figure in terms of the variable overhead rate and efficiency
variances and the fixed manufacturing overhead budget and volume variances.

 
 

App8A-56
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McGraw-Hill Education.
 
104.
Littleton Manufacturing uses a standard cost system in which manufacturing overhead is applied to units of
product on the basis of standard machine-hours. At standard, each unit of product requires one machine-
hour to complete. The standard variable overhead is $1.80 per machine-hour and $432,000 per year. The
denominator level of activity is 120,000 machine-hours, or 120,000 units. Actual data for the year were as
follows:

Actual variable overhead cost $178,500

Actual fixed manufacturing overhead cost $248,000
Actual machine-hours 105,000
Units produced 100,000

Required:

a. What are the predetermined variable and fixed manufacturing overhead rates?
b. Compute the variable overhead rate and efficiency variances.
c. Compute the fixed manufacturing overhead budget and volume variances.

 
 

App8A-57
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105.
You have just been hired as the new executive assistant to the manager of the Eastern Division of Global
Manufacturing. You have been given the following incomplete records concerning manufacturing
overhead for last year:

Variable overhead rate $3.50 per DLH

Budgeted fixed manufacturing $70,000
overhead
Total actual overhead cost $259,400

Fixed overhead budget variance $10,000 Unfavorable

Variable overhead efficiency $14,000 Unfavorable
variance
Actual direct labor-hours 52,000 DLHs
worked
Denominator activity level 50,000 DLHs
Standard hours per unit 2 DLHs

The company uses a standard cost system in which manufacturing overhead costs are applied to products
on the basis of standard direct labor-hours (DLHs).

Required:

a. Compute the variable overhead rate variance and indicate whether it was favorable or unfavorable.
b. Compute the fixed overhead volume variance and indicate whether it was favorable or unfavorable.

 
 

App8A-58
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106. Aslett Corporation's manufacturing overhead includes $3.80 per machine-hour for supplies; $8.80 per
machine-hour for indirect labor; $214,132 per period for salaries; and $546,720 per period for depreciation.

Required:

Determine the predetermined overhead rate if the denominator level of activity is 6,800 machine-hours.
Show your work! 
 

App8A-59
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107. Pierce Corporation uses a standard cost system in which it applies manufacturing overhead to its product
on the basis of standard direct labor-hours (DLHs). Below is the standard cost card for the product:

Direct materials, 4.5 feet × $3.80 per foot $17.10

Direct labor, 3.0 DLHs × $9.50 per DLH 28.50
Variable overhead, 3.0 DLHs × $2.00 per DLH 6.00
Fixed overhead, 3.0 DLHs × $8.00 per DLH  24.00
$75.60
 

Last year, the company produced 6,000 units of product using 17,000 direct labor-hours. The actual total
fixed manufacturing overhead cost for the year was $140,000 and the volume variance was $12,000,
favorable.

Required:

a. Determine the budgeted amount of total fixed manufacturing overhead cost.

b. Determine the denominator activity figure that the company used in computing predetermined overhead
rates.  
 

App8A-60
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108. Faessler Corporation applies overhead to products based on machine-hours. The denominator level of
activity is 6,500 machine-hours. The budgeted fixed manufacturing overhead costs are $242,450. In July,
the actual fixed manufacturing overhead costs were $242,490 and the standard machine-hours allowed for
the actual output were 7,000 machine-hours.

Required:

a. Compute the budget variance for July. Show your work!

b. Compute the volume variance for July. Show your work! 
 

App8A-61
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109.
Dixie Corporation has provided the following data for June.

Denominator level of activity 2,000 machine-hours

Budgeted fixed manufacturing overhead costs $39,200

Fixed component of the predetermined overhead $19.60 per machine-hour

rate
Actual level of activity 2,300 machine-hours
Standard machine-hours allowed for the actual 2,200 machine-hours
output
Actual fixed manufacturing overhead costs $40,550

Required:

a. Compute the budget variance for June. Show your work!

b. Compute the volume variance for June. Show your work!

 
 

App8A-62
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110.
Stenquist Corporation has provided the following data for January.

Denominator level of activity 7,900 machine-

hours
Budgeted fixed manufacturing overhead costs $95,590

Standard machine-hours allowed for the actual output 8,300 machine-

hours
Actual fixed manufacturing overhead costs $98,710

Required:

a. Compute the budget variance for January. Show your work!

b. Compute the volume variance for January. Show your work!

 
 

App8A-63
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111. Kingdon Corporation's manufacturing overhead includes $7.10 per machine-hour for variable
manufacturing overhead and $207,000 per period for fixed manufacturing overhead.

Required:

Determine the predetermined overhead rate for the denominator level of activity of 4,600 machine-hours. 
 

App8A-64
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 Appendix 8A Predetermined Overhead Rates and Overhead Analysis in a
Standard Costing System Answer Key
 

True / False Questions

 

1. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. A fixed manufacturing overhead volume variance
will NOT necessarily occur in a month in which production volume differs from sales volume. 
 
TRUE
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

2. The fixed manufacturing overhead volume variance is more meaningful than the budget variance for
cost control purposes. 
 
FALSE
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

3. In a standard costing system, if the actual fixed manufacturing overhead cost exceeds the budgeted fixed
manufacturing overhead cost for the period, then fixed manufacturing overhead cost would be
overapplied for the period. 
 
FALSE
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-65
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McGraw-Hill Education.
4. If all four of Argo Corporation's overhead variances are favorable, Argo's overhead will be
underapplied. 
 
FALSE
 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

5. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. The company's choice of the denominator level of
activity affects the fixed manufacturing overhead budget variance. 
 
FALSE
 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

6. The higher the denominator activity level used to compute the predetermined overhead rate, the lower
the predetermined overhead rate. 
 
TRUE
 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

7. An unfavorable volume variance means that a firm operated at an activity level that was below the
activity level planned for the period. 
 
TRUE
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand

App8A-66
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McGraw-Hill Education.
 Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

8. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. A fixed manufacturing overhead volume variance
will NOT necessarily occur in a month in which the fixed manufacturing overhead applied to units of
product on the basis of standard hours allowed differs from the budgeted fixed manufacturing
overhead. 
 
FALSE
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

9. A fixed manufacturing overhead volume variance occurs as the result of a difference between the
denominator level of activity (in hours) and the standard hours allowed for the actual output of the
period. 
 
TRUE
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

10. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. A fixed manufacturing overhead volume variance
will NOT necessarily occur in a month in which there is a fixed manufacturing overhead budget
variance. 
 
TRUE
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-67
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McGraw-Hill Education.
11. In a standard costing system where the denominator activity for the predetermined overhead rate is
labor-hours, overhead costs are applied to work in process on the basis of the standard labor-hours
allowed for the actual output. 
 
TRUE
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

12. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. The company's choice of the denominator level of
activity has no effect on the variable portion of the predetermined overhead rate. 
 
TRUE
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

13. A favorable volume variance means that the company operated at an activity level greater than that
planned for the period. 
 
TRUE
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

14. A company has a standard cost system in which fixed and variable manufacturing overhead costs are
applied to products on the basis of direct labor-hours. The company's choice of the denominator level of
activity affects the fixed manufacturing overhead volume variance. 
 
TRUE
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation

App8A-68
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McGraw-Hill Education.
 Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

Multiple Choice Questions

 

15. Sulema, Inc. repairs and refinishes antique furniture. Manufacturing overhead at Sulema is applied to
production on the basis of standard direct labor-hours. Which overhead variance(s) at Sulema would be
unfavorably affected if the cost of solvents used to strip the old paint from the furniture unexpectedly
doubles in price? 
 

A. variable overhead rate variance

B. variable overhead efficiency variance
C. fixed manufacturing overhead budget variance
D. fixed manufacturing overhead volume variance
 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System
Topic Area: Flexible Budgets with Multiple Cost Drivers

16. When computing standard cost variances, the difference between actual and standard price multiplied
by actual quantity yields a(n): 
 

A. combined price and quantity variance.

B. efficiency variance.
C. price or rate variance.
D. quantity variance.
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 08-01 Prepare a flexible budget.
Learning Objective: 08-02 Prepare a report showing revenue and spending variances.
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Level of Difficulty: 1 Easy
Source: CMA, adapted

App8A-69
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McGraw-Hill Education.
 Topic Area: Flexible Budget Variances
Topic Area: Flexible Budgets
Topic Area: Flexible Budgets with Multiple Cost Drivers

17. The fixed manufacturing overhead budget variance is: 

 

A. the difference between budgeted fixed manufacturing overhead cost and actual fixed manufacturing
overhead cost.
B. the difference between actual fixed manufacturing overhead cost and applied fixed manufacturing
overhead cost.
C. the difference between budgeted fixed manufacturing overhead cost and applied fixed
manufacturing overhead cost.
D. the difference between fixed overhead at the planned level of activity and the flexible budget for
actual activity.
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

18. A volume variance is computed for: 

 

A. both variable and fixed manufacturing overhead.

B. variable manufacturing overhead only.
C. fixed manufacturing overhead only.
D. direct labor costs as well as overhead costs.
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-70
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19. Which of the following variances is generally the least significant from the standpoint of cost control? 
 

A. Materials price variance.

B. Labor efficiency variance.
C. Fixed manufacturing overhead volume variance.
D. Variable overhead rate variance.
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

20. Traveller Corporation sells one product and uses a standard cost system. Last year the overhead volume
variance was zero. Which of the following is correct? 
 

A. Actual variable manufacturing overhead cost was equal to standard variable manufacturing
overhead cost.
B. Total applied overhead was equal to total actual overhead.
C. The denominator activity was equal to actual activity.
D. The budgeted fixed costs were equal to the applied fixed costs.
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

21. The Santos Corporation made an error when selecting a denominator level of activity and chose a much
lower level than was realistic. This error would most likely result in a large: 
 

A. favorable variable overhead efficiency variance.

B. favorable fixed manufacturing overhead budget variance.
C. favorable fixed manufacturing overhead volume variance.
D. unfavorable fixed manufacturing overhead budget variance.
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.

App8A-71
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 Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

22. In a standard cost system, overhead is applied to production on the basis of: 
 

A. the denominator hours chosen for the period.

B. the actual hours required to complete the actual output of the period.
C. the standard hours allowed to complete the actual output of the period.
D. the actual cost of fixed overhead during the period.
 
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

23. Dori Castings is a job order shop that uses a standard cost system. Manufacturing overhead costs are
applied on the basis of standard direct labor-hours. A volume variance will exist for Dori in a month
where: 
 

A. production volume differs from sales volume.

B. actual direct labor-hours differ from standard hours allowed.
C. there is a budget variance in fixed manufacturing overhead costs.
D. the fixed manufacturing overhead applied to units of product on the basis of standard hours allowed
differs from the budgeted fixed manufacturing overhead.
 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Source: CMA, adapted
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

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24. Alex Corporation has a large underapplied overhead balance in the manufacturing overhead account.
This could be explained by: 
 

A. an unfavorable volume variance, assuming all other variances are zero.

B. a favorable volume variance, assuming all other variances are zero.
C. standard hours allowed for the period's output being greater than denominator hours for the period.
D. favorable total variance for overhead.
 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Analyze
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

25. Coblentz Fabrication Corporation has a standard cost system in which it applies manufacturing
overhead to products on the basis of standard machine-hours (MHs) at $6.20 per MH. The company had
budgeted its fixed manufacturing overhead cost at $40,000 for the month. During the month, the actual
total variable manufacturing overhead was $48,970 and the actual total fixed manufacturing overhead
was $43,000. The actual level of activity for the period was 8,300 MHs. What was the total of the
variable overhead rate and fixed manufacturing overhead budget variances for the month? 
 

A. $2,490 Favorable
B. $510 Favorable
C. $510 Unfavorable
D. $2,490 Unfavorable

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost

= $43,000 - $40,000
= $3,000 U

Variable overhead rate variance = (AH × AR) - (AH × SR)

= $48,970 - (8,300 MHs × $6.20 per MH)
= $48,970 - $51,460
= $2,490 F

Total variance = $3,000 U + $2,490 F = $510 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.

