[gven]

All – I found these questions very confusing. They have the same setup with two different questions / answers at the bottom.

For the “Fixed OH” question, could someone explain to me why the “Actual Production” in the answer set is 21,000 and NOT 21,600 actual machine hours?

For the “VOH spending” question, why would the baseline not be Labor hours rather than Machine Hours for computing Spending Variance (since Becker lays it out this way on B5-70)?

Finally, has anyone seen these detailed levels of problems in BEC’s actual exams? Thanks! gv

Nanjones Company manufactures a line of products distributed nationally through wholesalers. Presented below

are planned manufacturing data for Year 1 and actual data for November Year 1. The company applies overhead

based on planned machine hours using a predetermined annual rate.

Year 1 Planning Date

Annual November

Fixed manufacturing overhead $1,200,000 $100,000

Variable manufacturing overhead 2,400,000 220,000

Direct labor hours 48,000 4,000

Machine hours 240,000 22,000

Data for November Year 1

Direct labor hours (actual) 4,200

Direct labor hours (plan based on output) 4,000

Machine hours (actual) 21,600

Machine hours (plan based on output) 21,000

Fixed manufacturing overhead $101,000

Variable manufacturing overhead $214,000

Question CPA-03850 The fixed overhead volume variance for November Year 1 was:

a. $1,200 unfavorable.

b. $5,000 unfavorable.

c. $5,000 favorable.

d. $1,200 favorable.

Explanation

Choice “c” is correct. $5,000 favorable.

•

The fixed overhead rate is $5 per machine hour [$1,200,000 / 240,000 = $5].

•

The amount of FIXED manufacturing overhead planned for November is $100,000.

•

Therefore, the standard production for FIXED overhead is 20,000 machine hours [$100,000/$5 = 20,000.]

The favorable variance is calculated as follows:

Applied FIXED Overhead

Standard Fixed OH Rate x Actual Production)

= $5.00 x 21,000 = $105,000

Budgeted Overhead Based on Standard Hours

Standard Fixed OH Rate x Standard Production)

= $5.00 x 20,000 = $100,000

FAVORABLE Fixed Overhead Volume Variance = $5,000

Question CPA-03849 The variable overhead spending variance for November Year 1 was:

a. $2,000 favorable.

b. $6,000 favorable.

c. $6,000 unfavorable.

d. $2,000 unfavorable.

Explanation

Choice “a” is correct. $2,000 favorable spending variance.

Actual machine hours $ 21,600

Variable OH application rate $ 10 [$2,400,000 ÷ 240,000 hours]

$216,000

Variable OH incurred 214,000

Favorable variance $ 2,000

Choices “b”, “c”, and “d” are incorrect, based on the above explanation.