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Somalian Corporation Uses a Standard Costing System The Factory Overhead Rate Is Based on a Normal Volume

question 16

Multiple Choice

Somalian Corporation uses a standard costing system. Information for the month of May is as follows: $\begin{array}{ll}\text { Actual manufacturing overhead costs }(\$ 26,000 \text { is fixed) } & \$ 80,000 \\\text { Direct labor: } & \\\text { Actual hours worked } & 12,000 \text { hrs. } \\\text { Standard hours allowed for actual production } & 10,000 \text { hrs. } \\\text { Average actual labor cost per hour } & \$ 18\end{array}$
The factory overhead rate is based on a normal volume of 12,000 direct labor hours. Standard cost data at 12,000 direct labor hours were as follows:

$\begin{array}{lr}\text { Variable factory overhead } & \$ 48,000 \\\text { Fixed factory overhead } & 24,000 \\\text { Total factory overhead } & \underline{\mathbf{\$ 72}, 000}\end{array}$
What is the fixed overhead spending variance for Somalian?

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Definitions:

Equivalent Units of Production

An accounting term used to denote the amount of finished goods produced by a company in a given period, after adjusting for work-in-progress inventory at the beginning and end of that period.

Materials Preparation Department

A division within a company responsible for preparing raw materials for production.

Weighted-Average Method

An inventory costing method that calculates the cost of goods sold and ending inventory based on the weighted average of all units available for sale during the period.

Equivalent Units of Production

A concept used in cost accounting to standardize the quantity of output by converting unfinished products into their equivalent of finished goods.