App8A-73
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 Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System
Topic Area: Flexible Budgets with Multiple Cost Drivers

26. Omary Corporation has a standard cost system in which it applies manufacturing overhead to products
on the basis of standard machine-hours (MHs). The company has provided the following data for the
most recent month:

Budgeted level of activity 3,900 MHs

Actual level of activity 4,100 MHs
Standard variable manufacturing per
$7.60
overhead rate MH
Budgeted fixed manufacturing
$50,000
overhead cost
Actual total variable manufacturing
$31,980
overhead
Actual total fixed manufacturing
$54,000
overhead
 

What was the total of the variable overhead rate and fixed manufacturing overhead budget variances for
the month?  
 

A. $1,520 Unfavorable
B. $3,180 Favorable
C. $4,820 Unfavorable
D. $6,340 Unfavorable

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost

= $54,000 - $50,000
= $4,000 U

Variable overhead rate variance = (AH × AR) - (AH × SR)

= $31,980 - (4,100 MHs × $7.60 per MH)
= $31,980 - $31,160
= $820 U

Total variance = $4,000 U + $820 U = $4,820 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium

App8A-74
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 Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System
Topic Area: Flexible Budgets with Multiple Cost Drivers

27. Dexter Corporation uses a standard cost system and applies manufacturing overhead cost to units of
product on the basis of standard direct labor-hours (DLHs). Information on Dexter Corporation's
manufacturing overhead costs for last period is given below:

Actual hours worked 40,000 DLHs

Standard hours allowed for actual production 38,000 DLHs
Denominator hours used in computing the predetermined overhead rate 35,000 DLHs
Predetermined overhead rate $4 per DLH
Actual overhead cost incurred $150,000
 

Given these data, the underapplied or overapplied overhead cost for the period would be:  
 

A. $10,000 overapplied
B. $2,000 overapplied
C. $10,000 underapplied
D. $8,000 underapplied

Overhead applied = Predetermined overhead rate × Standard hours allowed for the actual output
= $4 per DLH × 38,000 DLHs = $152,000
Overhead is overapplied by $2,000 because the actual overhead cost incurred was $150,000.

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-75
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28. Steinhagen Corporation applies manufacturing overhead to products on the basis of standard machine-
hours. Budgeted and actual overhead costs for the most recent month appear below:

Original
Actual Costs
Budget
Variable overhead costs:
  Supplies $5,460 $6,570
  Indirect labor 3,640 4,410
Fixed overhead costs:
  Supervision 9,100 9,450
  Utilities 5,980 5,850
  Factory depreciation  22,100  22,520
Total overhead cost $46,280 $48,800
 

The company based its original budget on 2,600 machine-hours. The company actually worked 2,790
machine-hours during the month. The standard hours allowed for the actual output of the month totaled
2,960 machine-hours. What was the overall fixed manufacturing overhead volume variance for the
month?  
 

A. $5,148 Favorable
B. $5,148 Unfavorable
C. $2,717 Favorable
D. $2,717 Unfavorable

Original Budget

Fixed overhead costs:

  Supervision 9,100
  Utilities 5,980
  Factory depreciation   22,100
Total overhead cost $37,180

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount
of the allocation base = $37,180 ÷ 2,600 machine-hours = $14.30 per machine-hour
Volume variance = Budgeted fixed overhead cost - Fixed overhead applied to work in process
= $37,180 - (2,960 machine-hours × $14.30 per machine-hour)
= $37,180 - $42,328
= $5,148 F

App8A-76
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AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-77
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29. Semaan Corporation applies manufacturing overhead to products on the basis of standard machine-
hours. Budgeted and actual overhead costs for the month appear below:

Original Actual
Budget Costs
Variable overhead costs:
  Supplies $11,340 $12,850
  Indirect labor 15,120 17,080
Fixed overhead costs:
  Supervision 14,900 14,640
  Utilities 5,800 6,010
  Factory depreciation     9,700     9,410
Total overhead cost  $56,860  $59,990
 

The company based its original budget on 2,700 machine-hours. The company actually worked 2,960
machine-hours during the month. The standard hours allowed for the actual output of the month totaled
3,030 machine-hours. What was the overall fixed manufacturing overhead budget variance for the
month?  
 

A. $3,130 Unfavorable
B. $340 Unfavorable
C. $340 Favorable
D. $3,130 Favorable

Original Actual
Budget Costs
Fixed overhead costs:
  Supervision 14,900 14,640
  Utilities 5,800 6,010
  Factory depreciation    9,700    9,410
Total fixed overhead cost $30,400 $30,060

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost

= $30,060 - $30,400 = $340 F
 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement

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 Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

30. Hairr Corporation bases its predetermined overhead rate on variable manufacturing overhead cost of
$9.50 per machine-hour and fixed manufacturing overhead cost of $947,672 per period. If the
denominator level of activity is 8,900 machine-hours, the predetermined overhead rate would be: 
 

A. $9.50
B. $115.98
C. $106.48
D. $950.00

Fixed component of predetermined overhead rate = Estimated total fixed manufacturing overhead cost ÷
Estimated total amount of the allocation base
= $947,672 ÷ 8,900 machine-hours = $106.48 per machine-hour
Predetermined overhead rate = $9.50 per machine-hour + $106.48 per machine-hour = $115.98 per
machine-hour

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-79
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31. The Adlake Corporation makes and sells a single product and uses a standard cost system. During
October, the company budgeted $300,000 in manufacturing overhead cost at a denominator activity of
20,000 machine-hours. At standard, each unit of finished product requires 5 machine-hours. The
following cost and activity were recorded during October:

Total actual manufacturing overhead cost

$294,000
incurred
Units of product completed 3,800
Actual machine-hours worked 19,422
 
The amount of overhead cost that the company applied to work in process for October was:  
 

A. $279,300
B. $291,330
C. $294,000
D. $285,000

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of
the allocation base = $300,000 ÷ 20,000 machine-hours = $15 per machine-hour

Overhead applied = Predetermined overhead rate × Standard hours allowed for the actual output
= $15 per machine-hour × (3,800 units × 5 machine-hours per unit)
= $15 per machine-hour × (19,000 machine-hours)
= $285,000

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-80
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32. Reidenbach Corporation applies manufacturing overhead to products on the basis of standard machine-
hours. The budgeted fixed manufacturing overhead cost for the most recent month was $17,100 and the
actual fixed manufacturing overhead cost for the month was $17,450. The company based its original
budget on 4,500 machine-hours. The standard hours allowed for the actual output of the month totaled
4,810 machine-hours. What was the overall fixed manufacturing overhead budget variance for the
month? 
 

A. $1,178 Unfavorable
B. $350 Unfavorable
C. $350 Favorable
D. $1,178 Favorable

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost

= $17,450 - $17,100 = $350 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

33. Diseth Corporation applies manufacturing overhead to products on the basis of standard machine-hours.
The company bases its predetermined overhead rate on 5,300 machine-hours. The company's total
budgeted fixed manufacturing overhead is $12,720. In the most recent month, the total actual fixed
manufacturing overhead was $12,370. The company actually worked 5,350 machine-hours during the
month. The standard hours allowed for the actual output of the month totaled 5,540 machine-hours.
What was the overall fixed manufacturing overhead volume variance for the month? 
 

A. $350 Favorable
B. $120 Favorable
C. $120 Unfavorable
D. $576 Favorable

Fixed component of predetermined overhead rate = Estimated total fixed manufacturing overhead cost ÷
Estimated total amount of the allocation base = $12,720 ÷ 5,300 machine-hours = $2.40 per machine-
hour
Volume variance = Budgeted fixed overhead cost - Fixed overhead applied to work in process
= $12,720 - (5,540 machine-hours × $2.40 per machine-hour)
= $12,720 - $13,296
= $576 F

 
AACSB: Analytical Thinking

App8A-81
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 AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

34. Masek Corporation has a standard cost system in which it applies manufacturing overhead to products
on the basis of standard machine-hours (MHs). The company has provided the following data for the
most recent month:

Budgeted level of activity 2,000 MHs

Actual level of activity 2,400 MHs
Standard variable manufacturing per
$5.90
overhead rate MH
Budgeted fixed manufacturing
$50,000
overhead cost
Actual total variable manufacturing
$14,880
overhead
Actual total fixed manufacturing
$49,000
overhead
 

What was the fixed manufacturing overhead budget variance for the month?  
 

A. $2,360 Unfavorable
B. $1,000 Unfavorable
C. $2,360 Favorable
D. $1,000 Favorable

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost

= $49,000 - $50,000
= $1,000 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-82
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35. Pizzi, Inc. had the following fixed manufacturing overhead variances last year:

Fixed overhead budget variance $30,000 Unfavorable

Fixed overhead volume variance $6,000 Favorable
 

Pizzi uses machine-hours as an activity base for overhead and used 48,000 machine-hours as the
denominator activity level for the year. Total actual fixed manufacturing overhead was $150,000. The
actual number of machine-hours incurred were 50,000. What were Pizzi's standard hours allowed for
actual output?  
 

A. 40,000
B. 42,000
C. 50,400
D. 52,500

Budget variance = Actual fixed overhead - Budgeted fixed overhead

$30,000 U = $150,000 - Budgeted fixed overhead
$30,000 = $150,000 - Budgeted fixed overhead
Budgeted fixed overhead = $150,000 - $30,000
Budgeted fixed overhead = $120,000

Fixed component of the predetermined overhead rate = $120,000 ÷ 48,000 MHs = $2.50 per MH

Volume variance = Fixed component of the predetermined overhead rate x (Denominator hours -
Standard hours allowed for the actual output)
$6,000 F = $2.50 per MH × (48,000 MHs - Standard hours allowed for the actual output)
-$6,000 = $2.50 per MH × (48,000 MHs - Standard hours allowed for the actual output)
48,000 MHs - Standard hours allowed for the actual output = -$6,000 ÷ $2.50 per MH
48,000 MHs - Standard hours allowed for the actual output = -2,400 MHs
Standard hours allowed for the actual output = 48,000 MHs + 2,400 MHs
Standard hours allowed for the actual output = 50,400 MHs

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-83
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36. Tropiano Electronics Corporation has a standard cost system in which it applies manufacturing
overhead to products on the basis of standard machine-hours (MHs). The company had budgeted its
fixed manufacturing overhead cost at $62,100 for the month and its level of activity at 3,200 MHs. The
actual total fixed manufacturing overhead was $61,600 for the month and the actual level of activity was
3,000 MHs. What was the fixed manufacturing overhead budget variance for the month to the nearest
dollar? 
 

A. $3,381 Unfavorable
B. $500 Favorable
C. $500 Unfavorable
D. $3,381 Favorable

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost

= $61,600 - $62,100
= $500 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-84
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37. At the beginning of last year, Tari Corporation budgeted $300,000 of fixed manufacturing overhead and
chose a denominator level of activity of 600,000 machine-hours. At the end of the year, Tari's fixed
manufacturing overhead budget variance was $9,000 favorable. Its fixed manufacturing overhead
volume variance was $15,000 favorable. Actual direct labor-hours for the year were 625,000. What was
Tari's total standard machine-hours allowed for last year's output?  
 

A. 570,000
B. 630,000
C. 648,000
D. 656,250

Fixed component of the predetermined overhead rate = $300,000 ÷ 600,000 machine-hours = $0.50 per
machine-hour

Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours -
Standard hours allowed for the actual output)
$15,000 F = $0.50 per machine-hour × (600,000 machine-hours - Standard hours allowed for the actual
output)
-$15,000 = $0.50 per machine-hour × (600,000 machine-hours - Standard hours allowed for the actual
output)
-$15,000 = $300,000 - ($0.50 per machine-hour × Standard hours allowed for the actual output)
$0.50 per machine-hour × Standard hours allowed for the actual output = $300,000 + $15,000
$0.50 per machine-hour × Standard hours allowed for the actual output = $315,000
Standard hours allowed for the actual output = $315,000 ÷ $0.50 per machine-hour
Standard hours allowed for the actual output = 630,000 machine-hours

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-85
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38. Denby Corporation applies manufacturing overhead to products on the basis of standard machine-hours.
Budgeted and actual fixed manufacturing overhead costs for the most recent month appear below:

Original Budget Actual Costs

Fixed overhead costs:

  Supervision $12,800 $13,190
  Utilities 8,320 8,260
  Factory depreciation  46,720  46,540
Total fixed manufacturing overhead cost $67,840 $67,990
 

The company based its original budget on 6,400 machine-hours. The company actually worked 6,710
machine-hours during the month. The standard hours allowed for the actual output of the month totaled
6,540 machine-hours. What was the overall fixed manufacturing overhead volume variance for the
month?  
 

