Chapter 8 Lectures

Question 1

• indirect materials (glue, nuts, bolts, etc.)
• energy (gas/electric)
• maintenance (preventative or routine maintenance of machines)

Answer 1

examples of variable overhead (indirects)

Question 2

• building/property costs (rents, insurance, property taxes, etc)
• salaried payroll (must be inventorial, i.e. involved in manufacturing goods
• employee benefits (medical/pension)

Answer 2

examples of fixed overhead (indirect)

Question 3

• traces direct costs to output produced by multiplying the standard prices or rate by the standard quantities of inputs allowed for actual outputs produced
• allocates overhead costs on the basis of the standard overhead cost rates times the standard quantities of the allocation bases allowed for the actual outputs produced

Answer 3

standard costing

Question 4

1. choose the period to be used for the budget
2. select the cost allocation bases to use in allocating the variable overhead costs to the output produced
3. identify the variable overhead costs associated with each cost allocation base
4. compute the rate per unit of each cost allocation base used to allocate to variable overhead costs to the output produced

Answer 4

Calculating budgeted variable overhead cost rates

Question 5

measures the difference between actual variable overhead costs incurred and flexible-budget variable overhead amounts

Answer 5

variable overhead flexible budget variance

Question 6

variable overhead flexible budget variance is what level

Answer 6

lever 2 variance

Question 7

level 2 variance: variable overhead flexible budget variance can be broken down into level 3 variances such as

Answer 7

1. variable overhead efficiency variance
2. variable overhead spending variance

Question 8

1. workers were less efficient than expected in using machines
2. the production scheduler inefficiency scheduled jobs, resulting in more machine hours used than budgeted
3. machines were not maintained in good operating condition
4. webbs sales staff promised a distributor a rush delivery, which resulted in more machine hours used than budgeted
5. bdugeted machine time standards were set too tight

Answer 8

possible causes for exceeding budget

Question 9

1. encourage the human resources department to implement better employee hiring practices and training scheduling procedures
2. improve plant operations by installing production scheduling software
3. ensure preventive maintenance is done on all machines
4. coordinate production schedlues with sales staff and distributors and share information with them
5. commit more resources to develop appropriate standards

Answer 9

potential management responses

Question 10

to effectively plan variable overhead costs for a product or service, managers focus on the activities that _______ and eliminate activites that ______?

Answer 10

create a superior product or service for their customers and eliminate activities that do not add value

Question 11

planning fixed overhead costs is similar to planning variable overhead costs , but there is an additional strategic issue when it comes to planning fixed overhead costs ?

Answer 11

choosing the appropritate level of capacity or investment that will benefit the company in the long run

Question 12

measures the difference between actual fixed overhead costs incurred and flexible budget overhead amounts

Answer 12

fixed overhead flexible budget variance

Question 13

fixed overhead flexible budget variance is what level variance

Answer 13

level 2 variance

Question 14

this variance can not be further broken down into level 3 variance

Answer 14

fixed overhead flexible budget variance

Question 15

why cant fixed overehad flexible budget variance be broken down into level 3 variance

Answer 15

• bc it is also the level 3 variance
• called fixed overhead spending variance

Question 16

level 2 variance: sales volume variance can be broken down into 2 level 3 variances

Answer 16

1. fixed overhead production volume variance
2. operating income volume variance

Question 17

arises only for fixed costs and measures the difference between budgeted fixed overhead and the fixed overhead allocated on the basis of actual output produced

Answer 17

production volume variance
(fixed overhead production volume variance)

Question 18

4 steps to calculate budgeted fixed overhead cost rates

Answer 18

1. choose the period to use for the budget
2. select the cost allocation base (or bases) to use in allocating the fixed overhead costs to the output produced
3. identify the fixed overhead costs associated with each cost allocation base
4. compute the rate per unit of each cost allocation base used to allocate fixed overhead costs to the output produced

Question 19

what causes a level 3 fixed overhead spending variance

Answer 19

actual costs

Question 20

what causes a level 3 fixed overhead production volume variance

Answer 20

actual use of the cost allocation base
(lump sum fixed costs represent the costs of acquiring capacity)

Question 21

unfavorable production volume variance = fixed costs are

Answer 21

underallocated
(not producing to the fullest extent estimated, i.e. “overcapacity”)

Question 22

level 2 variance: sales volume variance can be further broken down into level 3 variances:

Answer 22

• fixed overhead production volume variance
• operating income volume variance

Question 23

to calculate the other component of the sales volume variance, the production volume variance, this is simply the difference between

Answer 23

the budgeted fixed overhead and the allocated fixed overhead

Question 24

the operating income volume variance is the difference between

Answer 24

the static budgeted operating income at the budgeted unit volume and the flexible budgeted (allocated/standard) operating income at the actual unit volume

Question 25

how to calculate the operating income volume variance

Answer 25

1. calculate the sales ovlume variance (operating income) 2. calulate the fixed overhead production volume variance 3. subtract