Patridge Company Uses a Standard Cost System in Which It

question 86

Multiple Choice

Patridge Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labour hours.The information below is taken from the company's flexible budget for manufacturing overhead: $\begin{array} { l r r r } \text { Percent of Capacity } & 70 \% & 80 \% & 90 \% \\\text { Direct Labour Hours } & 21,000 & 24,000 & 27,000 \\\text { Variable Overhead } & \$ 42,000 & \$ 48,000 & \$ 54,000 \\\text { Fixed Overhead } & \$ 108,000 & \$ 108,000 & \$ 108,000 \\\text { Total Overhead } & \$ 150,000 & \$ 156,000 & \$ 162,000\end{array}$ During the year,the company operated at exactly 80% of capacity,but it applied manufacturing overhead to products based on the 90% level.What was the company's fixed overhead volume variance for the year?

• A) $6,000 favourable.
• B) $6,000 unfavourable.
• C) $12,000 favourable.
• D) $12,000 unfavourable.

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Definitions:

Minimized

The act of reducing something to the smallest possible amount or degree.

Coordinating

The process of organizing people or groups so that they work together efficiently and effectively towards a common goal.

Mediating

A process by which a neutral third party helps resolve a dispute or conflict between two or more parties.

Synthesizing

The process of combining different ideas, findings, or materials into a coherent whole.