A. $3,286 Favorable
B. $1,484 Unfavorable
C. $3,286 Unfavorable
D. $1,484 Favorable

Volume variance = Budgeted fixed overhead cost - Fixed overhead applied to work in process
Fixed component of predetermined overhead rate = Estimated total fixed manufacturing overhead cost ÷
Estimated total amount of the allocation base = $67,840 ÷ 6,400 machine-hours = $10.60 per machine-
hour
= $67,840 - (6,540 machine-hours × $10.60 per machine-hour)
= $67,840 - $69,324
= $1,484 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-86
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39. Bakos Corporation bases its predetermined overhead rate on variable manufacturing overhead cost of
$8.80 per machine-hour and fixed manufacturing overhead cost of $100,688 per period. If the
denominator level of activity is 2,800 machine-hours, the variable component in the predetermined
overhead rate would be: 
 

A. $44.76
B. $35.96
C. $43.52
D. $8.80

As given $8.80.

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-87
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40. Acuff Corporation applies manufacturing overhead to products on the basis of standard machine-hours.
Budgeted and actual overhead costs for the most recent month appear below:

Original Budget Actual Costs

Fixed overhead costs:

  Supervision $15,600 $15,950
  Utilities 5,000 5,070
  Factory depreciation    6,800    6,700
Total overhead cost $27,400 $27,720
 

The company based its original budget on 6,200 machine-hours. The company actually worked 6,560
machine-hours during the month. The standard hours allowed for the actual output of the month totaled
6,420 machine-hours. What was the overall fixed manufacturing overhead budget variance for the
month?  
 

A. $320 Favorable
B. $320 Unfavorable
C. $972 Favorable
D. $972 Unfavorable

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost

= $27,720 - $27,400 = $320 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-88
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41. Oldham Corporation bases its predetermined overhead rate on variable manufacturing overhead cost of
$4.00 per machine-hour and fixed manufacturing overhead cost of $87,822 per period. If the
denominator level of activity is 4,100 machine-hours, the fixed component in the predetermined
overhead rate would be: 
 

A. $25.42
B. $4.00
C. $21.42
D. $400.00

Fixed component of predetermined overhead rate = Estimated total fixed manufacturing overhead cost ÷
Estimated total amount of the allocation base = $87,822 ÷ 4,100 machine-hours = $21.42 per machine-
hour

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

42. Bruley Corporation applies manufacturing overhead to products on the basis of standard machine-hours.
The company's predetermined overhead rate for fixed manufacturing overhead is $3.30 per machine-
hour and the denominator level of activity is 3,500 machine-hours. In the most recent month, the total
actual fixed manufacturing overhead was $11,570 and the company actually worked 3,430 machine-
hours during the month. The standard hours allowed for the actual output of the month totaled 3,450
machine-hours. What was the overall fixed manufacturing overhead volume variance for the month? 
 

A. $66 Favorable
B. $231 Favorable
C. $231 Unfavorable
D. $165 Unfavorable

Volume variance = Budgeted fixed overhead cost - Fixed overhead applied to work in process
= (3,500 machine-hours × $3.30 per machine-hour) - (3,450 machine-hours × $3.30 per machine-hour)
= $11,550 - $11,385
= $165 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.

App8A-89
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McGraw-Hill Education.
 Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

43. Nitrol Corporation manufactures brass vases using a standard cost system with standard machine-hours
as the activity base for overhead. The following information relates to vase production at Nitrol for last
year:

Estimated for year Actual results for year

Variable overhead $50,000 $53,560
Fixed overhead $250,000 $247,500
Machine-hours 100,000 103,000
 

The standard machine-hours per vase is 1.25. Last year Nitrol produced 84,000 vases.

What was Nitrol's variable overhead rate variance for last year?  
 

A. $1,000 Favorable
B. $1,060 Unfavorable
C. $2,060 Unfavorable
D. $9,500 Unfavorable

SR = $50,000 ÷ 100,000 hours = $0.50 per hour

AH × AR = $53,560
Variable overhead rate variance = (AH × AR) - (AH × SR)
= ($53,560) - (103,000 hours × $0.50 per hour)
= $53,560 - $51,500
= $2,060 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Level of Difficulty: 3 Hard
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-90
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McGraw-Hill Education.
44. Nitrol Corporation manufactures brass vases using a standard cost system with standard machine-hours
as the activity base for overhead. The following information relates to vase production at Nitrol for last
year:

Estimated for year Actual results for year

Variable overhead $50,000 $53,560
Fixed overhead $250,000 $247,500
Machine-hours 100,000 103,000
 

The standard machine-hours per vase is 1.25. Last year Nitrol produced 84,000 vases.

What was Nitrol's fixed manufacturing overhead volume variance for last year? 
 

A. $2,500 Favorable
B. $7,500 Favorable
C. $12,500 Favorable
D. $40,000 Unfavorable

Fixed component of the predetermined overhead rate = $250,000 ÷ 100,000 hours = $2.50 per hour
Standard hours allowed for the actual output = 1.25 hours per unit × 84,000 units = 105,000 hours
Volume variance = Fixed component of the predetermined overhead rate x (Denominator hours -
Standard hours allowed for the actual output)
= $2.50 per hour × (100,000 hours - 105,000 hours)
= $2.50 per hour × (-5,000 hours)
= $12,500 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-91
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McGraw-Hill Education.
45. Nitrol Corporation manufactures brass vases using a standard cost system with standard machine-hours
as the activity base for overhead. The following information relates to vase production at Nitrol for last
year:

Estimated for year Actual results for year

Variable overhead $50,000 $53,560
Fixed overhead $250,000 $247,500
Machine-hours 100,000 103,000

The standard machine-hours per vase is 1.25. Last year Nitrol produced 84,000 vases.

What was Nitrol's total underapplied or overapplied overhead cost for last year?  
 

A. $1,060 overapplied
B. $1,060 underapplied
C. $7,940 overapplied
D. $13,940 overapplied

Standard overhead cost per hour = ($50,000 + $250,000) ÷ 100,000 hours = $3 per hour
Standard overhead cost applied = $3 per hour × (1.25 hours per vase × 84,000 vases) = $3 per hour ×
105,000 hours = $315,000

Total overhead cost incurred = $53,560 + $247,500 = $301,060

Overhead overapplied = $315,000 - $301,060 = $13,940

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-92
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McGraw-Hill Education.
46. The Dillon Corporation makes and sells a single product. Overhead costs are applied on the basis of
standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit.
The Dillon Corporation had the following budgeted and actual data for March:

Actual Budgeted
Units produced 33,900 30,800
Direct labor-hours 161,800 154,000
Variable overhead costs $140,500 $123,200
Fixed overhead costs $80,000 $77,000
 
The variable overhead rate variance for March is:  
 

A. $4,900 U
B. $11,060 U
C. $14,700 U
D. $17,300 U

AH × AR = $140,500
SR = $123,200 ÷ 154,000 hours = $0.80 per hour
Variable overhead rate variance = (AH × AR) - (AH × SR)
= ($140,500) - (161,800 hours × $0.80 per hour)
= $140,500 - $129,440
= $11,060 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Level of Difficulty: 3 Hard
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-93
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McGraw-Hill Education.
47. The Dillon Corporation makes and sells a single product. Overhead costs are applied on the basis of
standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit.
The Dillon Corporation had the following budgeted and actual data for March:

Actual Budgeted
Units produced 33,900 30,800
Direct labor-hours 161,800 154,000
Variable overhead costs $140,500 $123,200
Fixed overhead costs $80,000 $77,000

The variable overhead efficiency variance for March is:  

 

A. $12,400 F
B. $6,160 U
C. $12,400 U
D. $6,160 F

Standard hours per unit = 154,000 hours ÷ 30,800 units = 5 hours pe unit
SH = 33,900 units × 5 hours per unit = 169,500 hours
SR = $123,200 ÷ 154,000 hours = $0.80 per hour
Variable overhead efficiency variance = (AH - SH) × SR
= (161,800 hours - 169,500 hours) × $0.80 per hour
= (-7,700 hours) × $0.80 per hour
= $6,160 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Level of Difficulty: 3 Hard
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-94
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McGraw-Hill Education.
48. The Dillon Corporation makes and sells a single product. Overhead costs are applied on the basis of
standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit.
The Dillon Corporation had the following budgeted and actual data for March:

Actual Budgeted
Units produced 33,900 30,800
Direct labor-hours 161,800 154,000
Variable overhead costs $140,500 $123,200
Fixed overhead costs $80,000 $77,000

The fixed manufacturing overhead budget variance for March is:  

 

A. $900 F
B. $3,900 F
C. $3,000 U
D. $7,750 F

Budget variance = Actual fixed overhead - Budgeted fixed overhead

= $80,000 - $77,000
= $3,000 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-95
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McGraw-Hill Education.
49. The Dillon Corporation makes and sells a single product. Overhead costs are applied on the basis of
standard direct labor-hours. The standard cost card shows that 5 direct labor-hours are required per unit.
The Dillon Corporation had the following budgeted and actual data for March:

Actual Budgeted
Units produced 33,900 30,800
Direct labor-hours 161,800 154,000
Variable overhead costs $140,500 $123,200
Fixed overhead costs $80,000 $77,000

The fixed manufacturing overhead volume variance for March is:  

 

A. $7,750 F
B. $7,750 U
C. $1,550 F
D. $3,900 U

Fixed component of the predetermined overhead rate = $77,000 ÷ 154,000 hours = $0.50 per hour
Standard hours allowed for the actual output = 5.00 hours per unit × 33,900 units = 169,500 hours
Fixed overhead applied to work in process = $0.50 per hour × 169,500 hours = $84,750
Volume variance = Budgeted fixed overhead - Fixed overhead applied to work in process
= $77,000 - $84,750
= $7,750 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-96
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McGraw-Hill Education.
50. Derf Corporation uses a standard cost system in which it applies manufacturing overhead on the basis of
standard direct labor-hours. Two direct labor-hours are required for each unit produced. The
denominator activity was set at 9,000 units. Manufacturing overhead was budgeted at $135,000 for the
period; 20 percent of this cost was fixed. The 17,200 hours worked during the period resulted in
production of 8,500 units. Variable manufacturing overhead cost incurred was $108,500 and fixed
manufacturing overhead cost was $28,000.

The variable overhead rate variance for the period was: 

 

A. $5,300 Unfavorable
B. $1,200 Unfavorable
C. $6,300 Unfavorable
D. $6,500 Unfavorable

SR = (0.8 × $135,000) ÷ (9,000 units × 2 hours per unit) = $108,000 ÷ 18,000 hours = $6 per hour
AH × AR = $108,500
Variable overhead rate variance = (AH × AR) - (AH × SR)
= ($108,500) - (17,200 hours × $6 per hour)
= $108,500 - $103,200
= $5,300 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Level of Difficulty: 3 Hard
Source: CMA, adapted
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-97
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McGraw-Hill Education.
51. Derf Corporation uses a standard cost system in which it applies manufacturing overhead on the basis of
standard direct labor-hours. Two direct labor-hours are required for each unit produced. The
denominator activity was set at 9,000 units. Manufacturing overhead was budgeted at $135,000 for the
period; 20 percent of this cost was fixed. The 17,200 hours worked during the period resulted in
production of 8,500 units. Variable manufacturing overhead cost incurred was $108,500 and fixed
manufacturing overhead cost was $28,000.

The variable overhead efficiency variance for the period was: 

 

A. $5,300 Unfavorable
B. $1,200 Unfavorable
C. $1,500 Unfavorable
D. $6,500 Unfavorable

SR = (0.8 × $135,000) ÷ (9,000 units × 2 hours per unit) = $108,000 ÷ 18,000 hours = $6 per hour
SH = 8,500 units × 2.00 hours per unit = 17,000 hours
Variable overhead efficiency variance = (AH - SH) × SR
= (17,200 hours - 17,000 hours) × $6 per hour
= (200 hours) × $6 per hour
= $1,200 Us

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Level of Difficulty: 3 Hard
Source: CMA, adapted
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-98
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McGraw-Hill Education.
52. Derf Corporation uses a standard cost system in which it applies manufacturing overhead on the basis of
standard direct labor-hours. Two direct labor-hours are required for each unit produced. The
denominator activity was set at 9,000 units. Manufacturing overhead was budgeted at $135,000 for the
period; 20 percent of this cost was fixed. The 17,200 hours worked during the period resulted in
production of 8,500 units. Variable manufacturing overhead cost incurred was $108,500 and fixed
manufacturing overhead cost was $28,000.

