Mohammed Company Employs a Standard Cost System During June, Mohammed Planned to Produce 24,000 Units of Product

question 120

Multiple Choice

Mohammed Company employs a standard cost system. Mohammed has established the following standards for one unit of product:
$\begin{array} { | c | c | c | c|} \hline& \text { Standard Quantity } & \text { Standard Price } & \text { Standard Cost } \\\hline \text { Direct materials } & 12.0 \text { pounds } & \$ 7.00 / \text { pound } & \$ 84.00 \\\text { Direct labor } & 2.6 \text { hours } & \$ 22.00 / \text { hour } & 57.20\\\hline\end{array}$
During June, Mohammed planned to produce 24,000 units of product. It purchased 330,000 pounds of direct material at a total cost of $2,343,000. The total factory wages for June were $1,440,000. Mohammed manufactured 25,000 units of product during June using 302,000 pounds of direct material and 64,000 direct labor hours. How much is the labor efficiency variance?

• A) $32,000 unfavorable
• B) $22,000 favorable
• C) $10,000 favorable
• D) $35,200 unfavorable

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Definitions:

Operating Income

This refers to the profit a company generates from its normal business operations, excluding any income from investments or non-recurring expenses.

Other Postretirement Benefit Expense

Expenses associated with retirement benefits other than pensions, such as healthcare benefits, recognized during the period employees receive the benefits.

Service Cost

In accounting, refers to the expense recognized for employees' future retirement benefits earned during the current period.

Interest Cost

The total amount of interest on all outstanding debts over a period, representing the cost of borrowing funds.