Scotch Brand Products Produces Packaging Tape and Has Determined the Following

question 137

Multiple Choice

Scotch Brand Products produces packaging tape and has determined the following to be its standard cost of producing one case of budget packaging tape: $$\begin{array} { l r } \text { Material ( } 3.50 \text { ounces at } \$ 1.30 \text { per ounce) } & \$ 4.55 \\\text { Labor } ( 0.30 \text { hour at } \$ 12.00 \text { per hour) } & 3.60 \\\text { Overhead } & \underline { 2.20 } \\\text { Total } & \underline { \underline { \$ 10.35 } }\end{array}$$ At the start of 2014, Scotch Brand planned to produce 80,000 cases of tape during the year. Overhead is allocated based on the number of cases of tape produced. Annual fixed overhead is budgeted at $56,000 and the variable overhead costs are budgeted at $1.50 per case. The following information summarizes the results for 2014:
.Actual production, 75,000 cases
.Purchased 275,000 ounces of material at a total cost of $343,750
.Used 266,250 ounces of material in production
.Employees worked 22,000 hours, total labor cost $275,000
.Actual overhead incurred, $175,000
How much is the controllable overhead variance for 2014?

• A) $3,000 unfavorable
• B) $10,000 unfavorable
• C) $6,500 unfavorable
• D) $3,500 unfavorable

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Definitions:

Time Value Of Money

The idea that money in hand now is more valuable than the same amount in the future because of its ability to generate earnings.

Liquidity Bias

A preference or bias for investments that can be quickly converted into cash without significant loss in value.

Arbitrary Cut-Off

A subjective or chosen without any specific standard or rule, end point or threshold.

Market Rate Of Return

The average rate of return anticipated from an investment based on its risk level, historical market performance, and economic conditions.