The fixed manufacturing overhead budget variance for the period was: 
 

A. $6,300 Unfavorable
B. $2,500 Unfavorable
C. $1,500 Unfavorable
D. $1,000 Unfavorable

Budget variance = Actual fixed overhead - Budgeted fixed overhead

= $28,000 - $27,000
= $1,000 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Source: CMA, adapted
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-99
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
53. Derf Corporation uses a standard cost system in which it applies manufacturing overhead on the basis of
standard direct labor-hours. Two direct labor-hours are required for each unit produced. The
denominator activity was set at 9,000 units. Manufacturing overhead was budgeted at $135,000 for the
period; 20 percent of this cost was fixed. The 17,200 hours worked during the period resulted in
production of 8,500 units. Variable manufacturing overhead cost incurred was $108,500 and fixed
manufacturing overhead cost was $28,000.

The fixed manufacturing overhead volume variance for the period was:  

A. $750 Unfavorable
B. $2,500 Unfavorable
C. $1,500 Unfavorable
D. $1,000 Unfavorable

Fixed component of the predetermined overhead rate = (0.2 × $135,000) ÷ (9,000 units × 2 hours per
unit) = $27,000 ÷ 18,000 hours = $1.50 per hour
Standard hours allowed for the actual output = 2.00 hours per unit × 8,500 units = 17,000 hours
Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours -
Standard hours allowed for the actual output)
= $1.50 per hour × (18,000 hours - 17,000 hours)
= $1.50 per hour × (1,000 hours)
= $1,500 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Source: CMA, adapted
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-100
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McGraw-Hill Education.
54. Vette Tie Corporation has developed the following manufacturing overhead standards to use in applying
overhead to the production of its hand-painted silk ties. Manufacturing overhead at Vette is applied to
production on the basis of standard direct labor-hours (DLHs).

Standard Cost Per Tie:

    Variable overhead (1.1 DLHs × $14.00 per
$15.40
DLH)
    Fixed overhead (1.1 DLHs × $8.00 per DLH) $8.80
 
The above standards were based on an expected annual volume of 60,000 ties. The actual results for
last year were as follows:

Number of ties produced 58,000

Direct labor-hours worked 64,000
Variable overhead cost $880,000
Fixed overhead cost $525,000
 
What was Vette's variable overhead rate variance?  
 

A. $2,800 Unfavorable
B. $13,200 Favorable
C. $16,000 Favorable
D. $68,000 Unfavorable

AH × AR = $880,000
Variable overhead rate variance = (AH × AR) - (AH × SR)
= ($880,000) - (64,000 hours × $14.00 per hour)
= $880,000 - $896,000
= $16,000 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Level of Difficulty: 2 Medium
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-101
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McGraw-Hill Education.
55. Vette Tie Corporation has developed the following manufacturing overhead standards to use in applying
overhead to the production of its hand-painted silk ties. Manufacturing overhead at Vette is applied to
production on the basis of standard direct labor-hours (DLHs).

Standard Cost Per Tie:

   Variable overhead (1.1 DLHs × $14.00 per
$15.40
DLH)
    Fixed overhead (1.1 DLHs × $8.00 per DLH) $8.80
 
The above standards were based on an expected annual volume of 60,000 ties. The actual results for
last year were as follows:

Number of ties produced 58,000

Direct labor-hours worked 64,000
Variable overhead cost $880,000
Fixed overhead cost $525,000
 
What was Vette's fixed manufacturing overhead budget variance?  
 

A. $1,600 Unfavorable
B. $3,000 Favorable
C. $13,000 Unfavorable
D. $17,600 Unfavorable

Budget variance = Actual fixed overhead - Budgeted fixed overhead

= $525,000 - $528,000
= $3,000 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-102
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McGraw-Hill Education.
56. Vette Tie Corporation has developed the following manufacturing overhead standards to use in applying
overhead to the production of its hand-painted silk ties. Manufacturing overhead at Vette is applied to
production on the basis of standard direct labor-hours (DLHs).

Standard Cost Per Tie:

   Variable overhead (1.1 DLHs × $14.00 per
$15.40
DLH)
   Fixed overhead (1.1 DLHs × $8.00 per DLH) $8.80
 
The above standards were based on an expected annual volume of 60,000 ties. The actual results for
last year were as follows:

Number of ties produced 58,000

Direct labor-hours worked 64,000
Variable overhead cost $880,000
Fixed overhead cost $525,000
 
What total amount of manufacturing overhead cost (variable and fixed) did Vette apply to the 58,000
ties produced during the year?  
 

A. $1,276,000
B. $1,403,600
C. $1,421,200
D. $1,452,000

Standard overhead cost per unit = $15.40 per unit + $8.80 per unit = $24.20 per unit
Standard overhead cost applied = $24.20 per unit × 58,000 units = $1,403,600

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-103
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McGraw-Hill Education.
57. Pohl Corporation uses a standard cost system in which manufacturing overhead is applied on the basis
of standard machine-hours. For June, the company's manufacturing overhead flexible budget showed
the following total budgeted costs at a denominator activity level of 20,000 machine-hours:

Variable overhead costs (total):

  Maintenance $16,000
  Utilities $10,000
Fixed overhead costs (total):
  Supervision $20,500
  Depreciation $9,500

During June, 17,000 machine-hours were used to complete 13,000 units of product, and the following
actual total overhead costs were incurred:

Variable overhead costs (total):

  Maintenance $14,620
  Utilities $10,710
Fixed overhead costs (total):
  Supervision $19,320
  Depreciation $9,500
 
At standard, each unit of finished product requires 1.4 hours of machine time.

The total predetermined overhead rate per machine-hour for June was:  
 

A. $2.57 per machine-hour

B. $1.30 per machine-hour
C. $2.80 per machine-hour
D. $3.15 per machine-hour

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the
allocation base = ($16,000 + $10,000 + $20,500 + $9,500) ÷ 20,000 machine-hours
= $56,000 ÷ 20,000 machine-hours = $2.80 per machine-hour

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-104
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McGraw-Hill Education.
58. Pohl Corporation uses a standard cost system in which manufacturing overhead is applied on the basis
of standard machine-hours. For June, the company's manufacturing overhead flexible budget showed
the following total budgeted costs at a denominator activity level of 20,000 machine-hours:

Variable overhead costs (total):

  Maintenance $16,000
  Utilities $10,000
Fixed overhead costs (total):
  Supervision $20,500
  Depreciation $9,500

During June, 17,000 machine-hours were used to complete 13,000 units of product, and the following
actual total overhead costs were incurred:

Variable overhead costs (total):

  Maintenance $14,620
  Utilities $10,710
Fixed overhead costs (total):
  Supervision $19,320
  Depreciation $9,500
 
At standard, each unit of finished product requires 1.4 hours of machine time.

The variable overhead rate variance for maintenance cost for June was:  
 

A. $1,020 F
B. $1,020 U
C. $3,230 F
D. $3,230 U

SR = $16,000 ÷ 20,000 machine-hours = $0.80 per machine-hour

Variable overhead rate variance = (AH × AR) - (AH × SR)
= $14,620 - (17,000 machine-hours × $0.80 per machine-hour)
= $14,620 - $13,600
= $1,020 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Level of Difficulty: 3 Hard
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-105
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McGraw-Hill Education.
59. Pohl Corporation uses a standard cost system in which manufacturing overhead is applied on the basis
of standard machine-hours. For June, the company's manufacturing overhead flexible budget showed
the following total budgeted costs at a denominator activity level of 20,000 machine-hours:

Variable overhead costs (total):

  Maintenance $16,000
  Utilities $10,000
Fixed overhead costs (total):
  Supervision $20,500
  Depreciation $9,500
 
During June, 17,000 machine-hours were used to complete 13,000 units of product, and the following
actual total overhead costs were incurred:

Variable overhead costs (total):

  Maintenance $14,620
  Utilities $10,710
Fixed overhead costs (total):
  Supervision $19,320
  Depreciation $9,500
 
At standard, each unit of finished product requires 1.4 hours of machine time.

The variable overhead efficiency variance for utilities cost for June was:  
 

A. $400 F
B. $400 U
C. $600 F
D. $600 U

SH = 13,000 units × 1.4 machine-hours per unit = 18,200 machine-hours

SR = ($10,000) ÷ 20,000 machine-hours = $0.50 per machine-hour
Variable overhead efficiency variance = (AH - SH) × SR
= (17,000 machine-hours - 18,200 machine-hours) × $0.50 per machine-hour
= (-1,200 machine-hours) × $0.50 per machine-hour
= $600 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.

App8A-106
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McGraw-Hill Education.
 Level of Difficulty: 3 Hard
Topic Area: Flexible Budgets with Multiple Cost Drivers

60. Pohl Corporation uses a standard cost system in which manufacturing overhead is applied on the basis
of standard machine-hours. For June, the company's manufacturing overhead flexible budget showed
the following total budgeted costs at a denominator activity level of 20,000 machine-hours:

Variable overhead costs (total):

  Maintenance $16,000
  Utilities $10,000
Fixed overhead costs (total):
  Supervision $20,500
  Depreciation $9,500
 
During June, 17,000 machine-hours were used to complete 13,000 units of product, and the following
actual total overhead costs were incurred:

Variable overhead costs (total):

  Maintenance $14,620
  Utilities $10,710
Fixed overhead costs (total):
  Supervision $19,320
  Depreciation $9,500

At standard, each unit of finished product requires 1.4 hours of machine time.

The fixed manufacturing overhead budget variance (in total) for June was:  
 

A. $3,230 F
B. $3,230 U
C. $1,180 F
D. $1,180 U

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost

= ($19,320 + $9,500) - ($20,500 + $9,500)
= $28,820 - $30,000
= $1,180 Fs

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.

App8A-107
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McGraw-Hill Education.
 Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

61. A manufacturing company uses a standard costing system in which standard machine-hours (MHs) is
the measure of activity. Data from the company's flexible budget for manufacturing overhead are given
below:

Denominator level of activity 6,100 MHs

Overhead costs at the denominator
activity level:
  Variable overhead cost $35,075

  Fixed overhead cost $77,775

 
The following data pertain to operations for the most recent period:

Actual hours 6,300 MHs

Standard hours allowed for the actual
5,994 MHs
output
Actual total variable manufacturing
$36,540
overhead cost
Actual total fixed manufacturing
$76,875
overhead cost
 
The predetermined overhead rate per MH is closest to:  
 

A. $17.91 per MH
B. $18.59 per MH
C. $18.00 per MH
D. $18.50 per MH

Variable overhead + Fixed overhead = $35,075+ $77,775

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the
allocation base = $112,850 ÷ 6,100 MHs = $18.50 per MH

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Level of Difficulty: 2 Medium
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-108
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McGraw-Hill Education.
62. A manufacturing company uses a standard costing system in which standard machine-hours (MHs) is
the measure of activity. Data from the company's flexible budget for manufacturing overhead are given
below:

Denominator level of activity 6,100 MHs

Overhead costs at the denominator
activity level:
  Variable overhead cost $35,075

  Fixed overhead cost $77,775

 
The following data pertain to operations for the most recent period:

Actual hours 6,300 MHs

Standard hours allowed for the actual
5,994 MHs
output
Actual total variable manufacturing
$36,540
overhead cost
Actual total fixed manufacturing
$76,875
overhead cost
 
The overhead applied to products during the period was closest to:  
 

A. $112,850
B. $113,415
C. $116,550
D. $110,889

Variable overhead + Fixed overhead = $35,075+ $77,775

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the
allocation base = $112,850 ÷ 6,100 MHs = $18.50 per MH
Overhead applied = Predetermined overheard rate × Standard hours allowed for the actual output
= $18.50 per MH × 5,994 MHs = $110,889

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Level of Difficulty: 2 Medium
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-109
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
63. A manufacturing company uses a standard costing system in which standard machine-hours (MHs) is
the measure of activity. Data from the company's flexible budget for manufacturing overhead are given
below:

