Chapter 10 Appendix A

Question 1

Standard Rate

Answer 1

FOH budget costs / denominator activity

Question 2

Why must the manager take care in choosing in the choice of denominator activity?

Answer 2

costing and planning purposes

Question 3

Fixed Overhead Variance Model

Answer 3

…..notes

Question 4

Sum Up Way of Determining if Overhead is Under/Over Applied

Answer 4

VOH efficiency variance
     VOH rate variance
      FOH volume variance
      FOH budget variance     
      Total under/over applied
     ⇓           ⇓
         unfavorable/favorable

Question 5

actual>applied

Answer 5

Under (unfavorable)

Question 6

VOH RATE variance

Answer 6

This variance measures differences in price factors for variable overhead, and, also includes elements of waste in use of variable overhead items. The waste portion of the variance is most directly controllable by management. The price portion may or may not be controllable by management, depending on the nature of the item involved. That is, utility rates normally would not be controllable by management, whereas prices paid for factory supplies might be controllable.

Question 7

VOH Efficiency variance

Answer 7

As explained in the chapter, the term efficiency variance as attached to variable overhead is a misnomer, since the variance does not measure efficiency in the use of overhead items. What it really measures is how efficiently the base underlying the flexible budget is being utilized in production. Whoever is responsible for control of this base is responsible for control of the variance.

Question 8

If overhead is applied on basis of DLH

Answer 8

then both efficiency variances MUST go in same direction…both favorable or both unfavorable. If 2 efficiency variances are the same direction → then OH was applied on either DLH or MH. If 2 efficiency variances are in different directions → then OH must have been applied on MH.

Question 9

FOH Budget Variance

Answer 9

This variance measures the deviation from the flexible budget in the amount of actual cost incurred for fixed overhead items. In this sense it is similar to the variable overhead spending variance. Although in theory the budget variance should be controllable through prices paid for fixed overhead inputs, in practice many variances (e.g., for property taxes or insurance) are beyond the immediate control of management and are reported largely for informational purposes.

Question 10

FOH Volume Variance

Answer 10

This variance is a measure of utilization of planned capacity; that is it measures whether the denominator activity level was reached during the period. The volume variance is controllable only through activity. Did the business make as many
units as planned?

Question 11

The volume variance is not

Answer 11

a controllable variance from a spending viewpoint. Rather, the volume variance represents a measure of activity, and it is controllable only through activity. Using ABC Costing (Ch. 7) enhances the information for overhead costs.

Question 12

If activity is DLH

Answer 12

then left and right columns should have same
# of hours as for DL and VOH.  Only middle column hrs. are different.

Question 13

The volume variance is not

Answer 13

a controllable variance from a spending viewpoint. Rather, the volume variance represents a measure of activity, and it is controllable only through activity.

Question 14

actual

Answer 14

over applied (Favorable)