The Ferris Company Applies Manufacturing Overhead Costs to Products on the Basis

question 177

Multiple Choice

The Ferris Company applies manufacturing overhead costs to products on the basis of direct labour hours. The standard cost card shows that 3 direct labour hours are required per unit of product. For August, the company budgeted to work 90,000 direct labour hours and to incur the following total manufacturing overhead costs:
$\begin{array}{l|r|}\hline \text { Total Variable Overhead Costs } & \$ 99,000 \\\hline \text { Total Fixed Overhead Costs } & \$ 118,000 \\\hline\end{array}$
During August, the company completed 28,000 units of product, worked 86,000 direct labour hours, and incurred the following total manufacturing overhead costs:
$\begin{array}{|l|r|}\hline \text { Total Variable Overhead Costs } & \$ 98,900 \\\hline \text { Total Fixed Overhead Costs } & \$ 115,300 \\\hline\end{array}$
The denominator activity used for the predetermined overhead rate was 90,000 direct labour hours.
-For August,what was the variable overhead efficiency variance?

• A) $0.
• B) $1,800 favourable.
• C) $2,200 favourable.
• D) $2,200 unfavourable.

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Definitions:

Experimentation

The process of conducting tests and trials to explore hypotheses or new ideas, typically to gain knowledge or validate theories.

Cost Structure

An outline of the types and relative proportions of fixed and variable costs that a business incurs in its operations.

Outsourced Activities

Business processes or tasks that are contracted out to an external provider, often to reduce costs, access specialized expertise, or improve efficiency.

Expensive Resources

Resources that have a high cost associated with them, either due to their scarcity, quality, or the demand for them.