Denominator level of activity 6,100 MHs

Overhead costs at the denominator
activity level:
  Variable overhead cost $35,075

  Fixed overhead cost $77,775

 
The following data pertain to operations for the most recent period:

Actual hours 6,300 MHs

Standard hours allowed for the actual
5,994 MHs
output
Actual total variable manufacturing
$36,540
overhead cost
Actual total fixed manufacturing
$76,875
overhead cost

The variable overhead rate variance for the period was closest to:  
 

A. $315 U
B. $1,465 F
C. $1,465 U
D. $315 F

SR = $35,075 ÷ 6,100 MHs = $5.75 per MH

AH × AR = $36,540
Labor rate variance = (AH × AR) - (AH × SR)
= $36,540 - (6,300 MHs × $5.75 per MH)
= $36,540 - $36,225
= $315 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Level of Difficulty: 2 Medium
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-110
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
64. A manufacturing company uses a standard costing system in which standard machine-hours (MHs) is
the measure of activity. Data from the company's flexible budget for manufacturing overhead are given
below:

Denominator level of activity 6,100 MHs

Overhead costs at the denominator
activity level:
  Variable overhead cost $35,075

  Fixed overhead cost $77,775

 
The following data pertain to operations for the most recent period:

Actual hours 6,300 MHs

Standard hours allowed for the actual
5,994 MHs
output
Actual total variable manufacturing
$36,540
overhead cost
Actual total fixed manufacturing
$76,875
overhead cost
 
The variable overhead efficiency variance for the period is closest to:  
 

A. $300 F
B. $1,465 U
C. $1,760 U
D. $1,775 U

Variable overhead efficiency variance = (AH- SH) × SR

= (6,300 MHs - 5,994 MHs) × $5.75 per MH
= (306 MHs) × $5.75 per MH
= $1,759.50 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Level of Difficulty: 2 Medium
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-111
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
65. A manufacturing company uses a standard costing system in which standard machine-hours (MHs) is
the measure of activity. Data from the company's flexible budget for manufacturing overhead are given
below:

Denominator level of activity 6,100 MHs

Overhead costs at the denominator
activity level:
  Variable overhead cost $35,075

  Fixed overhead cost $77,775

 
The following data pertain to operations for the most recent period:

Actual hours 6,300 MHs

Standard hours allowed for the actual
5,994 MHs
output
Actual total variable manufacturing
$36,540
overhead cost
Actual total fixed manufacturing
$76,875
overhead cost
 
The fixed manufacturing overhead budget variance for the period is closest to:  
 

A. $900 F
B. $452 F
C. $3,734 F
D. $3,450 U

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost

= $76,875 - $77,775 = $900 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-112
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
66. A manufacturing company uses a standard costing system in which standard machine-hours (MHs) is
the measure of activity. Data from the company's flexible budget for manufacturing overhead are given
below:

Denominator level of activity 6,100 MHs

Overhead costs at the denominator
activity level:
  Variable overhead cost $35,075

  Fixed overhead cost $77,775

 
The following data pertain to operations for the most recent period:

Actual hours 6,300 MHs

Standard hours allowed for the actual
5,994 MHs
output
Actual total variable manufacturing
$36,540
overhead cost
Actual total fixed manufacturing
$76,875
overhead cost
 
The fixed manufacturing overhead volume variance for the period is closest to:  
 

A. $1,359 U
B. $2,550 F
C. $3,902 U
D. $1,352 U

Fixed component of predetermined overhead rate = Estimated total fixed manufacturing overhead cost ÷
Estimated total amount of the allocation base = $77,775 ÷ 6,100 MHs = $12.75 per MH
Volume variance = Budgeted fixed overhead cost - Fixed overhead applied to work in process
= $77,775 - (5,994 MH × $12.75 per MH)
= $77,775 - $76,423.50
= $1,351.50 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-113
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
67. Cuda Manufacturing Corporation uses a standard cost system with machine-hours (MHs) as the activity
base for overhead. The following information relates to Cuda's operations last year:

Denominator activity level in machine-hours 50,000 MHs

Standard machine-hours allowed for actual output 55,000 MHs
Actual number of machine-hours incurred 52,000 MHs
Predetermined overhead rate for variable manufacturing overhead $7.00 per MH
Predetermined overhead rate for fixed manufacturing overhead $12.00 per MH
Total variable manufacturing overhead incurred $370,000

Total fixed manufacturing overhead incurred $615,000

 
What was Cuda's variable overhead rate variance?  
 

A. $6,000 Unfavorable
B. $15,000 Favorable
C. $20,000 Unfavorable
D. $21,000 Favorable

AH × AR = $370,000
Variable overhead rate variance = (AH × AR) - (AH × SR)
= ($370,000) - (52,000 MHs × $7 per MH)
= $370,000 - $364,000
= $6,000 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Level of Difficulty: 2 Medium
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-114
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
68. Cuda Manufacturing Corporation uses a standard cost system with machine-hours (MHs) as the activity
base for overhead. The following information relates to Cuda's operations last year:

Denominator activity level in machine-hours 50,000 MHs

Standard machine-hours allowed for actual output 55,000 MHs
Actual number of machine-hours incurred 52,000 MHs
Predetermined overhead rate for variable manufacturing overhead $7.00 per MH
Predetermined overhead rate for fixed manufacturing overhead $12.00 per MH
Total variable manufacturing overhead incurred $370,000

Total fixed manufacturing overhead incurred $615,000

 
What was Cuda's fixed manufacturing overhead budget variance?  
 

A. $9,000 Favorable
B. $15,000 Unfavorable
C. $45,000 Favorable
D. $45,000 Unfavorable

Budget variance = Actual fixed overhead - Budgeted fixed overhead

= $615,000 - (50,000 MHs × $12 per MH)
= $615,000 - $600,000
= $15,000 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-115
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
69. Cuda Manufacturing Corporation uses a standard cost system with machine-hours (MHs) as the activity
base for overhead. The following information relates to Cuda's operations last year:

Denominator activity level in machine-hours 50,000 MHs

Standard machine-hours allowed for actual output 55,000 MHs
Actual number of machine-hours incurred 52,000 MHs
Predetermined overhead rate for variable manufacturing overhead $7.00 per MH
Predetermined overhead rate for fixed manufacturing overhead $12.00 per MH
Total variable manufacturing overhead incurred $370,000

Total fixed manufacturing overhead incurred $615,000

 
What total amount of manufacturing overhead cost (variable and fixed) did Cuda apply to production?  
 

A. $950,000
B. $985,000
C. $988,000
D. $1,045,000

Manufacturing overhead cost applied = 55,000 MHs × ($7 per MH + $12 per MH)
= 55,000 MHs × ($19 per MH) = $1,045,000

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-116
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
70. The Claus Corporation makes and sells a single product and uses standard costing. During January, the
company actually used 8,700 direct labor-hours (DLHs) and produced 3,000 units of product. The
standard cost card for one unit of product includes the following:

Variable factory overhead: 3.0 DLHs @ $4.00 per DLH.

Fixed factory overhead: 3.0 DLHs @ $3.50 per DLH.

For January, the company incurred $22,000 of actual fixed manufacturing overhead costs and recorded
a $875 favorable volume variance.

The denominator level of activity in direct labor-hours (DLHs) used by Claus in setting the
predetermined overhead rate for January is:  
 

A. 9,500 DLHs
B. 9,250 DLHs
C. 8,750 DLHs
D. 10,500 DLHs

Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours -

Standard hours allowed for the actual output)
$875 F = $3.50 per DLH × [Denominator hours - (3.0 DLHs per unit × 3,000 units)]
-$875 = $3.50 per DLH × [Denominator hours - (3.0 DLHs per unit × 3,000 units)]
-$875 = $3.50 per DLH × [Denominator hours - (9,000 DLHs)]
-$875 = ($3.50 per DLH × Denominator hours) - $31,500
$3.50 per DLH × Denominator hours = $31,500 - $875
$3.50 per DLH × Denominator hours = $30,625
Denominator hours = $30,625 ÷ $3.50 per DLH = 8,750 DLHs

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-117
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
71. The Claus Corporation makes and sells a single product and uses standard costing. During January, the
company actually used 8,700 direct labor-hours (DLHs) and produced 3,000 units of product. The
standard cost card for one unit of product includes the following:

Variable factory overhead: 3.0 DLHs @ $4.00 per DLH.

Fixed factory overhead: 3.0 DLHs @ $3.50 per DLH.

For January, the company incurred $22,000 of actual fixed manufacturing overhead costs and recorded
a $875 favorable volume variance.

The fixed manufacturing overhead cost used to compute the predetermined overhead rate was: 
 

A. $31,500
B. $30,625
C. $32,375
D. $33,250

Fixed overhead applied to work in process = $3.50 per DLH × 3.0 DLHs per unit × 3,000 units =
$31,500
Volume variance = Budgeted fixed overhead - Fixed overhead applied to work in process
$875 F = Budgeted fixed overhead - $31,500
-$875 = Budgeted fixed overhead - $31,500
Budgeted fixed overhead = $31,500 - $875 = $30,625

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-118
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
72. A manufacturer of playground equipment uses a standard costing system in which standard machine-
hours (MHs) is the measure of activity. Data from the company's flexible budget for manufacturing
overhead are given below:

Denominator level of activity 3,000 MHs

Fixed overhead cost $40,650
 
The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,172 MHs
output
Actual total fixed manufacturing
$41,600
overhead cost
 
The predetermined fixed manufacturing overhead rate is closest to:  
 

A. $12.24 per MH
B. $13.55 per MH
C. $13.87 per MH
D. $11.96 per MH

Predetermined overhead rate = Budgeted total overhead ÷ Denominator level of activity

= $40,650 ÷ 3,000 MHs = $13.55 per MH

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-119
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
73. A manufacturer of playground equipment uses a standard costing system in which standard machine-
hours (MHs) is the measure of activity. Data from the company's flexible budget for manufacturing
overhead are given below:

Denominator level of activity 3,000 MHs

Fixed overhead cost $40,650
 
The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,172 MHs
output
Actual total fixed manufacturing
$41,600
overhead cost
 
The fixed manufacturing overhead applied to products during the period is closest to:  
 

A. $40,650
B. $42,981
C. $41,600
D. $46,070

Predetermined overhead rate = Budgeted total overhead ÷ Denominator level of activity

= $40,650 ÷ 3,000 MHs = $13.55 per MH

Fixed manufacturing overhead applied = Predetermined overheard rate × Standard hours allowed for the
actual output = $13.55 per MH × 3,172 MHs = $42,980.60

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-120
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
74. A manufacturer of playground equipment uses a standard costing system in which standard machine-
hours (MHs) is the measure of activity. Data from the company's flexible budget for manufacturing
overhead are given below:

Denominator level of activity 3,000 MHs

Fixed overhead cost $40,650
 
The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,172 MHs
output
Actual total fixed manufacturing
$41,600
overhead cost
 
The fixed manufacturing overhead budget variance for the period is closest to:  
 

A. $4,470 U
B. $950 U
C. $2,790 F
D. $1,381 U

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost

= $41,600 - $40,650 = $950 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-121
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
75. A manufacturer of playground equipment uses a standard costing system in which standard machine-
hours (MHs) is the measure of activity. Data from the company's flexible budget for manufacturing
overhead are given below:

Denominator level of activity 3,000 MHs

Fixed overhead cost $40,650
 
The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,172 MHs
output
Actual total fixed manufacturing
$41,600
overhead cost
 
The fixed manufacturing overhead volume variance for the period is closest to:  
 

A. $2,256 F
B. $2,331 F
C. $3,089 U
D. $5,420 F

Predetermined overhead rate = Budgeted total overhead ÷ Denominator level of activity

= $40,650 ÷ 3,000 MHs = $13.55 per MH

Volume variance = Budgeted fixed overhead cost - Fixed overhead applied to work in process
= $40,650 - (3,172 MHs × $13.55 per MH)
= $40,650 - $42,980.60
= $2,330.60 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-122
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
76. The Murray Corporation uses a standard cost system in which it applies manufacturing overhead on the
basis of standard direct labor-hours (DLHs). The company recorded the following activity and cost data
for May:

Activity:
    Number of units produced 40,100 units
    Standard direct labor-hours per unit of product 1.5 DLHs per unit
   Denominator activity 64,000 DLHS
Cost:

