A Manufacturer of Industrial Equipment Has a Standard Costing System

question 126

Multiple Choice

A manufacturer of industrial equipment has a standard costing system based on direct labour hours (DLHs) as the measure of activity. Data from the company's flexible budget for manufacturing overhead are given below:
$\begin{array}{|l|r|}\hline \text { Denominator Level of Activity } & 9,000 \mathrm{DLHs} \\\hline \text { Overhead Costs at the Denominator Activity Level: } & \\\hline \text { Variable Overhead Cost } & \$ 90,700 \\\hline \text { Fixed Overhead Cost } & \$ 102,800 \\\hline\end{array}$
$\text { The following data pertain to operations for the most recent period: }$
$\begin{array}{|l|r|}\hline \text { Actual Hours } & 7,800 \mathrm{DLHs} \\\hline \text { Standard Hours Allowed for the Actual Output } & 7,765 \mathrm{DLHs} \\\hline \text { Actual Total Variable Overhead Cost } & \$ 54,210 \\\hline \text { Actual Total Fixed Overhead Cost } & \$ 100,200 \\\hline\end{array}$
-Which of the following is NOT true for variable manufacturing overhead costs in a standard costing system?

• A) No volume variance is ever reported.
• B) The flexible variable overhead allowance for the standard hours allowed for the output is the same as the applied total variable overhead.
• C) The slope of the budgeted variable overhead line is the same as the slope of the applied variable overhead line.
• D) Any underapplied or overapplied overhead is equal to the variable overhead spending variance.

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Definitions:

Profit

The financial gain achieved when the amount earned from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Marginal Revenue

The increase in income derived from the sale of one more unit of a good or service.

Total Cost

The sum of all expenses incurred in the production of goods or services, including fixed and variable costs.

Single Price Monopolist

A monopolist that charges all consumers the same price for its product, as opposed to practicing price discrimination.