Use the Following Information to Answer Questions
EKPN Company

question 105

Multiple Choice

Use the following information to answer questions
EKPN Company prepared the following data in its static budget based on 150,000 machine hours:
$$\begin{array} { l l } \text { Direct Materials } & \$ 4 5 0 , 0 0 0 \\\text { Direct Labour } & 2 2 5 , 0 0 0 \\\text { Variable Overhead } & 1,125,000 \\\text { Fixed Overhead } & \mathbf { 2 } , 100,000\end{array}$$ $$\begin{array} { l l } \text { Actual Results: } & \\\text { Machine Hours } & 160,000 \text { hours } \\\text { Direct Materials } & \$ 475,000 \\\text { Direct Labaur } & 2 4 5 , 000 \\\text { Variable Overhead } & 1,150,000 \\\text { Fixed Overhead } & \mathbf { 2 } , 110,000\end{array}$$
-What possible reason could explain the difference between the actual fixed overhead costs and the budgeted fixed overhead costs?

• A)EKPN Company's actual machine hours were greater than the budgeted amount.
• B)EKPN Company's actual machine hours were less than the budgeted amount.
• C)EKPN Company spent more on fixed costs than it expected.
• D)EKPN Company spent less on fixed costs than expected.

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Definitions:

Economic Costs

The sum of explicit and implicit costs which represent the total opportunity costs of resource utilization in the production of goods or services.

Opportunity Costs

The loss of potential gain from other alternatives when one alternative is chosen.

Explicit Costs

Direct, out-of-pocket payments for expenses incurred in conducting business, such as wages, rent, and materials.

Implicit Costs

The opportunity costs that are not directly paid for or incurred in transactions but represent real costs to a business.