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

question 115

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. $$\begin{array} { | l | l | l | } \hline \text { Units produced } & 600 & \\\hline \text { Direct material used } & 2,000 & \mathrm {~kg} \\\hline \text { Direct material purchased (3,000 kg) } & \$ 11,400 & \\\hline \text { Direct labour cost (1,100 hrs.) } & \$ 9,240 & \\\hline \text { Variable manuf. overhead cost incurred } & \$ 5,720 & \\\hline\end{array}$$ The company applies variable manufacturing overhead to products on the basis of direct labour hours.
-The fixed overhead budget variance is measured by:

• A)the difference between actual fixed overhead cost and applied fixed overhead cost.
• B)the difference between budgeted fixed overhead cost and applied fixed overhead cost.
• C)the difference between budgeted fixed overhead cost and standard fixed overhead cost.
• D)the difference between budgeted fixed overhead cost and actual fixed overhead cost.

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Definitions:

Work in Process Inventory

Represents goods that are in the process of being manufactured but are not yet completed.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including material and labor costs.

Finished Goods Inventory

The stock of completed products that are ready to be sold but are still in the company's inventory.

Direct Labor Costs

Costs associated with employees who are directly involved in the production of goods or services.