# RQ11.1 A static budget

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Chapter 11 Solutions
RQ11.1 A static budget is based on only one level of activity. A flexible budget allows for several
different levels of activity. The advantage of using a flexible budget is that it makes the budget
responsive to changes in the activity level. It enables a comparison to be made between actual
costs incurred at the actual level of activity and the standard costs that should have been incurred
at the actual level of activity.
RQ11.7 A variable overhead efficiency variance is related to the efficiency in using the activity upon
which variable overhead is budgeted. For example, if the variable overhead budget is based on
direct labour hours, an unfavourable variable overhead efficiency variance will result when the
actual direct labour hours exceed the standard direct labour hours allowed for the actual output
produced. Thus, the variable overhead efficiency variance will disclose no information about
the efficiency with which variable overhead items are used. Rather, it results from inefficiency
or efficiency, relative to the standards, in the usage of the activity on which the variable
overhead budget is based (such as direct labour hours).
RQ11.8 The fixed overhead budget variance is defined as the difference between actual fixed overhead
and budgeted fixed overhead. This variance provides managers with useful information for
control as it highlights where actual expenditure has deviated from the budget.
E11.22 Straightforward calculation of overhead variances: manufacturer
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=
actual variable overhead – (AH  SVR)
=
\$757 350 – (29 700  \$27.00)
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\$44 550 Favourable
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SVR(AH – SH)
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\$27.00 (29 700 – 27 000*)
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\$72 900 Unfavourable
* SH = 27 000 hrs. = 13 500 units  2 hrs. per unit
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\$274 500 – \$270 000
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\$4 500 Unfavourable
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