Reference: 11-02
the Litton Company Has Established Standards as Follows

question 64

Multiple Choice

Reference: 11-02
The Litton Company has established standards as follows:
Direct material 3 kg @ $4/kg = $12 per unit
Direct labour 2 hrs. @ $8/hr. = $16 per unit
Variable manuf. overhead 2 hrs. @ $5/hr. = $10 per unit
Actual production figures for the past year are given below. The company records the materials price variance when materials are purchased. $$\begin{array} { | l | l | l | } \hline \text { Units produced } & 600 & \\\hline \text { Direct material used } & 2,000 & \mathrm {~kg} \\\hline \text { Direct material purchased } ( 3,000 \mathrm {~kg} ) & \$ 11,400 & \\\hline \text { Direct labour cost } ( 1,100 \text { hrs. } ) & \$ 9,240 & \\\hline \text { Variable manuf. overhead cost incurred } & \$ 5,720 & \\\hline\end{array}$$ The company applies variable manufacturing overhead to products on the basis of direct labour hours.
-A favourable material price variance coupled with an unfavourable material usage variance would most likely result from:

• A)the purchase of low quality materials.
• B)problems with labour efficiency.
• C)changes in the product mix.
• D)problems with processing machines.

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Definitions:

Loan Payment Schedule

A detailed plan indicating the amounts due and payment dates over the life of a loan.

Effective Rate

The actual interest rate an investment earns or a loan accrues due to compounding over a specified period.

Amortized

Refers to the gradual reduction of a debt over time by paying regular installments that cover both interest and principal.

Amortization Schedule

a table detailing each periodic payment on an amortizing loan, showing the amount of principal and the amount of interest that comprise each payment so that the loan will be paid off by the end of its term.