Accounting Homework: Overhead Variance and Capital Budgeting Solutions

This document presents solutions to an accounting homework assignment. The first part addresses overhead variance analysis, calculating total, variable, and fixed overhead variances based on provided data for planned and actual production levels, direct labor hours, and overhead costs. The second part provides completion statements related to budgeting and standard costing, covering topics such as the difference between standards and budgets, ideal vs. normal standards, factors in standard cost development, and variance calculations. The assignment also includes completion statements on capital budgeting techniques, like cash payback, net present value (NPV), and internal rate of return (IRR), as well as the importance of considering qualitative benefits in capital budgeting decisions. The solutions offer a comprehensive overview of these core accounting concepts.

Question No. 2
COMPLETION STATEMENTS
1. When considering budgets and standards, a standard is expressed as a unit amount,
whereas a budget is expressed as a total amount.
2. Standards representing optimum performance under perfect operating conditions are
called ideal standards, but most companies use normal standards, rigorous but attainable.
3. In developing a standard cost for direct materials used in making a product,
consideration should be given to two factors:(1) Standard Price per unit of direct materials
and (2) the standard quantity of direct materials to produce one unit of product.
4. The difference between actual quantity of materials times the standard price and
standard quantity times the standard price is the materials quantity variance.
5. The difference between actual hours times the actual pay rate and actual hours times the
standard pay rate is the labour price variance.
6. The standard number of hours allowed times the predetermined overhead rate is the
amount of overhead applied to the products produced.
7. If the actual direct labour hours worked is greater than the standard hours, the labour
quantity variance will be unfavourable, and the labour rate variance will be favourable if
the standard rate of pay is greater than the actual rate of pay.
8. In using variance reports, top management normally looks for significant variances.
Question No. 5
COMPLETION STATEMENTS
1. For purposes of capital budgeting, estimated cash inflows and outflows are preferred for
inputs into the capital budgeting decision tools.
2. The technique which identifies the time period required to recover the cost of the
investment is called the cash pay back method.
3. Under the net present value method, the interest rate to be used in discounting the
future cash inflows is the annualized rate.
4. In using the net present value approach, a project is acceptable if the project's net
present value is positive or more than zero .
5. The two discounted cash flow techniques used in capital budgeting are (1) the NPV
method and (2) the IRR method.
6. A project’s qualitative/ non financial benefits, such as increased quality or safety, are
often incorrectly ignored
in capital budgeting decisions.
7. The discounted cash flow technique is a method of comparing alternative projects
that takes into account both the
size of the investment and its discounted future cash flows.
8. A well-run organization should perform an evaluation, called a project appraisal, of its
investment projects after their completion.
9. The internal rate of return method differs from the net present value method in that it
results in finding the profitability of the potential investment.
10. A major limitation of the annual rate of return approach is that it does not consider the
Time value of money.