   Actual fixed manufacturing overhead costs incurred $56,000

    Fixed component of the predetermined overhead rate $0.90 per DLH
 
The amount of fixed manufacturing overhead cost that was used to compute the fixed component of the
predetermined overhead rate was:  
 

A. $54,135
B. $60,150
C. $59,465
D. $57,600

Fixed component of the predetermined overhead rate = Budgeted fixed overhead ÷ Denominator level
of activity
$0.90 per DLH = Budgeted fixed overhead cost ÷ 64,000 DLHs
Budgeted fixed overhead cost = $0.90 per DLH × 64,000 DLHs = $57,600

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-123
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
77. The Murray Corporation uses a standard cost system in which it applies manufacturing overhead on the
basis of standard direct labor-hours (DLHs). The company recorded the following activity and cost data
for May:

Activity:
    Number of units produced 40,100 units
    Standard direct labor-hours per unit of product 1.5 DLHs per unit
    Denominator activity 64,000 DLHS
Cost:

    Actual fixed manufacturing overhead costs incurred $56,000

    Fixed component of the predetermined overhead rate $0.90 per DLH
 
The amount of fixed manufacturing overhead cost applied during May was:  
 

A. $52,535
B. $54,135
C. $36,090
D. $50,400

Fixed manufacturing overhead cost applied to work in process = 40,100 units × 1.5 DLHs per unit ×
$0.90 per DLH = $54,135

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-124
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
78. The Murray Corporation uses a standard cost system in which it applies manufacturing overhead on the
basis of standard direct labor-hours (DLHs). The company recorded the following activity and cost data
for May:

Activity:
   Number of units produced 40,100 units
   Standard direct labor-hours per unit of product 1.5 DLHs per unit
   Denominator activity 64,000 DLHS
Cost:

   Actual fixed manufacturing overhead costs incurred $56,000

   Fixed component of the predetermined overhead rate $0.90 per DLH
 
The fixed manufacturing overhead budget variance for May was:  
 

A. $8,000 F
B. $8,000 U
C. $1,600 F
D. $1,600 U

Fixed component of the predetermined overhead rate = Budgeted fixed overhead ÷ Denominator level
of activity
$0.90 per DLH = Budgeted fixed overhead cost ÷ 64,000 DLHs
Budgeted fixed overhead cost = $0.90 per DLH × 64,000 DLHs = $57,600

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost

= $56,000 - $57,600 = $1,600 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-125
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
79. An outdoor barbecue grill manufacturer has a standard costing system based on standard direct labor-
hours (DLHs) as the measure of activity. Data from the company's flexible budget for manufacturing
overhead are given below:

Denominator level of activity 3,300 DLHs

Fixed overhead cost $26,895

The following data pertain to operations for the most recent period:

Actual hours 3,400 DLHs

Standard hours allowed for the actual
3,420 DLHs
output
Actual total fixed manufacturing
$28,295
overhead cost
 
The fixed manufacturing overhead budget variance for the period is closest to:  
 

A. $166 U
B. $422 F
C. $585 F
D. $1,400 U

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost

= $28,295 - $26,895
= $1,400 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-126
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
80. An outdoor barbecue grill manufacturer has a standard costing system based on standard direct labor-
hours (DLHs) as the measure of activity. Data from the company's flexible budget for manufacturing
overhead are given below:

Denominator level of activity 3,300 DLHs

Fixed overhead cost $26,895
 
The following data pertain to operations for the most recent period:

Actual hours 3,400 DLHs

Standard hours allowed for the actual
3,420 DLHs
output
Actual total fixed manufacturing
$28,295
overhead cost
 
The fixed manufacturing overhead volume variance for the period is closest to:  
 

A. $978 F
B. $993 F
C. $163 F
D. $815 F

Fixed component of the predetermined overhead rate = $26,895 ÷ 3,300 hours = $8.15 per DLH
Volume variance = Budgeted fixed overhead cost - Fixed overhead applied to work in process
= $26,895 - (3,420 DLHs × $8.15 per DLH)
= $26,895 - $27,873
= $978 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-127
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
81. The Forbes Corporation uses a standard cost system in which overhead costs are applied to products on
the basis of standard direct labor-hours (DLHs). The following data applied to the company's activities
for June:

Actual fixed manufacturing overhead cost incurred $161,450

Denominator activity 50,000 DLHs
Number of units completed 21,000 units
Fixed overhead budget variance $11,450 Unfavorable
Standard direct labor-hours per unit 3 DLHs
 
The fixed component of the predetermined overhead rate for June is:  
 

A. $3.00 per DLH

B. $3.23 per DLH
C. $3.78 per DLH
D. $3.46 per DLH

Budget variance = Actual fixed overhead - Budgeted fixed overhead

$11,450 U = $161,450 - Budgeted fixed overhead
$11,450 = $161,450 - Budgeted fixed overhead
Budgeted fixed overhead = $161,450 - $11,450
Budgeted fixed overhead = $150,000

Fixed component of the predetermined overhead rate = Estimated fixed overhead cost ÷ Estimated total
amount of the allocation base = $150,000 ÷ 50,000 DLHs = $3 per DLH

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-128
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McGraw-Hill Education.
82. The Forbes Corporation uses a standard cost system in which overhead costs are applied to products on
the basis of standard direct labor-hours (DLHs). The following data applied to the company's activities
for June:

Actual fixed manufacturing overhead cost incurred $161,450

Denominator activity 50,000 DLHs
Number of units completed 21,000 units
Fixed overhead budget variance $11,450 Unfavorable
Standard direct labor-hours per unit 3 DLHs
 
The volume variance for June is:  
 

A. $44,954 Unfavorable
B. $39,000 Favorable
C. $39,000 Unfavorable
D. $44,954 Favorable

Budget variance = Actual fixed overhead - Budgeted fixed overhead

$11,450 U = $161,450 - Budgeted fixed overhead
$11,450 = $161,450 - Budgeted fixed overhead
Budgeted fixed overhead = $161,450 - $11,450
Budgeted fixed overhead = $150,000

Fixed component of the predetermined overhead rate = Estimated fixed overhead cost ÷ Estimated total
amount of the allocation base = $150,000 ÷ 50,000 DLHs = $3 per DLH

Volume variance = Fixed component of the predetermined overhead rate x (Denominator hours -
Standard hours allowed for the actual output)
= $3 per DLH x [50,000 DLHs - (21,000 units x 3 DLHs per unit)]
= $3 per DLH x [50,000 DLHs - (63,000 DLHs)]
= $3 per DLH x [-13,000 DLHs]
= $39,000 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-129
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McGraw-Hill Education.
83. The Murray Corporation makes and sells a single product. The company recorded the following activity
and cost data for May:

Number of units completed 45,000 units

Standard direct labor-hours allowed per
1.5 DLHs
unit of product
Budgeted direct labor-hours
72,000 DLHs
(denominator activity)
Actual fixed manufacturing overhead
$66,000
costs incurred
Volume variance $4,275 U
 
The fixed component of the predetermined overhead rate is $0.95 per direct labor-hour.

The fixed manufacturing overhead used to calculate the predetermined overhead rate was:  
 

A. $64,125
B. $67,500
C. $68,400
D. $70,275

$0.95 per DLH = Fixed manufacturing overhead ÷ 72,000 DLHs

Fixed manufacturing overhead = $0.95 per DLH × 72,000 DLHs
Fixed manufacturing overhead = $68,400

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-130
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McGraw-Hill Education.
84. The Murray Corporation makes and sells a single product. The company recorded the following activity
and cost data for May:

Number of units completed 45,000 units

Standard direct labor-hours allowed per
1.5 DLHs
unit of product
Budgeted direct labor-hours
72,000 DLHs
(denominator activity)
Actual fixed manufacturing overhead
$66,000
costs incurred
Volume variance $4,275 U
 
The fixed component of the predetermined overhead rate is $0.95 per direct labor-hour.

The amount of fixed manufacturing overhead cost applied to work in process during May was:  
 

A. $61,725
B. $62,700
C. $42,750
D. $64,125

Fixed manufacturing overhead cost applied to work in process = $0.95 per DLH × 1.5 DLHs per unit ×
45,000 units = $64,125

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-131
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McGraw-Hill Education.
85. The Murray Corporation makes and sells a single product. The company recorded the following activity
and cost data for May:

Number of units completed 45,000 units

Standard direct labor-hours allowed per
1.5 DLHs
unit of product
Budgeted direct labor-hours
72,000 DLHs
(denominator activity)
Actual fixed manufacturing overhead
$66,000
costs incurred
Volume variance $4,275 U
 
The fixed component of the predetermined overhead rate is $0.95 per direct labor-hour.

The fixed manufacturing overhead budget variance for May was:  

 

A. $2,400 U
B. $2,400 F
C. $6,000 U
D. $6,000 F

$0.95 per DLH = Fixed manufacturing overhead ÷ 72,000 DLHs

Fixed manufacturing overhead = $0.95 per DLH × 72,000 DLHs
Fixed manufacturing overhead = $68,400

Budget variance = Actual fixed overhead - Budgeted fixed overhead

= $66,000 - $68,400 = $2,400 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-132
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McGraw-Hill Education.
86. The following data for February has been provided by Gillard Corporation.

Denominator level of activity 3,700 machine-hours

Budgeted fixed manufacturing overhead costs $68,820
Actual level of activity 4,100 machine-hours
Standard machine-hours allowed for the actual output 4,000 machine-hours
Actual fixed manufacturing overhead costs $69,960
 
The budget variance for February is:  
 

A. $7,440 F
B. $7,440 U
C. $1,140 F
D. $1,140 U

Budget variance = Actual fixed overhead - Budgeted fixed overhead

= $69,960 - $68,820
= $1,140 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-133
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McGraw-Hill Education.
87. The following data for February has been provided by Gillard Corporation.

Denominator level of activity 3,700 machine-hours

Budgeted fixed manufacturing overhead costs $68,820
Actual level of activity 4,100 machine-hours
Standard machine-hours allowed for the actual output 4,000 machine-hours
Actual fixed manufacturing overhead costs $69,960
 
The volume variance for February is:  
 

A. $5,580 F
B. $5,580 U
C. $7,440 U
D. $7,440 F

Fixed component of the predetermined overhead rate = $68,820 ÷ 3,700 hours = $18.60 per hour
Volume variance = Fixed component of the predetermined overhead rate x (Denominator hours -
Standard hours allowed for the actual output)
= $18.60 per hour × (3,700 hours - 4,000 hours)
= $18.60 per hour × (-300 hours)
= $5,580 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

88. Odonell Corporation estimates that its variable manufacturing overhead is $11.20 per machine-hour and
its fixed manufacturing overhead is $563,640 per period.

If the denominator level of activity is 6,000 machine-hours, the variable component in the
predetermined overhead rate would be: 
 

A. $93.94 per machine-hour

B. $11.20 per machine-hour
C. $105.14 per machine-hour
D. $103.60 per machine-hour
 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation

App8A-134
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McGraw-Hill Education.
 Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

89. Odonell Corporation estimates that its variable manufacturing overhead is $11.20 per machine-hour and
its fixed manufacturing overhead is $563,640 per period.

If the denominator level of activity is 6,000 machine-hours, the fixed component in the predetermined
overhead rate would be: 
 

A. $1,120.00 per machine-hour

B. $11.20 per machine-hour
C. $93.94 per machine-hour
D. $105.14 per machine-hour

Fixed component of the predetermined overhead rate = Estimated total fixed manufacturing overhead ÷
Denominator level of activity = $563,640 ÷ 6,000 machine-hours = $93.94 per machine-hour

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

90. Odonell Corporation estimates that its variable manufacturing overhead is $11.20 per machine-hour and
its fixed manufacturing overhead is $563,640 per period.

If the denominator level of activity is 6,100 machine-hours, the predetermined overhead rate would be: 
 

A. $11.20 per machine-hour

B. $1,120.00 per machine-hour
C. $92.40 per machine-hour
D. $103.60 per machine-hour

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Denominator level of activity
= [$563,640 + ($11.20 per machine-hour × 6,100 machine-hours)] ÷ 6,100 machine-hours
= [$563,640 + $68,320] ÷ 6,100 machine-hours
= $631,960 ÷ 6,100 machine-hours
= $103.60 per machine-hour

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking

App8A-135
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McGraw-Hill Education.
 AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

91. Tillinghast Corporation estimates that its variable manufacturing overhead is $9.60 per machine-hour
and its fixed manufacturing overhead is $14,630 per period.

