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:

Economies of Scale

Cost advantages that a business can achieve due to expansion, leading to a reduction in the per unit cost as production scales up.

Compensation Policies

Guidelines and strategies a company uses to determine how employees are paid, including salaries, bonuses, and benefits, ensuring fair and competitive remuneration.

Stakeholders

Individuals or groups that have an interest or concern in an organization and can affect or be affected by the organization's actions, objectives, and policies.

Computers

Electronic devices designed to process data according to a set of instructions, known as programs.