Ally Mfg Uses a Standard Cost System and Its July Production

question 90

Multiple Choice

Ally Mfg. uses a standard cost system and its July production of 1,800 units involved actual direct labor costs of $242,000 for 5,500 hours worked (AQ) . The budget for July called for production of 2,000 units with 6,000 direct labor hours at $40.00 per hour (SP) .

Ally's direct labor rate variance for July, to the nearest dollar, was:

• A) $2,000 unfavorable.
• B) $4,000 unfavorable.
• C) $20,000 favorable.
• D) $22,000 unfavorable.
• E) $26,000 unfavorable.

---

Definitions:

Short Run

A period in which at least one input (e.g., capital) is fixed and cannot be changed.

Long Run

A period of time in economics during which all factors of production and costs are variable, allowing for full adjustment to change.

Profit-Maximizing

The approach taken by a corporation to find the pricing and production levels that lead to the greatest earnings.

Loss-Minimizing

A strategy or condition in which a firm seeks to minimize its losses by operating at a production level where marginal cost equals marginal revenue.