A Company Uses the Following Standard Costs to Produce a Single

question 208

Multiple Choice

A company uses the following standard costs to produce a single unit of output. $$\begin{array} { l l l } \text { Direct materials } & 6 \text { pounds at } \$ 0.90 \text { per pound } & = \$ 5.40 \\\text { Direct labor } & 0.5 \text { hour at } \$ 12.00 \text { per hour } & = \$ 6.00 \\\text { Manufacturing overhead } & 0.5 \text { hour at } \$ 4.80 \text { per hour } & = \$ 2.40\end{array}$$ During the latest month, the company purchased and used 58,000 pounds of direct materials at a price of $1.00 per pound to produce 10,000 units of output. Direct labor costs for the month totaled $56,350 based on 4,900 direct labor hours worked. Variable manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing overhead incurred was $10,400. Based on this information, the total direct materials cost variance for the month was:

• A) $4,000 unfavorable
• B) $4,000 favorable
• C) $5,800 favorable
• D) $5,800 unfavorable
• E) $1,800 favorable

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Definitions:

Inflation Adjustment

A change made to financial figures to account for the effects of inflation and maintain the purchasing power of money over time.

5-Year Loan

A type of loan that is scheduled to be repaid through payments over a period of five years.

Expected Inflation Rate

The anticipated rate at which the general level of prices for goods and services will rise over a period, affecting purchasing power.

Consumption Sector

A segment of the economy focused on the purchasing and use of goods and services by individuals and households.