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.

---

Definitions:

Varying Percent

Describes the difference in percentage rates, often used in finance and statistics, to compare changes over time or between different entities.

Experience Curve

A concept indicating that as a company gains experience in producing a product, its cost of production decreases due to efficiencies and learning effects.

Improve Its Experience Curve

Efforts to lower costs and improve efficiency as a company gains experience in production and operations.

Experience Curve Concept

The principle that the cost of production decreases as a company gains more experience in manufacturing a particular product, due to efficiencies and learning.