$\text { The Litton Company has established standards as follows: }$

question 122

Multiple Choice

$\text { The Litton Company has established standards as follows: }$
$\begin{array}{|l|r|}\hline \text { Direct Material } & 3 \mathrm{kgs} @ @ 4 / \mathrm{kg} .=\$ 12 \text { per unit } \\\hline \text { Direct Labour } & 2 \mathrm{hrs} @ \$ 8 / \mathrm{hr} .=\$ 16 \text { per unit } \\\hline \text { Variable Manufacturing Overhead } & 2 \text { hrs. @ } \$ 5 / \mathrm{hr} .=\$ 10 \text { per unit } \\\hline\end{array}$
Actual production figures for the past year are given below. The company records the materials price variance when materials are purchased.
$\begin{array}{|l|r|}\hline \text { Units Produced } & 600 \\\hline \text { Direct Material Used } & 2,000 \mathrm{kgs} . \\\hline \text { Direct Material Purcahsed (3,000 kgs.) } & \$ 11,400 \\\hline \text { Direct Labour Cost }(1,100 \text { hrs. }) & \$ 9,240 \\\hline \text { Variable Manufacturing Overhead Cost Incurred } & \$ 5,720 \\\hline\end{array}$
The company applies variable manufacturing overhead to products on the basis of direct labour hours.
-What was the materials quantity variance?

• A) $760 favourable.
• B) $760 unfavourable.
• C) $800 unfavourable.
• D) $4,000 unfavourable.

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Definitions:

Variable Costing

An accounting method that includes only variable production costs (materials, labor, and overhead) in product costs and treats fixed overhead costs as period costs.

Absorption Costing

An accounting method that incorporates all direct and indirect manufacturing costs into the cost of a product.

Net Profit

The total earnings of a company after subtracting all expenses, including taxes and operating costs, from its total revenues.

Variable Manufacturing Costs

Expenses that fluctuate with production output levels, including raw materials, direct labor, and utility costs directly involved in the manufacturing process.