Exhibit 10-5
Catalina Company Uses Activity-Based Costing to Allocate Variable

question 18

Multiple Choice

Exhibit 10-5
Catalina Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company produced 1,800 units of product last month,and identified three activities with the following information for last month.
$\begin{array}{lcccc}&&\text { Standard} & \text { Actual } & \text { Actual } \\&&\text { Quantity }\\\text { Activity } & \text { Standard Rate } & \text { per Unit } & \text { Costs } & \text { Quantity } \\&&\text { Produced }\\\hline \text { Purchase }& \$ 80 \text { per order } & 0.50 \text { order per unit } & \$ 78,000 & 1,000 \text { order's } \\\text { orders }\\ \text { Product testing } &\$ 10 \text { per test } &0.9 \text { minutes per } & \$ 28,000&2,000 \text { test } \\&\text { minute }&\text { unit }&&\text { minutes }\\ \text { direct labor } & \$ 16 \text { per direct } & 5 \text { hours per unit } & \$ 140,000 & 8,000 \text { direct } \\&\text{labor hour}&&&\text{labor hour}\end{array}$
-Refer to Exhibit 10-5.What is the variable overhead spending variance for the indirect labor activity?

• A)$12,000 favorable
• B)$12,000 unfavorable
• C)$16,000 favorable
• D)$16,000 unfavorable
• E)None of the answer choices is correct.

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Definitions:

Elastic

Describes a situation in economics where the demand or supply for a good or service significantly changes in response to changes in price.

Total Revenue

The total amount of money generated by a business through its sales of goods or services before any expenses are deducted.

Price Raised

An increase in the cost of a good or service to consumers.

Perfectly Horizontal

Describes a line or curve on a graph that has a slope of zero, indicating no change.