If the denominator level of activity is 1,000 machine-hours, the variable component in the
predetermined overhead rate would be: 
 

A. $22.90 per machine-hour

B. $14.63 per machine-hour
C. $24.23 per machine-hour
D. $9.60 per machine-hour
 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

92. Tillinghast Corporation estimates that its variable manufacturing overhead is $9.60 per machine-hour
and its fixed manufacturing overhead is $14,630 per period.

If the denominator level of activity is 1,000 machine-hours, the fixed component in the predetermined
overhead rate would be: 
 

A. $24.23 per machine-hour

B. $14.63 per machine-hour
C. $960.00 per machine-hour
D. $9.60 per machine-hour

Fixed component of the predetermined overhead rate = Estimated fixed overhead ÷ Denominator level
of activity = $14,630 ÷ 1,000 machine-hours = $14.63 per machine-hour

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy

App8A-136
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McGraw-Hill Education.
 Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

93. Tillinghast Corporation estimates that its variable manufacturing overhead is $9.60 per machine-hour
and its fixed manufacturing overhead is $14,630 per period.

If the denominator level of activity is 1,100 machine-hours, the predetermined overhead rate would be: 
 

A. $960.00 per machine-hour

B. $9.60 per machine-hour
C. $13.30 per machine-hour
D. $22.90 per machine-hour

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Denominator level of activity
= [$14,630 + ($9.60 per machine-hour × 1,100 machine-hours] ÷ 1,100 machine-hours
= [$14,630 + $10,560] ÷ 1,100 machine-hours
= $25,190 ÷ 1,100 machine-hours
= $22.90 per machine-hour

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-137
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McGraw-Hill Education.
94. Saffold Corporation has provided the following data for December.

Denominator level of activity 8,400 machine-hours

Budgeted fixed manufacturing overhead costs $274,680
Fixed component of the predetermined overhead rate $32.70 per machine-hour
Actual level of activity 8,600 machine-hours
Standard machine-hours allowed for the actual output 8,900 machine-hours
Actual fixed manufacturing overhead costs $284,730
 

The budget variance for December is:  

 

A. $10,050 U
B. $6,540 U
C. $6,540 F
D. $10,050 F

Budget variance = Actual fixed overhead - Budgeted fixed overhead

= $284,730 - $274,680
= $10,050 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-138
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McGraw-Hill Education.
95. Saffold Corporation has provided the following data for December.

Denominator level of activity 8,400 machine-hours

Budgeted fixed manufacturing overhead costs $274,680
Fixed component of the predetermined overhead rate $32.70 per machine-hour
Actual level of activity 8,600 machine-hours
Standard machine-hours allowed for the actual output 8,900 machine-hours
Actual fixed manufacturing overhead costs $284,730
 
The volume variance for December is:  
 

A. $6,540 F
B. $6,540 U
C. $16,350 F
D. $16,350 U

Volume variance = Fixed component of the predetermined overhead rate x (Denominator hours -
Standard hours allowed for the actual output)
= $32.70 per hour × (8,400 hours - 8,900 hours)
= $32.70 per hour × (-500 hours)
= $16,350 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-139
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McGraw-Hill Education.
96. A furniture manufacturer uses a standard costing system in which standard machine-hours (MHs) is the
measure of activity. Data from the company's flexible budget for manufacturing overhead are given
below:

Denominator level of activity 3,300 MHs

Overhead costs at the denominator
activity level:
    Variable overhead cost $31,845

    Fixed overhead cost $40,425

The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,078 MHs
output
Actual total variable manufacturing
$32,980
overhead cost
Actual total fixed manufacturing
$38,975
overhead cost

The predetermined overhead rate is closest to:  

 

A. $21.90 per hour

B. $21.80 per hour
C. $21.16 per hour
D. $21.26 per hour

Predetermined overhead rate = Budgeted total overhead ÷ Denominator level of activity

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-140
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McGraw-Hill Education.
97. A furniture manufacturer uses a standard costing system in which standard machine-hours (MHs) is the
measure of activity. Data from the company's flexible budget for manufacturing overhead are given
below:

Denominator level of activity 3,300 MHs

Overhead costs at the denominator
activity level:
     Variable overhead cost $31,845

    Fixed overhead cost $40,425

 
The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,078 MHs
output
Actual total variable manufacturing
$32,980
overhead cost
Actual total fixed manufacturing
$38,975
overhead cost
 

The overhead applied to products during the period was closest to:  
 

A. $74,460
B. $72,270
C. $67,408
D. $71,955

Predetermined overhead rate = Budgeted total overhead ÷ Denominator level of activity

= ($31,845 + $40,425) ÷ 3,300 hours
= $72,270 ÷ 3,300 hours
= $21.90 per hour
Overhead applied = Predetermined overhead rate × Standards hours allowed for the actual output
= $21.90 per hour × 3,078 hours
= $67,408.20

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-141
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McGraw-Hill Education.
98. A furniture manufacturer uses a standard costing system in which standard machine-hours (MHs) is the
measure of activity. Data from the company's flexible budget for manufacturing overhead are given
below:

Denominator level of activity 3,300 MHs

Overhead costs at the denominator
activity level:
    Variable overhead cost $31,845

    Fixed overhead cost $40,425

The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,078 MHs
output
Actual total variable manufacturing
$32,980
overhead cost
Actual total fixed manufacturing
$38,975
overhead cost
 

The fixed manufacturing overhead budget variance for the period is closest to:  
 

A. $2,675 U
B. $1,450 F
C. $3,691 F
D. $1,270 F

Budget variance = Actual fixed overhead - Budgeted fixed overhead cost

= $38,975 - $40,425
= $1,450 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-142
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McGraw-Hill Education.
99. A furniture manufacturer uses a standard costing system in which standard machine-hours (MHs) is the
measure of activity. Data from the company's flexible budget for manufacturing overhead are given
below:

Denominator level of activity 3,300 MHs

Overhead costs at the denominator
activity level:
    Variable overhead cost $31,845

    Fixed overhead cost $40,425

 
The following data pertain to operations for the most recent period:

Actual hours 3,400 MHs

Standard hours allowed for the actual
3,078 MHs
output
Actual total variable manufacturing
$32,980
overhead cost
Actual total fixed manufacturing
$38,975
overhead cost

The fixed manufacturing overhead volume variance for the period is closest to:  
 

A. $2,720 U
B. $1,225 F
C. $2,811 U
D. $3,945 U

Fixed component of the predetermined overhead rate = $40,425 ÷ 3,300 hours = $12.25 per hour
Volume variance = Budgeted fixed overhead cost - Fixed overhead applied to work in process
= $40,425 - (3,078 hours × $12.25 per hour)
= $40,425 - $37,705.50
= $2,719.50 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-143
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McGraw-Hill Education.
100. Homer Corporation has a standard cost system in which manufacturing overhead is applied on the basis
of standard machine-hours. The company has provided the following data concerning its manufacturing
overhead costs for last year:

Actual machine-hours 840 hours

Standard machine-hours allowed for the
900 hours
actual output
Denominator activity 1,000 hours
Actual fixed manufacturing overhead
$3,800
costs
Budgeted fixed manufacturing overhead
$4,000
costs
 

The fixed manufacturing overhead budget variance was:  

 

A. $200 F
B. $400 U
C. $300 F
D. $240 U

Budget variance = Actual fixed overhead - Budgeted fixed overhead

= $3,800 - $4,000
= $200 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-144
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McGraw-Hill Education.
101. Homer Corporation has a standard cost system in which manufacturing overhead is applied on the basis
of standard machine-hours. The company has provided the following data concerning its manufacturing
overhead costs for last year:

Actual machine-hours 840 hours

Standard machine-hours allowed for the
900 hours
actual output
Denominator activity 1,000 hours
Actual fixed manufacturing overhead
$3,800
costs
Budgeted fixed manufacturing overhead
$4,000
costs
 
The volume variance was:  
 

A. $200 F
B. $400 U
C. $300 F
D. $240 U

Fixed component of the predetermined overhead rate = Estimated total fixed manufacturing overhead
cost ÷ Estimated total amount of the allocation base = $4,000 ÷ 1,000 hours = $4 per hour

Volume variance = Fixed component of the predetermined overhead rate x (Denominator hours -
Standard hours allowed for the actual output)
= $4 per hour × (1,000 hours - 900 hours)
= $4 per hour × (100 hours)
= $400 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

Essay Questions
 

App8A-145
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102.
Cajun Corporation manufactures a labor-intensive product. The cost standards developed by Cajun
appear below. Manufacturing overhead at Cajun is applied to production on the basis of standard direct
labor-hours:

Standard Standard Standard

quantity cost per cost
per unit ounce or per unit
hour
Direct 0.75 $20.00 $15.00
materials ounces
Direct 1.2 hours $12.00 14.40
labor
Variable 1.2 hours $3.00 3.60
overhead
Fixed 1.2 hours $5.00    6.00
overhead
Total $39.00
standard
cost per
unit

The standards above were based on an expected annual volume of 8,000 units. The actual results for
last year were as follows:

Number of units produced 8,200

Direct labor-hours incurred 10,000
Ounces of direct materials purchased 7,900
Ounces of direct materials used in production 6,070
Total cost of direct materials purchased $156,815
Total direct labor cost $122,800
Total variable overhead cost $28,600
Total fixed manufacturing overhead cost $47,500

Required:

Compute the following variances for Cajun.

App8A-146
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 a. Materials price variance.
b. Materials quantity variance.
c. Labor rate variance.
d. Variable overhead rate variance.
e. Variable overhead efficiency variance.
f. Fixed overhead budget variance.

 
 

a. Materials price variance = (AQ × AP) - (AQ × SP)

= $156,815 - (7,900 ounces × $20.00 per ounce)
= $156,815 - $158,000
= $1,185 F
b. Materials quantity variance = (AQ - SQ) × SP
= [6,070 ounces - (8,200 units × 0.75 ounce per unit)] × $20.00 per ounce
= [6,070 ounces - 6.150 ounces] × $20.00 per ounce
= -80 ounces × $20.00 per ounce
= $1,600 F
c. Labor rate variance = (AH × AR) - (AH × SR)
= $122,800 - (10,000 hours × $12.00 per hour)
= $122,800 - $120,000
= $2,800 U
d. Variable overhead rate variance = (AH × AR) - (AH × SR)
= $28,600 - (10,000 hours × $3.00 per hour)
= $28,600 - $30,000
= $1,400 F
e. Variable overhead efficiency variance = (AH - SH) × SR
= [(10,000 hours - (8,200 units × 1.2 hours per unit)] × $3.00 per hour
= [(10,000 hours - 9,840 hours] × $3.00 per hour
= 160 hours × $3.00 per hour
= $480 U
f. Fixed manufacturing overhead budget variance = Actual fixed overhead - Budgeted fixed overhead
= $47,500 - (8,000 units × $6.00 per unit)
= $47,500 - $48,000
= $500 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-01 Prepare a flexible budget.
Learning Objective: 08-02 Prepare a report showing revenue and spending variances.
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.

App8A-147
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McGraw-Hill Education.
 Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System
Topic Area: Flexible Budget Variances
Topic Area: Flexible Budgets
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-148
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McGraw-Hill Education.
103.
Nova Corporation produces a single product and uses a standard cost system to help control costs.
Overhead is applied to production on the basis of standard machine-hours. According to the company's
flexible budget, the following overhead costs should be incurred at an activity level of 18,000 machine-
hours (the denominator activity level chosen for the current year):

Variable overhead costs $45,000

Fixed overhead costs  108,000
Total overhead costs $153,000

 
During the current year, the following operating results were recorded:

Actual machine-hours worked 15,000

Standard machine-hours allowed 16,000
Actual variable overhead cost incurred $38,000
Actual fixed manufacturing overhead cost $107,100
incurred

 
At the end of the year, the company's Manufacturing Overhead account showed total debits for actual
overhead costs of $145,100 and total credits of $136,000 for overhead applied. The difference ($9,100)
represents under-applied overhead, the cause of which management would like to know.

