King Company Estimated That It Would Operate Its Manufacturing Facilities

question 157

Multiple Choice

King Company estimated that it would operate its manufacturing facilities at 800,000 direct labour hours for the year, which served as the denominator activity in the predetermined overhead rate. The total budgeted manufacturing overhead for the year was $2,000,000, of which $1,600,000 was variable and $400,000 was fixed. The standard variable overhead rate was $2 per direct labour hour. The standard direct labour time was 3 direct labour hours per unit. The actual results for the year are presented below:
$\begin{array} { | l | r | } \hline \text { Actual Finished Units } & 250,000 \\\hline \text { Actual Direct Labour Hours } & 764,000 \\\hline \text { Actual Variable Overhead } & \$ 1,610,000 \\\hline \text { Actual Fixed Overhead } & \$ 392,000 \\\hline\end{array}$

-What was the fixed overhead volume variance for the year?

• A) $7,000 unfavourable.
• B) $18,000 favourable.
• C) $25,000 unfavourable.
• D) $41,667 unfavourable.

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Definitions:

Money Supply

The complete aggregation of monetary assets within an economy at a particular point, including cash, coins, and the funds in checking and savings accounts.

Velocity

The rate at which money circulates within an economy, often measured as the ratio of nominal GDP to the money supply.

Price Level

An index that measures the average relative level of prices of goods and services in an economy over a period of time.

Inflation

The speed at which the overall price level for goods and services increases, thereby diminishing the buying power.