Reference: 11-04
Cole Laboratories Makes and Sells a Lawn Fertilizer

question 38

Multiple Choice

Reference: 11-04
Cole laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows: $$\begin{array} { | l | l | l | } \hline & \text { Standard Quantity } & \begin{array} { l } \text { Standard Cost per } \\\text { Bag }\end{array} \\\hline \text { Direct material } & 20 \text { grams } & \$ 8.00 \\\hline \text { Direct labour } & 0.1 \text { hours } & \$ 1.10 \\\hline \text { Variable manuf. overhead } & 0.1 \text { hours } & \$ 0.40 \\\hline\end{array}$$ The company had no beginning inventories of any kind on Jan. 1. Variable manufacturing overhead is applied to production on the basis of direct labour hours. During January, the following activity was recorded by the company:
Production of Fastgro: 4,000 bags
Direct materials purchased: 85,000 grams at a cost of $32,300
Direct labour worked: 390 hours at a cost of $4,875
Variable manufacturing overhead incurred: $1,475
Inventory of direct materials on Jan. 31: 3,000 grams
-The Reedy Company uses a standard costing system. The following data are available for November: $$\begin{array} { | l | l | l | } \hline \text { Actual direct labour hours worked } & 5,800 & \text { hours } \\\hline \text { Standard direct labour rate } & \$ 9 & \text { per hour } \\\hline \text { Labour rate variance } & \$ 1,160 & \text { favourable } \\\hline\end{array}$$ The actual direct labour rate for November is:

• A)$8.80.
• B)$8.90.
• C)$9.20.
• D)$9.00.

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Definitions:

Retained Earnings

The portion of net income that is kept by the company instead of being paid out as dividends to its shareholders.

Venture Capital

Financing provided by investors to startup companies and small businesses with strong growth potential.

Well-Established Firms

Well-Established Firms refers to companies that have been in the market for a long period, gaining significant market share, reputation, and customer base.

Productive Efficiency

A situation where a good or service is produced at the lowest possible cost.