The Frosty Company Makes Mugs for Which the Following Standards

question 74

Multiple Choice

The Frosty Company makes mugs for which the following standards have been developed: $$\begin{array} { l l l } & \text { Standard Inputs } & \text { Standard Price } \\& \text { Expected for Each } & \text { Expected per } \\& \text { Unit of Output } & \text { Unit of Output } \\\text { Direct materials } & 5 \text { ounces } & \$ 2 \text { per ounce } \\\text { Direct labor } & \text { 1.5 hours } & \$ 8 \text { per hour }\end{array}$$ Production of 400 mugs was expected in July, but 440 mugs were actually completed. Direct materials purchased and used were 2,100 ounces at an actual price of $2.20 per ounce. Direct labor cost for the month was $5,310, and the actual pay per hour was $9.00. _ is the direct- material usage variance for July.

• A) $220 favorable
• B) $220 unfavorable
• C) $200 unfavorable
• D) $200 favorable

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Definitions:

Intra-entity Transfers

Transactions occurring between divisions or units within the same company.

Income Taxes

Taxes levied by governments on the income generated by individuals and businesses within their jurisdiction.

Gross Profit

The difference between revenue and the cost of goods sold, indicating how efficiently a company produces goods/services at a profit.

Operating Income

Earnings before interest and taxes (EBIT), representing the profit a company generates from its core operations.