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

question 96

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 rate variance?

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

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Definitions:

Private Goods

Products and services that are exclusive and distinctly owned, with their use limited to the owner or individuals who have permission.

Corporate Form

A business structure where owners have limited liability, and the entity is recognized legally as separate from its owners.

Limited Liability

A legal structure for businesses that limits the personal financial responsibility of the owners for the company's debts and obligations.

Externalities

Financial repercussions impacting parties who are not directly involved, which may manifest as either beneficial or detrimental outcomes.