Bluecap Co During 2019, Bluecap Worked 28,000 DLHs and Manufactured 9,600 Units

question 154

Multiple Choice

Bluecap Co. uses a standard cost system and flexible budgets for control purposes. The following budgeted information pertains to 2019: $\begin{array}{lrr}\text { Denominator volume-number of units }&8,000\\\text { Denominator volume-percent of capacity }&80\%\\\text { Denominator volume-standard direct labor hours (DLHs) } & 24,000 \\\text { Budgeted variable factory overhead cost at denominator volume } & \$103,200 \\\text { Total standard factory overhead rate per DLH } &\$ 15.10\end{array}$ During 2019, Bluecap worked 28,000 DLHs and manufactured 9,600 units. The actual factory overhead cost for the year was $14,000 greater than the flexible budget amount for the units produced, of which $6,000 was due to fixed factory overhead. In preparing a budget for 2020 Bluecap decided to raise the level of operation to 90% of capacity (a level it considers to be "practical capacity") , to manufacture 9,000 units at a budgeted total of 27,000 DLHs.
The variable overhead spending variance in 2019 for Bluecap Co. (to the nearest whole dollar) was:

• A) $6,000 unfavorable.
• B) $8,000 unfavorable.
• C) $9,200 favorable.
• D) $11,440 unfavorable.
• E) $17,440 unfavorable.

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Definitions:

Marginal Cost

The rise in expenditure from the production of a supplementary unit of a product or service.

Profit-maximizing

A process where a business establishes the price and production scale that ensures the highest return.

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices during a certain period.

Two-part Tariff

A pricing strategy that includes a fixed fee plus a variable fee based on consumption or usage level.