Required:

a. Compute the predetermined overhead rate that would have been used during the year, showing
separately the variable and fixed components of the rate.
b. Show how the $136,000 of overhead actually applied was computed.
c. Analyze the $9,100 under-applied overhead figure in terms of the variable overhead rate and
efficiency variances and the fixed manufacturing overhead budget and volume variances.

 
 

a. Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount
of the allocation base

App8A-149
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 Variabl Fixed Total
e
Estimated $45,000 $108,000
manufacturing
overhead cost
(a)
Estimated total 18,000 18,000
amount of the
allocation base
(b)
Predetermined $2.50 $6.00 $8.50
overhead rate
(a) ÷ (b)

b. Overhead applied = Predetermined overhead rate × Standard hours allowed

= $8.50 per hour × 16,000 machine-hours
= $136,000

c. Variable overhead rate variance = (AH × AR) - (AH × SR)

= $38,000 - (15,000 machine-hours × $2.50 per machine-hour)
= $38,000 - $37,500
= $500 U

Variable overhead efficiency variance = (AH - SH) × SR

= (15,000 machine-hours - 16,000 machine-hours) × $2.50 per machine-hour
= -1,000 machine-hours × $2.50 per machine-hour
= $2,500 F

Fixed overhead variances:

Budget variance = Actual fixed overhead - Budgeted fixed overhead

= $107,100 - $108,000
= $900 F

Volume variance = Budgeted fixed overhead - Fixed overhead applied to work in process
= $108,000 - (16,000 machine-hours × $6.00 per machine-hour)
= $108,000 - $96,000
= $12,000 U

Variable overhead rate variance $500 U

Variable overhead efficiency variance 2,500 F
Fixed overhead budget variance 900 F
Fixed overhead volume variance 12,000 U
Underapplied overhead $9,100 U

App8A-150
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McGraw-Hill Education.
 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-151
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McGraw-Hill Education.
104.
Littleton Manufacturing uses a standard cost system in which manufacturing overhead is applied to
units of product on the basis of standard machine-hours. At standard, each unit of product requires one
machine-hour to complete. The standard variable overhead is $1.80 per machine-hour and $432,000 per
year. The denominator level of activity is 120,000 machine-hours, or 120,000 units. Actual data for the
year were as follows:

Actual variable overhead cost $178,500

Actual fixed manufacturing overhead cost $248,000
Actual machine-hours 105,000
Units produced 100,000

Required:

a. What are the predetermined variable and fixed manufacturing overhead rates?
b. Compute the variable overhead rate and efficiency variances.
c. Compute the fixed manufacturing overhead budget and volume variances.

 
 

a. Standard variable overhead rate = $216,000 ÷ 120,000 MHs

= $1.80 per MH

Standard fixed manufacturing overhead rate = $240,000 ÷ 120,000 MHs

= $2.00 per MH

b. Variable overhead variances:

Variable overhead rate variance = (AH × AR) - (AH × SR)
= $178,500 - (105,000 MHs × $1.80 per MH)
= $178,500 - $189,000
= $10,500 F

Variable overhead efficiency variance = (AH - SH) × SR

= (105,000 MHs - 100,000 MHs*) × $1.80 per MH
= 5,000 MHs × $1.80 per MH
= $9,000 U
*100,000 units × 1 MH per unit = 100,000 MHs

c. Fixed overhead variances:

App8A-152
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McGraw-Hill Education.
 Budget variance = Actual fixed manufacturing overhead - Budgeted fixed manufacturing overhead
= $248,000 - ($2.00 per MH × 120,000 MHs)
= $248,000 - $240,000
= $8,000 U

Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours -
Standard hours allowed for the actual output)
= $2.00 per MH × (120,000 MHs - 100,000 MHs)
= $2.00 per MH × 20,000 MHs
= $40,000 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 2 Medium
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-153
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McGraw-Hill Education.
105.
You have just been hired as the new executive assistant to the manager of the Eastern Division of
Global Manufacturing. You have been given the following incomplete records concerning
manufacturing overhead for last year:

Variable overhead rate $3.50 per DLH

Budgeted fixed manufacturing $70,000
overhead
Total actual overhead cost $259,400

Fixed overhead budget $10,000 Unfavorable

variance
Variable overhead efficiency $14,000 Unfavorable
variance
Actual direct labor-hours 52,000 DLHs
worked
Denominator activity level 50,000 DLHs
Standard hours per unit 2 DLHs

The company uses a standard cost system in which manufacturing overhead costs are applied to
products on the basis of standard direct labor-hours (DLHs).

Required:

a. Compute the variable overhead rate variance and indicate whether it was favorable or unfavorable.
b. Compute the fixed overhead volume variance and indicate whether it was favorable or unfavorable.

 
 

a. Budget variance = Actual fixed overhead - Budgeted fixed overhead

$10,000 U = Actual fixed overhead - $70,000
$10,000 = Actual fixed overhead - $70,000
Actual fixed overhead = $70,000 + $10,000
Actual fixed overhead = $80,000

Actual variable overhead = Total actual overhead - Actual fixed manufacturing overhead
= $259,400 - $80,000
= $179,400

App8A-154
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McGraw-Hill Education.
 Variable overhead rate variance = (AH × AR) - (AH × SR)
= $179,400 - (52,000 DLHs × $3.50 per DLH)
= $179,400 - $182,000
= $2,600 F

b. Budgeted fixed overhead rate = Fixed overhead ÷ Denominator activity level

= $70,000 ÷ 50,000 DLHs
= $1.40 per DLH

Variable overhead efficiency variance = (AH - SH) × SR

$14,000 U = (52,000 DLHs - SH) × $3.50 per DLH
$14,000 = (52,000 DLHs - SH) × $3.50 per DLH
52,000 DLHs - SH = $14,000 ÷ $3.50 per DLH
52,000 DLHs - SH = 4,000 DLHs
SH = 52,000 DLHs - 4,000 DLHs = 48,000 DLHs

Volume variance = Budgeted fixed overhead - Fixed overhead applied to work in process
= $70,000 - (48,000 DLHs × $1.40 per DLH)
= $70,000 - $67,200
= $2,800 U

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-03 Prepare a flexible budget with more than one cost driver.
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System
Topic Area: Flexible Budgets with Multiple Cost Drivers

App8A-155
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McGraw-Hill Education.
106. Aslett Corporation's manufacturing overhead includes $3.80 per machine-hour for supplies; $8.80 per
machine-hour for indirect labor; $214,132 per period for salaries; and $546,720 per period for
depreciation.

Required:

Determine the predetermined overhead rate if the denominator level of activity is 6,800 machine-hours.
Show your work! 
 

Estimated total manufacturing overhead cost = [($3.80 per MH + $8.80 per MH) × 6,800 MHs] +
($214,132 + $546,720) = $85,680 + $760,852 = $846,532

Predetermined overhead rate = Estimated total manufacturing overhead cost/Estimated total amount of
the allocation base = $846,532 ÷ 6,800 machine-hours = $124.49 per machine-hour

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-156
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McGraw-Hill Education.
107. Pierce Corporation uses a standard cost system in which it applies manufacturing overhead to its
product on the basis of standard direct labor-hours (DLHs). Below is the standard cost card for the
product:

Direct materials, 4.5 feet × $3.80 per foot $17.10

Direct labor, 3.0 DLHs × $9.50 per DLH 28.50
Variable overhead, 3.0 DLHs × $2.00 per DLH 6.00
Fixed overhead, 3.0 DLHs × $8.00 per DLH  24.00
$75.60
 

Last year, the company produced 6,000 units of product using 17,000 direct labor-hours. The actual
total fixed manufacturing overhead cost for the year was $140,000 and the volume variance was
$12,000, favorable.

Required:

a. Determine the budgeted amount of total fixed manufacturing overhead cost.

b. Determine the denominator activity figure that the company used in computing predetermined
overhead rates.  
 

a. Fixed overhead cost applied to work in process = $24 per unit × 6,000 units = $144,000
Volume variance = Budgeted fixed overhead - Fixed overhead applied to work in process
$12,000 F = Budgeted fixed overhead - $144,000 - $12,000 = Budgeted fixed overhead - $144,000
Budgeted fixed overhead = $144,000 - $12,000 = $132,000

b. Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours -

Standard hours allowed for the actual output)
$12,000 F = $8 per DLH × [Denominator hours - (3 DLHs per unit × 6,000 units)]
-$12,000 = $8 per DLH × [Denominator hours - 18,000 DLHs]
[Denominator hours - 18,000 DLHs] = -$12,000 ÷ $8 per DLH
[Denominator hours - 18,000 DLHs] = -1,500 DLHs
Denominator hours = 18,000 DLHs - 1,500 DLHs = 16,500 DLHs

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 3 Hard
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-157
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McGraw-Hill Education.
108. Faessler Corporation applies overhead to products based on machine-hours. The denominator level of
activity is 6,500 machine-hours. The budgeted fixed manufacturing overhead costs are $242,450. In
July, the actual fixed manufacturing overhead costs were $242,490 and the standard machine-hours
allowed for the actual output were 7,000 machine-hours.

Required:

a. Compute the budget variance for July. Show your work!

b. Compute the volume variance for July. Show your work! 
 

a. Budget variance = Actual fixed manufacturing overhead cost - Budgeted fixed manufacturing
overhead cost = $242,490 - $242,450 = $40 U

b. Fixed component of the predetermined overhead rate = $242,450 ÷ 6,500 machine-hours = $37.30
per machine-hour
Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours -
Standard hours allowed)
= $37.30 per machine-hour × (6,500 machine-hours - 7,000 machine-hours)
= $37.30 per machine-hour × (-500 machine-hours)
= $18,650 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-158
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McGraw-Hill Education.
109.
Dixie Corporation has provided the following data for June.

Denominator level of activity 2,000 machine-hours

Budgeted fixed manufacturing overhead costs $39,200

Fixed component of the predetermined overhead $19.60 per machine-hour

rate
Actual level of activity 2,300 machine-hours
Standard machine-hours allowed for the actual 2,200 machine-hours
output
Actual fixed manufacturing overhead costs $40,550

Required:

a. Compute the budget variance for June. Show your work!

b. Compute the volume variance for June. Show your work!

 
 

a. Budget variance = Actual fixed manufacturing overhead cost − Budgeted fixed manufacturing
overhead cost = $40,550 − $39,200 = $1,350 U

b. Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours −
Standard hours allowed)
= $19.60 per machine-hour × (2,000 machine-hours − 2,200 machine-hours)
= $19.60 per machine-hour × (−200 machine-hours)
= $3,920 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-159
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110.
Stenquist Corporation has provided the following data for January.

Denominator level of activity 7,900 machine-

hours
Budgeted fixed manufacturing overhead costs $95,590

Standard machine-hours allowed for the actual output 8,300 machine-

hours
Actual fixed manufacturing overhead costs $98,710

Required:

a. Compute the budget variance for January. Show your work!

b. Compute the volume variance for January. Show your work!

 
 

a. Budget variance = Actual fixed manufacturing overhead cost − Budgeted fixed manufacturing
overhead cost = $98,710 − $95,590 = $3,120 U

b. Fixed component of the predetermined overhead rate = $95,590 ÷ 7,900 machine-hours = $12.10 per
machine-hour
Volume variance = Fixed component of the predetermined overhead rate × (Denominator hours −
Standard hours allowed)
= $12.10 per machine-hour × (7,900 machine-hours − 8,300 machine-hours)
= $12.10 per machine-hour × (−400 machine-hours)
= $4,840 F

 
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-160
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111. Kingdon Corporation's manufacturing overhead includes $7.10 per machine-hour for variable
manufacturing overhead and $207,000 per period for fixed manufacturing overhead.

Required:

Determine the predetermined overhead rate for the denominator level of activity of 4,600 machine-
hours. 
 

Predetermined overhead rate = Estimated total manufacturing overhead/Denominator level of activity

= [($7.10 per machine-hour × 8,100 machine-hours) + $207,000] ÷ 4,600 machine-hours
= $239,660 ÷ 4,600 machine-hours
= $52.10 per machine-hour

 
AACSB: Analytical Thinking
sssAICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Learning Objective: 08-07 (Appendix 8A) Compute and interpret the fixed overhead budget and volume variances.
Level of Difficulty: 1 Easy
Topic Area: Appendix 8A: Predetermined Overhead Rates and Overhead Analysis in a Standard Costing System

App8A-161
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