Isaman Corporation Uses a Standard Cost System in Which Inventories

question 53

Multiple Choice

Isaman Corporation uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold.The direct labor standards for the company's only product specify 0.60 hours per unit at $21.50 per hour.During the year,the company started and completed 11,500 units.Direct labor employees worked 7,500 hours at an average cost of $19.50 per hour. During the year,the company started and completed 11,500 units.Direct labor employees worked 7,500 hours at an average cost of $19.50 per hour.
Assume that all transactions are recorded on a worksheet as shown in the text.On the left-hand side of the equals sign in the worksheet are columns for Cash,Raw Materials,Work in Process,Finished Goods,and PP&E (net) .All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.
When the direct labor cost is recorded,which of the following entries will be made?

• A) ($12,900) in the Labor Rate Variance column
• B) $12,900 in the Labor Efficiency Variance column
• C) $12,900 in the Labor Rate Variance column
• D) ($12,900) in the Labor Efficiency Variance column

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Definitions:

Overhead Cost

Overhead cost refers to ongoing business expenses not directly linked to creating a product or service, such as rent, utilities, and administrative costs.

Actual Overhead

The total real costs incurred for indirect materials, labor, and other expenses to operate a business, not directly tied to specific products or services.

Overhead Applied

Overhead applied is the portion of manufacturing overhead costs assigned to individual units of production based on a predetermined overhead rate.

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate manufacturing overhead costs to products based on a particular activity base.