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

question 136

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 fixed overhead budget variance?

• A) $4,420 favourable.
• B) $4,420 unfavourable.
• C) $3,500 favourable.
• D) $3,500 unfavourable.

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