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

question 75

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. $$\begin{array} { | l | l | l | } \hline \text { Units produced } & 600 & \\\hline \text { Direct material used } & 2,000 & \mathrm {~kg} \\\hline \text { Direct material purchased } ( 3,000 \mathrm {~kg} ) & \$ 11,400 & \\\hline \text { Direct labour cost (1,100 hrs.) } & \$ 9,240 & \\\hline \text { Variable manuf. overhead cost incurred } & \$ 5,720 & \\\hline\end{array}$$ The company applies variable manufacturing overhead to products on the basis of direct labour hours.
-Henley Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labour-hours. For the month of January, the fixed manufacturing overhead volume variance was $2,220 favourable. The company uses a fixed manufacturing overhead rate of $1.85 per direct labour-hour. During January, the standard direct labour-hours allowed for the month's output:

• A)exceeded denominator hours by 1,200.
• B)fell short of denominator hours by 1,200.
• C)fell short of denominator hours by 1,000.
• D)exceeded denominator hours by 1,000.

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