Patridge Company Uses a Standard Cost System in Which It

question 43

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:
$\begin{array}{|l|r|r|r|}\hline \text { Percent of Capacity } & 70 \% & 80 \% & 90 \% \\\hline \text { Direct Labour Hours } & 21,000 & 24,000 & 27,000 \\\hline \text { Variable Overhead } & \$ 42,000 & \$ 48,000 & \$ 54,000 \\\hline \text { Fixed Overhead } & \$ 108,000 & \$ 108,000 & \$ 108,000 \\\hline \text { Total Overhead } & \$ 150,000 & \$ 156,000 & \$ 162,000 \\\hline\end{array}$
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:

Income Statement Approach

Refers to a methodology in accounting that emphasizes calculating the profitability of a business by deducting total expenses from total revenues to arrive at the net income, showcasing the company's financial performance over a specific period.

Allowance for Doubtful Accounts

An estimation of the amount of accounts receivable that may not be collected, used to reduce the overall accounts receivable value on the balance sheet.

Adjustment

A process of altering the value of accounts to more accurately reflect their true value at the end of an accounting period.

Balance Sheet Approach

A method of estimating an allowance for doubtful accounts based on the accounts receivable's ending balance, helping to present a more accurate picture of a company's financial health.