Week 6 Essay Questions

Week 6

Chapter 8

1.      Briefly explain the meaning of the variable overhead efficiency variance and the variable overhead spending variance.

Answer: 

2.      What are the arguments for prorating a production-volume variance that has been deemed to be material among work-in-process, finished goods, cost and cost of goods sold as opposed to writing it all off to cost of goods sold?

Answer: 

3.      Explain why sales-volume variance could be helpful to managers.

Answer: 

4.        8-16 Variable manufacturing overhead, variance analysis.

Esquire Clothing is a manufacturer of designer suits. The cost of each suit is the sum of three variable costs (direct material costs, direct manufacturing labor costs, and manufacturing overhead costs) and one fixed-cost category (manufacturing overhead costs). Variable manufacturing overhead cost is allocated to each suit on the basis of budgeted direct manufacturing labor-hours per suit. For June 2014, each suit is budgeted to take 4 labor-hours. Budgeted variable manufacturing overhead cost per labor-hour is $12. The budgeted number of suits to be manufactured in June 2014 is 1,040.

     Actual variable manufacturing costs in June 2014 were $52,164 for 1,080 suits started and completed. There were no beginning or ending inventories of suits. Actual direct manufacturing labor-hours for June were 4,536.

Required:

1.      Compute the flexible-budget variance, the spending variance, and the efficiency variance for variable manufacturing overhead.

2.      Comment on the results.

Chapter 9

5.                            9-21 Absorption and variable costing.

(CMA) Osawa, Inc., planned and actually manufactured 200,000 units of its single product in 2014, its first year of operation. Variable manufacturing cost was $20 per unit produced. Variable operating (nonmanufacturing) cost was $10 per unit sold. Planned and actual fixed manufacturing costs were $600,000. Planned and actual fixed operating (nonmanufacturing) costs totaled $400,000. Osawa sold 120,000 units of product at $40 per unit.

Required:

1.      Osawa’s 2014 operating income using absorption costing is (a) $440,000, (b) $200,000, (c) $600,000, (d) $840,000, or (e) none of these. Show supporting calculations.

2.      Osawa’s 2014 operating income using variable costing is (a) $800,000, (b) $440,000, (c) $200,000, (d) $600,000, or (e) none of these. Show supporting calculations.