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    Shirley Liu
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    This document discusses variances and flexible budgets. It provides examples to calculate different types of variances including variable overhead spending variance, variable overhead volume variance, fixed overhead budget variance, and fixed overhead volume variance. It uses a case study of Lantern Corporation and Duncanville Inc. to demonstrate how to calculate these variances based on actual and budgeted production levels, overhead costs, and machine hours. The key information is that variances measure the difference between actual and budgeted/standard costs and are used to evaluate performance against a flexible budget.

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    This document discusses variances and flexible budgets. It provides examples to calculate different types of variances including variable overhead spending variance, variable overhead volume variance, fixed overhead budget variance, and fixed overhead volume variance. It uses a case study of Lantern Corporation and Duncanville Inc. to demonstrate how to calculate these variances based on actual and budgeted production levels, overhead costs, and machine hours. The key information is that variances measure the difference between actual and budgeted/standard costs and are used to evaluate performance against a flexible budget.

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    22 views3 pages

    Topic 5

    Uploaded by

    Shirley Liu
    This document discusses variances and flexible budgets. It provides examples to calculate different types of variances including variable overhead spending variance, variable overhead volume variance, fixed overhead budget variance, and fixed overhead volume variance. It uses a case study of Lantern Corporation and Duncanville Inc. to demonstrate how to calculate these variances based on actual and budgeted production levels, overhead costs, and machine hours. The key information is that variances measure the difference between actual and budgeted/standard costs and are used to evaluate performance against a flexible budget.

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    of 3

    Topic 5 – Variances II

    1. Flexible budgets reflect a company’s anticipated costs based on variations in:


    A. activity levels.
    B. inflation rates.
    C. managers.
    D. anticipated capital acquisitions.
    E. standards.

    Answer: a

    2. Lantern Corporation recently prepared a manufacturing cost budget for an output of


    50,000 units, as follows:
    Direct materials $100,000 Variable overhead $ 75,000
    Direct labor 50,000 Fixed overhead 100,000
    Actual units produced amounted to 60,000. Actual costs incurred were: direct
    materials, $110,000; direct labor, $60,000; variable overhead, $100,000; and fixed
    overhead, $97,000. If Lantern evaluated performance by the use of a flexible budget,
    a performance report would reveal a total variance of:
    A. $27,000 unfavorable.
    B. $42,000 unfavorable.
    C. $3,000 favorable.
    D. $23,000 favorable.
    E. none of the above amounts.

    Answer: c

    3. The relationship between activity and total budgeted overhead cost is represented by
    which of the following formulas?
    A. Total activity units + budgeted fixed overhead cost per unit.
    B. Budgeted variable overhead cost per unit + budgeted fixed overhead cost.
    C. (Budgeted variable overhead cost per unit x total activity units) + budgeted
    fixed overhead costs.
    D. (Budgeted fixed overhead cost per unit x total activity units) + (budgeted
    variable overhead cost per unit x total activity units).
    E. None of the above.

    Answer: c

    4. Which of the following is not an overhead variance?


    A. Variable-overhead spending variance.
    B. Variable-overhead volume variance.
    C. Variable-overhead efficiency variance.
    D. Fixed-overhead budget variance.
    E. Fixed-overhead volume variance.

    Answer: b
    5. Which of the following is used in the computation of the variable-overhead spending
    variance?
    Actual Variable Budgeted Variable Overhead Standard Variable
    Overhead Cost Based on Actual Hours Overhead Applied
    A. No Yes No
    B. No No No
    C. Yes No Yes
    D. Yes Yes No
    E. Yes Yes Yes

    Answer: d

    Use the following information in solving multiple-choice questions 6 - 10.

    Duncanville, Inc., has the following overhead standards:

    Variable overhead: 4 hours at $8 per hour


    Fixed overhead: 4 hours at $10 per hour

    The standards were based on a planned activity of 20,000 machine hours. During the year,
    5,000 units were scheduled for production. Actual data follow.

    Variable overhead incurred: $167,750


    Fixed overhead incurred: $210,000
    Machine hours worked: 19,800
    Actual units produced: 5,100

    6. Duncanville’s fixed-overhead budget variance is:


    A. $6,000 unfavorable.
    B. $7,000 unfavorable.
    C. $10,000 unfavorable.
    D. $12,000 unfavorable.
    E. not listed above.

    Answer: c

    7. Duncanville’s fixed-overhead volume variance is:


    A. $1,000.
    B. $2,000.
    C. $4,000.
    D. $10,000.
    E. not listed above.

    Answer: c

    8. Duncanville’s variable-overhead spending variance is:


    A. $4,550 unfavorable.
    B. $9,350 unfavorable.
    C. $550 favorable.
    D. $4,800 favorable.
    E. not listed above.

    Answer: b
    9. Duncanville’s variable-overhead efficiency variance is:
    A. $550 favorable.
    B. $4,800 favorable.
    C. $550 unfavorable.
    D. $4,800 unfavorable.
    E. not listed above.

    Answer: b

    10. The amount of variable overhead that Duncanville applied to production is:
    A. $158,400.
    B. $160,000.
    C. $163,200.
    D. $167,750.
    E. not listed above.

    Answer: c

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